Go back a few years and, on entering a Lidl supermarket in an English city, many customers would wear dark glasses and carry a Waitrose-branded bag – at least that’s according to a former member (half German, half English) of the Lidl logistics team. How rapidly sensibilities have changed. Following the economic downturn, middle-class English shoppers who would previously have shopped in Sainsbury’s – if not Waitrose, the more upmarket British supermarkets – were no longer afraid to be seen in the German value chains Lidl and Aldi. This middle-class segment now accounts for a quarter of shoppers in Lidl.
New landscape
These so-called “discounters” have undisputedly shaken up a market that was, until recently, dominated by the Big Four supermarkets: Tesco, Sainsbury’s, Asda and Morrisons. What’s happening in the supermarket sector has become daily news. Recently, for example, Tesco boss Dave Lewis was quoted in London’s Evening Standard newspaper as saying: “We continue to navigate a steady course through the worst storm in retail history.” Conversely, Sainsbury’s has announced that it will re-launch its own discounter chain, Netto. “The convenience store on the high street is becoming more important for major players,” says Bryan Roberts, retail insights director at Kantar Retail, noting that it is the likes of Sainsbury’s and Tesco that are now taking business away from the independents.
A recent edition of Retail Week magazine questioned whether the startling growth of Aldi and Lidl was starting to plateau, but there is no evidence to support this. Once seen as the place to do top-up shopping rather than the main shop of the week, the chains have reached double- digit growth since their respective introductions to the British high street in 1994 and 1990. Analysts have compared them and their success to that of the low-cost airlines that have shaken up the aviation sector. Both Aldi and Lidl plan to double their number of stores in the next decade.
At Aldi, the average basket size is now £19.00 ($29.97), a figure just behind that of Sainsbury’s. The mid year rankings of YouGov BrandIndex – which tracks brand awareness in the UK – showed Aldi was the most recognised brand in Britain, while Lidl was number two. The same survey indicated that Aldi, with its 5% of the market, had topped the charts ahead of cherished department store John Lewis, the BBC iPlayer, and Samsung. The retail trade body IGC predicts that sales for the pair will double to £21.4bn ($33.5bn) by 2019, representing £1.05 for every £10.00 of grocery spend.
Some of the shake-up can be variously attributed to changing consumer shopping habits, including a trend for daily shops at convenience stores rather than weekly ones at hypermarkets. Others include post-downturn price sensitivities and weakening brand loyalty. But wine is the category showing a significant impact on supermarket performance.
Kantar Retail’s Roberts describes wine as a “hero” category. “You can be innovative with wine, and play it out across stores, and supermarkets are getting more sophisticated in their approach to it,” he says. He cites initiatives such as displaying white wine near the fish counter and playing with size. The introduction of small-format bottles “for near-term consumption, for drinking on the go” has proved highly successful, for example. He also cites attempts to position wine in the “consideration set” and make it more seasonal. Where beer might be associated with the World Cup, he sees initiatives “to broaden the appeal of wine; to make it more relevant to more occasions”.
At Waitrose, Anne Jones, category manager across Wine, Beer and Spirits (WBS), says that: “wine is integral to the customer offer”, given that “wine is an important part of our customers’ lives”. She says customers variously buy wine as a treat, for a special occasion, as a gift, or simply to drink at home with dinner. The chain has 300 WSET-qualified specialists who operate in the dedicated tasting areas in some of the newer stores. “While the majority of our range will need to appeal to a wide range of consumers, we also bring in smaller parcels of more niche appeal”.
Certainly bestowing “hero” status on wine has been the case at Lidl, which has introduced more premium wines to its offerings. In London in July, the chain showcased its latest “The Wine Cellar” initiative which includes esoteric wines such as a white Châteauneuf-du-Pape (£12.99) and a Alsatian Pinot Noir (£7.99). “Four or five years ago,” says Richard Bampfield MW, a wine consultant to Lidl, “friends were ‘sympathetic’ that I was working with Lidl. Now – I sense rather more respect!”
The Wine Cellar programme was conceived of three years ago. “The idea was that we wanted to be offering a broader selection of wine and a finer/more-premium selection,” explains Ben Hulme, Lidl UK Beer, Wine and Spirit (BWS) buyer. “Initially we were not known for selling fine wines, therefore we had to create and invest in the concept.” Investment includes the production of 6m brochures which are given away in-store and inserted in a number of publications, ranging from the mass circulation tabloid Daily Express to the high-brow Daily Telegraph. Different parcels of stock – which may be as small as 6,000 bottles, which amounts to 10 bottles per store – are brought in for promotions which last for a few weeks, which “allows us to keep our assortment fresh and interesting,” explains Hulme. Unusually for this sector, the wines stocked in-store are the same across the organisation, with no regional variation.
Lidl and Aldi are generally referred to as “discounters” but the use of this term is misleading; Roberts prefers to talk of their offer of “genuine value”. Lidl and Aldi are private companies in a position to reinvest profits rather than having to pay dividends to shareholders. Bampfield emphasises Lidl’s strategy for small, less-expensive sites, a smaller wine range, lots of own brands, and a “keep it simple” philosophy. “Put all this together and Lidl can afford to work on lower margins.”
