AT “THE STATE OF WINE” CONFERENCE, ZONIN SAID, “WINE IS EIGHTH ON LARGE-SCALE DISTRIBUTION EARNINGS... PRODUCERS MUST RETURN TO DIRECT MARKETING TO GET BACK INTO CONTACT WITH CONSUMERS AND NOT RELY ON THE INTERVENTION OF MEDIAS”

Here below is the statement by Gianni Zonin, President of Zonin Spa, one of the most important companies in the wine world, in Rome on May 7th during the “Gambero Rosso” conference at Tastes of the Town.



“... thank you for allowing me to take part in this conference, which is undoubtedly an important moment of reflection for our industry. My experience, as head of a group that has made wine quality research one of its priorities in recent decades, permits me to express some of my thoughts.
The first consideration I’d like to make is the extraordinary value that wine companies have for our industry. The Zonin winery has gradually achieved its goals of development and economic consolidation by making massive investments in both vineyards and wine cellars. This capitalization permits a constant research in refining wine techniques and cultivation practices. There are two indispensable assets in a winery: the land and the men who work it and from these emerge production capacity and quality.

The ability to produce large volumes is foremost to the producer who wants to be a leader in relationship to major retailers. Volume means, on one hand meeting the needs of modern distribution and on the other, having more bargaining power with the distributor.

The equation, volume - large distribution, is not a postulate: there can be variables especially when even the large chains tend to qualify themselves territorially. But, experience teaches that being a qualified supplier and also having bargaining power with managers of modern distribution requires considerable quantities. This is even truer if we look beyond national borders. Starting from this first consideration, in general, we can classify the development of the relationship “quality wine - modern distribution”. It is known, as the most recent study conducted by Partesi (one of the leading agribusiness distribution groups) on April 10, 2010 in Verona revealed, that for the large chains wine represents the eighth reference in terms of turnover and about 60% of wine in Italy is sold through modern distribution systems.

There is a merging of interests between producer and seller. The winemaker needs the supermarket and at the same time the supermarket can no longer ignore wine, especially quality wine. Wine qualifies and often customizes the store (consider, for example large chains that need to be perceived by consumers as territorial). Wine generates consumer interest in relation to larger proposals and it helps the supermarket raise its average receipt amount, in terms of turnover.
The relationship, quality wine-modern distribution, also marked an evolution in the distributors’ approach. Until a few years ago price was negotiated first, then exactly what the winery was willing to give the vendor for renting space in store chains. Today they sell to large retailers on entirely different parameters: quality (large retail store buyers first taste then purchase), the hectares of vineyards, quantities and much later negotiations on price. It’s a very positive revolution!

However, when “using” wine for modern distribution there is a risk that producers must avoid. It’s what we call: the Parmigiano-Reggiano effect. If wine, especially top range, becomes a “bait and switch product” used to generate “walk-ability”, we will see its value decrease due to the effect of discounted item policies that tend to increase the value of attraction.
Store “walk-ability” is one of the most advantageous aspects in large retail chains that producers cannot ignore. There are several authoritative studies on the psychology of consumption in relation to the structure of the retail outlet. It is fundamental for those who put their products in modern distribution systems to know how to take advantage of this opportunity without suffering or minimizing a high value-added image in a mass market outlet. So, to offer quality wine to the public, producers must adopt radical strategies and marketing policies to take advantage of large retail spaces. The most recent survey on this subject was presented at Vinitaly in Verona and was conducted by Iri-Infoscan. The survey reveals a comforting fact and the confirmation of a trend. The first is that after the standstill in 2008, last year’s wine sales of Denomination wines (DOCG-DOC-IGT) in the modern distribution channels showed an increase of 3.9 per cent in volume and 4.9 per cent in value. The break down of the data shows there was a slight increase on the average price of 3 euros per bottle, but more important an increase in demand for wines priced at more than 5 euros per bottle, with an increase in sales of 8.5% in volume. The statistic that makes me say that for quality wine modern distribution is the primary channel to use is the difference with the so-called table wines including wines sold in Tetra brik or plastic containers.

