Winemakers Stake Their Future on a New Marketing Strategy
Over the past 15 years, wine consumption in the main European wine-producing nations has dropped by 20% and the downward trend is continuing. Although France continues to be at the top of the sector both in terms of total production and sales, the United States has joined the winemaking world. In 2007, the U.S. became the second-largest wine consumer in the world, ahead of Italy and Spain.
For the countries of the European Union (EU), the situation is even more delicate if you take into account that the marketplace is more and more globalized, and new competitors are getting into the game. Winemakers from Latin America and South America now offer high-quality wines at low prices. They are putting pressure on the fringes of a sector dominated by some companies that cannot compete, either in terms of price or quantity, with their rivals. For that reason, the EU has plans for reforming the Common Market Organization for Wine. On April 28, the foreign ministers of the EU discussed this goal, which is designed to improve the competitiveness of European wines.
This reform is designed to deregulate the sector and eliminate the public-sector assistance currently enjoyed by European winemakers. Within a few years, a new map of the sector will be unveiled. It will include new European winemakers that can compete on an international level, and the doors of the sector in Europe will be opened to let in companies from everywhere in the world.
These are some of the observations offered during the Sixth Global Wine Forum in late April. The meeting took place in Logroño, capital of La Rioja, whose certified “wine place and origin” is the best-known Spanish label worldwide. According to Lulia Halstead, executive director of Wine Intelligence, the British consulting firm, the La Rioja brand is the eighth-most recognized “wine place and origin” in the United Kingdom, and the sixteenth-best known such designation among American wine lovers. Winemakers from France and Italy rank highest in these listings along with one from Australia. Spanish, South American and Latin American wines lag behind.
Your Own Brand
Pierre Mora, associate professor at the BMN Management School in Bordeaux, France, explains that in countries that historically consume more wine, such as France, “wine drinking is moving away from a pattern of daily consumption to one of more occasional usage. In today’s consumption pattern, quality is the priority, more than such values as tradition.” This new trend, combined with the restructuring of the sector that will take place in the EU in coming years, will oblige winemakers to revise their marketing strategies and techniques if they want to continue to be competitive and strengthen their position in other markets.
For example, Mora cites what happens when a large number of wines are sold in one location. “The average person spends about 18 seconds before choosing a wine in a supermarket. Nevertheless, in some shopping centers you can find up to 500 different labels, and you can’t see great differences among them.” For this reason, Mora notes, “The consumer gets lost in the big hypermarkets, and distributors need to devise a marketing strategy that differentiates their product” from others and helps people decide to choose it. Underlining the importance of marketing channel efficiency, Mora notes that between 70% and 80% of total sales in the sector are made in shopping centers.
“Selling wine is very difficult,” says Mora, especially in countries such as France “where we have been killing off winemakers’ brands over the past 50 years.” According to Mora, while wine producers have focused on promoting the “wine place and origin,” they have neglected to promote wines that bear their own brand names. As a result, consumers don’t usually ask for a specific brand of wine but for the specific location where it is made.
Mora says that there are only three ways to differentiate a product: by the type of product, by its price and through communication. In his view, wines are getting better and better throughout the world, so “price is not a useful tool for differentiation,” especially because the great majority of European wines already sell for between two and three euros per bottle. It doesn’t make much sense to put more pressure on pricing. That leaves only communication as a way to differentiate a wine. However, “you need a lot of money to do this,” and most small and midsize winemakers don’t have that.
For his part, Julio Cerviño, professor of marketing and market research at the Carlos III University in Madrid, has a different view. He says that “you can build a brand without advertising.” He also opposes the idea of promoting the image of a wine’s designated place of origin especially if it is a foreign location. That’s because, when all is said and done, such an approach confuses the consumer, who is incapable of either remembering or identifying all of the existing places of origin. That leaves us, Cerviño notes, with “the importance of linking the brand of the wine with the country brand so that [country brand] serves as an umbrella” for all wines produced in that country.
Cerviño says that on wine lists of American restaurants, it’s common to have one section for California wines and another section for French wines. In some restaurants, you can also find a section that lists Italian wines and, on occasion, even Australian wines. Nevertheless, the rest of the wines on the list appear in a section called “Other Wines.” Rather than “tackle a market all by yourself, it would be easier to promote a unique image of the country’s wine sector,” says Cerviño.