Lidl also strives to provide transparent pricing. “Prices are ‘shaped’, but they are not discounted,” says Bampfield. “It is other supermarkets which are overtly discounting.”
Roberts adds that pricing can defy logic, such as when a supermarket slashes the price of champagne at Christmas: the exact time of year when demand and footfall are highest. He adds that is almost certainly the producer who has to bear the brunt of such a promotion. So while consumers are getting better deals, wine producers aren’t.
Tough market
Stories abound of everything from drastic cutting back of wine ranges, to ever more promotions, a renewed focus on own labels and enhancing French or Malbec offerings, to playing around with formats and labels. A Bordeaux-based export manager in charge of the UK market, herself a former supermarket buyer, is concerned about the decreasing level of wine knowledge among supermarket buyers, noting that wine experts appear to be choosing to work in other sectors of the industry.
All this is set against industry turmoil such as Tesco’s tumbling sales and share prices, not to mention the October 2014 investigation by the Serious Fraud Office, looking into Tesco’s accounting irregularities. Sainsbury’s has also been soul-searching as it sees a decline in the number of customers shopping at large, out-of-town stores – previously its core business.
Bampfield suggests that the Big Four have spent the last decade just watching what each other were doing, and competing on price. “They can no longer do that. They need a shake-up, to do something different. Their market share is being eroded.” Even Waitrose, the high-end, high-street supermarket offering, price-matches key brands with Tesco. “We focus on our commitment to quality, service and true value at all price points,” says Jones. Waitrose recently launched a range of £4.99 own-label wines complete with “eye-catching designs that highlight the taste profile”. There is no longer a clear dividing line between supermarkets which offer good value and supermarkets committed to high quality.
David Bird MW, who has been involved with the wine industry in the UK for more than 40 years, remarks: “I have no idea what is going on with the supermarkets!” and thinks the Big Four are being very “cagey”. Certainly Aldi and Sainsbury’s were unavailable for comment, and Marks & Spencer was even unprepared to talk about the apparently very successful small- format bottles. Tesco said the wine-buying team would be in a position to share their strategy at the end of this year.
“I think all the big supermarkets have been shocked by the likes of Lidl,” says Charles Metcalfe, who is a co-chair of the International Wine Challenge, “and it is taking them a while to deal with it.” Another co-chair, Peter McCombie MW, also notes that Aldi wines performed very well in the Challenge this year.
Metcalfe comments that Tesco and Sainsbury’s did not even enter this year’s International Wine Challenge Merchant Award, which saw Waitrose narrowly losing out on the top spot to Morrisons. The award was based on not just wine range and events, but on merchandising and the actual selling. Notable is the simple but effective employment of Taste Test, a tool developed in California by wine consulant Tim Hanni MW. This helps consumers choose wine from shelf talkers based on answers to questions such as whether they prefer their coffee black, as opposed to sweet and milky, and how salty they like food.
McCombie concurs that there is some good work being done. “Many of the own-label, especially premium own-label ranges, are good, and there are some very good individual wines,” he says. “There is also some interesting innovation in terms of sourcing (Marks & Spencer) and merchandising (Waitrose and Morrisons), so I think the sector is healthy.”
However, just weeks after the Morrisons award, it was announced that wines will now again be merchandised by country rather than style. “Customers told us they prefer to navigate by country of origin and they value clear shelf edging,” wine category manager Phil Cave is reported as saying, in the UK’s The Grocer magazine in July. Morrisons was not available for comment.
Other players
The chain aiming to be the number one high street convenience retailer in the UK is The Co-operative, and they are open about their wine strategy. They run 4,000 stores across the country, and while their share of groceries is 6%, this percentage rises to 9.4% for wine. “The shape of our range is completely different to that of other high street retailers,” says Simon Cairns, BWS category trading manager. They react quickly to consumer demand, particularly with regard to sudden changes in weather conditions, which influence consumer buying. They’re transparent on pricing, and the range has been carefully edited to represent a balance between Old World and New World. If they carry a lone Australian Shiraz, they’re carrying one Côtes du Rhône, and a single Claret. In fact, it is a wine operation not dissimilar to Lidl’s core offering.
Signs are that the majority of consumers will continue to buy wine from the supermarket, several of which are investing in a complementary online presence. But in the shake-up, wine strategies have come under intense scrutiny. “I don’t think the supermarkets necessarily offer customers genuine value for money,” says McCombie, who remains unconvinced about promotional mechanisms. “It would be great to see more efforts to encourage consumers to trade up… and improve profitability for the whole sector.”
Roberts predicts that across categories, Aldi and Lidl will serve 15% of the market by 2022, a figure he was quoted by a leading supermarket. Citing a high market share previously enjoyed by Sainsbury’s Netto, he concludes: “Aldi and Lidl are unstoppable, but this is not unprecedented.”
