Large-scale distribution and wine, after months of enthusiasm, concerns arise: strong price tensions

After months of great euphoria for sales in large-scale distribution, and a picture that is still positive but slowing down considerably compared to the tumultuous race of recent times, especially in 2020 (and for still wines), various concerns are beginning to gather along the production-distribution-consumption axis that characterizes this channel, which was the real barrier to the drop in consumption during the most acute phases of the lockdown. The central theme is that of prices (which often see margins that are already very low both for those selling to large-scale distribution and for large-scale distribution itself), which is heading towards a perfect storm between increases in all costs (raw materials, energy, logistics) that affect both wine producers and distribution chains, and a 2021 grape harvest that, by now on its last legs, is confirmed as anything but abundant. The logical consequence, therefore, would be an increase in the prices of wine that producers charge to distributors, so as not to undercut producers, but also in the prices that distributors propose to consumers. At the same time, however, there is a real risk of seeing a fall in the volumes sold - which are already falling again, especially for still wines, partly as a result of the upturn in out-of-home sales - given that the purchasing power of consumers is not growing at all. It will be essential, therefore, for a close and transparent comparison between production and distribution to understand how the scenario will evolve and to put in place a “win-win” strategy for everyone, bearing in mind that, in the end, the price is determined by the encounter between supply and demand, or “the market”. However, this is anything but simple, bearing in mind a not secondary aspect: wine is a voluptuary good, for pleasure, not a basic necessity. This is the message emerging from the round table that, at “Vinitaly Special Edition” 2021, brought together the world of production, represented by Marcello Ancarani of Federvini (Sales Director Italy of the Santa Margherita Group) and Enrico Gobino of Unione Italiana Vini (Marketing Director Mondodelvino Group), and distribution represented by Francesco Scarcelli (Coop Italia) and Giuseppe Cantone (MD Spa). Outlining today’s scenario in figures was Virgilio Romano of Iri.
In the first 9 months of 2021, sales of wine and sparkling wines increased by 2% in volume and 9.7% in value: 12 million liters more were sold, compared to the same period in 2020, and 200,000 euros more were collected. Doc 0.75lt bottles grew by 4.8% in volume (+10.8% in value), IGP bottles by 3.6% (+8.1% in value). Volume sales of cartons (-5.6%), bag-in-boxes (-2.4%) and wines packaged in plastic (-14.3%) were down. Sales of 0.75 liter bottles of wine and sparkling wine by the Brand of the Distributor grew by 3.0% (+6.0% in value terms), but fell by 2.9% in the overall figure (+0.9% in value terms). It should be emphasized that sales of sparkling wines (+27.1% by volume) are driving the entire wine sector in Modern Distribution, but they too are settling down after 2020, from +45% by volume in Q1 2021 to +28.7% in Q2 and +9.9% in Q3. A separate discussion should be made for online, a channel that is still small in Modern Distribution, with a volume market share of 0.9%, but which is growing by more than 50% compared to 2020 and three times that of 2019. Net of a positive picture today, however, on the whole, “the trend speaks of a slowdown, and some concern for the large-scale retail channel in view of the end of the year and in particular the month of December, especially in comparison with the same period in 2020, which was exceptional with the holidays spent essentially all at home, and with much of the consumption that would have been in the horeca moved within the home”, said Virgilio Romano. But what worries us most is what will happen in 2022.
Because, as pointed out by journalist Luigi Rubinelli, who has been an expert in market trends and analyses for decades, according to various analyses the costs of many goods, not just wine, will grow by between 3.5% and 5%, and it will be hard to understand who will pay this cost. Especially with margins already slim, and considering that net of the qualitative growth of the offer and purchases in large-scale distribution, the bulk of the market is made up of wines that cost between 3-4 euros on the shelf.
