For those of you kind enough to read these legends in the last few weeks then hopefully one or two of you will remember that we discussed price increases for wine post BREXIT vote. Well I’m sorry to report, that I told you so.
According to www.ft.com two companies are publicly increasing prices and, according to what I hear deep in the wine cellars of power then so are many others. I understand the biggest company, Bibendum, the largest wine focussed supplier, is holding back possibly until the New Year.
What’s surprising is the rapidity and the readiness with which the trade is increasing prices. The theory suggests that an industry with a few big competitors and many smaller ones, combined with a consolidating and maturing market, the bigger suppliers would hold out waiting to snap up market share at the expense of the smaller suppliers and period profit.
Putting that into the context of current time, bearing in mind the proximity of the Christmas revenue months, then to see price rises in the New Year would not be an unreasonable conclusion to arrive at. However there are now 3 major and mostly on-trade suppliers proposing to raise prices within the month.
What is the scale of the increases? It is reported that the increases being proposed by wholesalers are going to be between nil and 7%. When you pick over these and look at the scale of cost increases then they seem reasonable.
The currency decline is 14.7% for the US$ (19.9.15 vs 8.9.16 – XE.com), at its lowest the decline was 12.9% (19.9.15 vs 6.7.16 xe.com) and 24.6% or 21% for the Euro depending on the point at which you take the currency ratio (16.8.16 lowest in 12months, 8.9.16 today’s rate vs 12 months ago XE.com).
These are dramatic figures but translate into much lower (around 8% of total selling price) numbers when the other costs are taken into consideration.
So what is the Hospitality response? How can the buyer of wine, alcohol or total drinks add value to an outlet and its customers especially facing the time of year?
The first question to ask is how important is wine to your business on a sales and profit basis and then how important is it to your customers. It may be that the two are largely the same yet in subtle ways quite different.
For example, an outlet led by volume with significant wine share of drinks given a 5-7% increase price is probably going to see its consumers drink less wine and switch to other alcohol products. Cider has been growing like crazy and there are many forms these days. Craft beers maybe, however this might not be a natural switch for a female millennial used to chucking down a sweeter style rose. Cider and fruit ciders though, is a real possibility.
And who can ignore the current gin phenomenon not to mention cocktails.
That is a value discussion finding out where the point is at which the consumer switched and then which tactic yields most potential income.
Whereas, given the same increase, for the wine led outlet then this needs much more serious consideration. The sector has proven to be resilient over the very long term – consumers are not going to stop drinking wine in a hurry. However, the changes that we have recently seen in the market may well continue at pace.
Sparkling wine led by Prosecco is growing like crazy, Marlborough Sauvignon is ever popular and valuable with the highest average price in the UK market for a major regional style, and Malbec has now become a sector in its own right.
Alongside this is the desire for consumers to seek provenance from any food item that they consume – where does it come from and does that have credibility with my wallet?
In essence consumers are drinking less, but better quality and being persuaded to spend a more on it. Wine as a special occasion drink is becoming a norm.
How does this change the approach of the sommelier or owner/manager revamping a wine list? It is about knowledge, insight and value. Knowing what your customers wants from wine specifically, understanding the broad trends in the wine market, applying them to your list and maximising the value. That all sounds very glib and broad, but I will finish with a story from one of France’s finest restaurants of it time (1990’s) in Bordeaux – La Tupina.
It is a rustically styled restaurant in the heart of Bordeaux, where everything was (probably still is) cooked on open wood fires, and visited by the likes of Mitterrand and Clinton. The waiter brought the wine list, which, one ‘in the know’ promptly ignored and then, you discreetly asked him for ‘La Liste dans la Poche’. As if by magic a list of private ‘cellar’ wines appeared from the top breast shirt pocket. These were not available unless requested.
Oh boy; how to make a customer feel special, exclusive and one above other diners, in a place that was one up already – unbelievable. Not a great route for volume, I grant you, however a tactic that inspires one of those everlasting truths – word of mouth and experience are still the most powerful tools for the hospitality industry.
For those wrestling with wine price increases, right now we need to apply all of the creativity we can muster so that we can give our customers every ounce of that experience.
Alistair Morrell
Hospitality & Catering News, Wine Content Executive