Total sales in 2009 were 1 billion and 421 million euros corresponding to just under 578 million liters (constant yearly figure). Table wines fell both in volume and value: less 1.4% in value and less 2.1% in volume, about 536 million euros, while the denomination wines (DOCG-doc-IGT) made record increases, with a turnover of around 876 million euros.
Even more significant is the increase of 8.8% in value and 8.5% in volume of wine at 5 euros or more for a turnover of around 178 million euros. These macro data also tell us that the consumer who buys wine in the modern distribution channels is increasingly aware, informed and attentive to the quality of his purchases: for example, the half bottle of wine, which was thought to be a growing phenomenon, has stayed stable in value and has dropped (less 6%) in volume.

This indirect confirmation of consumer maturity comes from a market analysis of sparkling wines where Champagne has decreased in sales not because it’s threatened by low priced sparkling wines, but because the traditional Italian sparkling wines have shown a 6% increase in value compared to the semi-debacle of other foreign sparkling wines (less 25.3% in value). There is also a strong affirmation of the Charmat method, including Prosecco, which has taken first place among sparkling wines sold in supermarkets.

Another indicator that draws attention is territoriality. If we break down sales data by region we notice that regional wines are always at the top of the charts. This means that the consumer has transferred purchase methods in modern distribution, but attention to the origin of the wine, the compatibility with traditional food, and the territory of a particular wine are values that the consumer is also looking for in modern distribution. I would also like to reflect on the fact that in modern retail, in a severe economic crisis year, however, the average price of wine has remained stable or has increased: average price 2.5 euros per liter compared to the average price 2.45 euros in 2008.

And there is another analysis to be conducted. It is not true that consumers are not willing to spend a little more for higher quality wines. Not true at all, especially in modern distribution. If you look at the curves in sales of so-called table wines (including Tetra brik containers), sales of quality wines and also compare the price curve, we find that the period 2006-2009 has witnessed this phenomenon: quality wine sales have increased more than 3.5% in volume and table wine has lost 19.5%. The average price of quality wine in the same period was 4.18 euros and table wine to 3.6 euros. So it appears that Italians are drinking less but drinking higher quality wines.

The Mediobanca survey (conducted in 2010 and interviewed 90 leading Italian wine producers) shows an interesting picture of the main role that modern distribution plays, even for the highest quality wine companies. Large-scale distribution represents 44.1 percent of the distribution (an increase of nearly three points over 2005) and the horeca over the same four-year period decreased from 23 to 21.7 percent. The wine stores and bars remained more or less stable (10,8% in 2009).

The Mediobanca study confirms that even the purchase of high quality wine is now a consolidated fact in modern distribution. And it is not just a national trend. Let’s take the case of Spain from 2008 to 2009 where sales of Italian white wines in supermarkets grew by 21% compared with a 31% decline of the French; or the case of the U.S.A. where Italian wine in supermarkets scored 2.2% more volume and increased 5.3% in value year on year. And we are talking about the infamous “annus horribilis”! We have more or less similar cases in foreign markets for Italian wine, with Germany in the lead. A more general consideration then brings us to affirm that quality wine is now acting as a selling point in supermarkets. But this fact, - as I already pointed out, means that the producers put the necessary adjustments of marketing policy into place. Basically, wine marketing has stayed in the theories of the 1980s, which were the result of experience, particularly in France where the opinion makers determined word of mouth and therefore the reputation of the wine. I had already in the past repeatedly raised the idea of devoting a portion of the proceeds of sales to denomination labels, to fund the promotion of wine.