“There will be increases from next year and it will not be easy to manage them, especially for lower-priced wines that are much more sensitive to increases in the cost of everything (label, bottle, pallets, logistics), and from the producers’ perspective there can only be an increase, and we must work together to absorb it”, said Enrico Gobino. “From here to the end of the year, we will not be increasing our price lists”, added Ancarani (Federvini and Sales Director Italy of the Santa Margherita Group), “but never before have we had such difficulty as this year in compiling price lists for 2022. All costs are increasing, no one has ever found themselves like this. To give an example, today we ask for an estimate for paper for labels, but all we get is the reply that there will be double-digit increases and that they will set the price on delivery. There is suffering, but also speculation, in general. The increases will take place in 2022, we’ll see. We have to understand what to give up: you can’t think of proposing a 10% increase on 5 euro wines. We will look for a “win-win” solution between the industry and distributors, but first of all we have to understand the market, because otherwise, we risk making choices that the market does not understand and do not work”.
If the producers are worried, so are the brands. “In 2022 we will have to be careful, we are experiencing cost inflation, everything is increasing”, said Scarcelli (Coop), “and there are also different costs linked to the grape harvest, which is not the same for all territories. As a Coop, we also think about safeguarding the consumer’s purchasing power. If everything increases but the money to spend is still the same, we can imagine that wine, being a luxury good, is a purchase that comes after that of goods of primary sustainability, and therefore more expendable. We’ll be on our toes, we'll never raise prices first. Maybe we’ll do promotions that are less profound in price and more spread out over the course of the year. Then we all live on volumes, today in hypermarkets, we have 800 references that are right for today’s market. If tomorrow the product will turn over less because prices will increase, we are also ready to review the assortment. We have to work together, today it is difficult to understand where to go”.
“From here to the end of the year there will be no increases in the public price”, said Cantone (MD Spa), “but from January 1 we are actually worried, because there are requests for price increases across the board. We will have to try, together with the industry, to understand what the market will do, which is what makes the price when supply and demand meet. There will be increases for everyone, including us distributors, for example in electricity. It will be difficult to pass on to the consumer, we are facing a year in which margins will suffer. And a discourse of the type “costs increase by 20%, so I’ll increase the price by 20%” will not work”. In short, the future is more uncertain than ever, and the extreme summary is that there will be an increase in costs, nobody wants to pay it, at least in full, and there is fear of passing it on to the consumer.
But, in the meantime, net of this, which more than a contingency will be a structural change, we can start from the things that have emerged in recent months. “MD has upgraded its wine shelf by including premium labels and a wide selection of Docg, Doc, Igt, local and organic wines”, said Giuseppe Cantone, bringing the experience of a leading player in the discount channel, which has reached a wine market share of 26% in volume and 15% in value, “the assortment has been rationalized by focusing on new trends that favor versatile wines such as Ribolla Gialla, a product of great interest, Proseccos such as Pas Dosè and Rosè and Extra Dry, which are difficult to find and therefore particularly attractive to customers, and Proseccos that are easy to pair, such as Brut. In addition to building customer loyalty by offering the certainty of buying a quality product at the best price, the aim is to attract new customers by making the wine a family attraction and ensuring controls through quality and organoleptic analyses that make it as constant as possible throughout the year”.
Conad has also worked on the assortment, as Alessandra Corsi, the distributor’s product and brand marketing director, said: “Conad is growing in value almost twice as much as the market this year, not only thanks to the expansion of the network, which has allowed us to work on larger shops with a wider and deeper offer, but also because of the renewed assortment focused on premiumization, which also includes product types that were once only available in restaurants”.
“The promotional intensity of the sparkling wine and typical wine categories has remained virtually unchanged”, commented Francesco Scarcelli, Coop Italy beverage manager, “while the average price of wine has increased: having worked with price lists in continuity with 2020, this increase is therefore not due to increases, but to a change in the assortment mix and the choices made by consumers, who prefer higher quality products and denominations. In 2021, we are seeing further double-digit growth in Coop for sparkling wines (+18%), relative stability for typical wines (+2%) and a drop in table wines (-9%)”. But this is only the recent past, the basis of a future that today, for wine, in one of its primary channels, is still to be written.