Once you’ve passed that stage, the next step, says Cerviño, is “to think about brand names that can travel around the world.” In addition to making it easier to pronounce those names in various languages, you also have to pay attention to the semantic connotations that a word can have in different parts of the world. For example, he cites canola oil marketed under the brand ‘Capullo.’ “While it can be sold in some Latin America countries,” this oil would have a tough reception in Spain because of its negative meaning; the word ‘capullo’ is used as an insult in Spain.
You also have to think about the logo. When a Spanish [apple] cider called El Gaitero (literally, the ‘bagpiper’) entered Japan, the company found that its logo was identified with a samurai and not with a bagpiper. Ultimately, it had to replace the logo with an apple. Cerviño notes that “you must not confuse advertising with communication.” A company can promote its brand without spending a lot of money. Although a traditional media campaign may be beyond the budget of a small company, it can always create a corporate web site (for about 8,000 euros); promote itself in fairs by setting up small stands; and maintain good relationships with newspaper reporters, hotel managers, sommeliers and experts within the sector.
Another alternative is to take more aggressive and innovative measures, even if “they are also riskier,” notes Cerviño. He cites the example of Mad Housewife, a California wine. This wine used an image of a ‘crazy housewife’ on the label of its bottle, and the photo changes as a function of the type of grape and the wine they market. In its promotions, this winemaker deploys a life-size picture of a housewife at one of its lively sales stands, which are in some of the most heavily trafficked locations in shopping centers. Most experts at the latest World Wine Forum agreed that it would not be possible for European winemakers to copy this approach because Europeans expect wine promotions to be “serious and traditional.” However, the case of Mad Housewife demonstrates how a wine can become very popular even if you invest a modest amount on promotions.
Another example is to sell wines by the can, like Coca-Cola does. This formula is enjoying great success in Asian countries, such as Japan and China. But “it would be unthinkable in countries like Spain,” where this kind of marketing would be considered almost sacrilegious, notes Cerviño. However, he asks, “Why should a company that wants to enter Asia not go and market its products in cans if that is what buyers want?”
Halstead argues that the new media, including popular blogs, can also be used to get across these new marketing formulas. Yet the most traditional communications channel continues to be the most effective one for promoting wine – word of mouth. In that sense, Halstead says, some wineries are making very innovative product presentations “in which the wine doesn’t play the starring role but is an accompaniment at a time of relaxation.” Halstead adds,
When it is time to devise such initiatives, Halstead advises companies to think seriously about which segments of the public they want to reach. It is also important to understand the characteristics of wine consumers in each country. Generally speaking, while young people are becoming a focus of the promotional efforts of some winemakers, buyers less than 30 years old represent only 14% of the wine market in terms of sales, compared with people who are older than 45, who represent 41% of the market. This doesn’t mean that you need to forget about young people. After all, “they will be the most important group of buyers within a few years, because wine consumption generally goes up as people get older.”
According to Halstead, the best way to classify consumers is by their habits, not by their age. The first group are what Halstead calls ‘adventurous connoisseurs,’ those people who regularly consume wine for pleasure. They not only have some knowledge of wine, they also spend more money on high quality wines -- around 66 euros a month. In terms of age, these people are between the two peaks – both between 25 and 35 years old, and older than 60. In the United Kingdom, this group represents barely 19% of all regular wine drinkers (who amount to 27 million people) but it accounts for 35% of total annual sales of wine – worth about 11.5 billion euros.
The largest segment of wine consumers are ‘mainstream at-homers.’ They account for 38% of all [British] wine drinkers, and spend an average of about 36 euros a month on wine. This group has no interest in the niceties of winemaking. Their purchasing decisions are motivated only by price and promotions. Their age usually varies between 35 and 50, and they are usually male heads of the family who consume wine at home but not when they go out to a restaurant. This is the most numerous group and it contributes the largest volume of revenues – 38% of total annual sales of wine.
According to Halstead, the remaining three segments collectively contribute barely 26% of total sales in the UK wine market: ‘weekly treaters,’ who prefer to drink beer but view wine drinking as something special; ‘social bargain hunters,’ who seek out the cheapest brands; and ‘frugal conservatives,’ who reserve their consumption only for special occasions. Halstead notes that while these models are based on the British market, they can be adapted to any country merely by making slight modifications. In the United States, for example, there is a segment of people between 25 and 40 years of age who consume wine as a “demonstration of their social status when they deal with others. These are the ‘generation treaters.’ While they consume little wine (in terms of volume), the wine they do buy is very expensive and they spend a total of more than $100 a month,” notes Halstead.