I am still sure that producers have underestimated the direct relationship with final consumers. We had trusted in the intervention of the medias for promotional goals, but I believe that recent “events” like those linked to Breathalyzer tests for drivers have shown us that it is essential to talk directly with the market; if only to teach responsible drinking and to avoid the detrimental equation, based on nothing:

wine =alcohol

wine =transgression

which is the farthest imaginable from the enjoyment of quality wine. Then there is a structural element, which has affected the marketing of wine. Wineries have a triple nature: agricultural, industrial and commercial. Only the best-organized wine producing companies can portion out more structured management policies to maximize the efficiency of these three stages. The vast majority of quality wine producers are forced to recite the three parts, as in a play.
There is a further cultural element in considering the marketing of wine. We experienced a long period of particular interest in supply. It was essential to improve product quality. Today it is time to deal with demands, especially considering the fact that in the modern distribution system customers purchase without mediation.

From this first observation it is clear that until now wineries have marketed only upon response: people want wine and we give it to them. Indeed in some cases it has gone even further: the critics tell us that people want a particular wine and we produce that wine. I believe instead that a winemaker must somewhat anticipate the market. They should try to foresee the needs of consumers and changes in taste because winemaking has an obstacle that other industries do not: the timing and nature of the vineyard. But I think we should go even a step further. We must begin to set market driving actions. Precisely because we are selling quality wine on the shelf we producers must be the ones to propose a “wine style”, which becomes a “lifestyle”.

To do this we must be fully aware of the demand. From this perspective there is an undeniable weakness in the wine system. The survey Partesa presented at Vinitaly 2010 revealed the figure of an evolved, caring and modern wine consumer. Basically, this report tells us that the intentions of consumers in buying wine are mainly determined by three factors: the brand name, the area / country of origin and the denomination. Percentages were from 50.7% for the first factor, then the brand, to 37.9% the denomination.

The price factor is fourth with 21.4%. Another strong factor is the recommendation of the seller, i.e., expertise, which accounts for about 21%, almost the same as a prestige label.
This leads me to say that strong policies of brand and territory affirmation should be pursued - even more so when working in modern distribution. To achieve these two goals dynamic actions of direct communication with the consumer are necessary as well as giving marketers the same importance that agronomists and winemakers enjoy. We must realize that we must not only sell more, but also understand the selling market. And the market must also understand us.

I say this because if we were to carry out here and now a rapid, approximate analysis of modern distribution in the function of the primary channel for the sale of wine, there would be at least two strengths, two weaknesses and the same amount of risks and opportunities.
The strengths are undoubtedly the walk-ability of the modern retail outlet that multiplies the opportunities to purchase and amplifies the willingness to buy in the store, as it is structured.

The weaknesses are the depersonalization of the relationship with the customer and massifying the offer.

The risks are generalizing wine and “bait and switch” of high quality wines.

The opportunities are being able to interact directly with demand and to maximize supply.

It is obvious, then, that we must customize the wine selling corner in modern distribution to emphasize the added values of quality wine to supermarkets; use experienced tools of marketing (i.e., through in-store tasting); co-marketing with other gastronomical sectors and use direct viral marketing to increase word of mouth among the modern retail outlet customers.

In conclusion, for the winery to approach modern distribution channels there needs to be a triple alliance.

The first is with the manager of the store to support the quality of the wine, avoid “bait and switch” effects, show its full value (which can be a sort of amplifier for the purchase of other quality foods linked to territory), customize the store and hold events related to wine in the store. Moreover, to confirm what I have been saying I could cite the strategy that some distribution groups are already putting into effect: to create modern wineries within the large-scale distribution channels.

The second alliance that manufacturers must stipulate is with the territory and the consortiums that have increasingly become promoters of land value in relation to wine. Stores have to have territorial values and strategies must be created for integrated promotion.

The third alliance is the one with the final consumer: using brand name and territory, we must build a relationship of trust with consumers purchasing in modern distribution to overcome the depersonalization of the shelf. We must realize that when we sell products to modern distribution we must also transfer values and not just goods.

Only in this way can we modify this situation, namely that modern distribution is becoming the first channel of wine quality marketing, to an opportunity of growth: transform the store into a meeting place for producers and final consumers to come together and give value to the product. The value of wine!”

Gianni Zonin