Going private: building profits with private labels
There’s clearly a revolution in wine sales in the United States. To lee what the end result might look like, look in Britain, France and Germany, where the supermarket is the primary source of winesales,” says Brian Sharoff, president of the Private Label Manufacturers Association (PLMA). “In England, the three or four major supermarket retailers sell up to 60% of wine as their house brands.”
PLMA is a rapidly growing worldwide association with nearly 3,000 members. Founded in 1979, it hosts two international Private Label Trade Shows (PLTS) yearly, the next in November in Chicago. Although winemakers have exhibited for a number of years, last year the association created its first pavilion devoted to wine, beer and spirits. Last year, some 20 exhibiting wine companies represented seven countries. The organizers expect to more than double that figure in 2003, including delegations from Romania and Bulgaria, looking to hop on the private label bandwagon.
And a fast-rolling bandwagon it is. According to ACNielson research in PLMA’s 2003 International Private Label Yearbook, in the UK, market share for French wines is more than 50% supermarket brands; for Italian wines, the figure is 60% and supermarket brands rack up 73% of German wine import sales.
“This kind of serves as a model for U.S. retailers, whether they realize it or not,” Sharoff says. “In England, the supermarket brand is the dominant brand. This creates a tremendous way of doing business, if the U.S. wants to dq it. The British retailer wants to make the profit. They want to make the money themselves, not the producers.
“The branded supplier wants to maximize his profits. (But) if California wants to sell California wine in the UK, it has to do so as a brand facing the realities of the marketplace, or as a supermarket brand.”
(For some U.S. producer opinions on the current UK market situation, see Susan Low’s report on LIWSF in the August Wines & Vines.)
“Currently, wine sales in supermarkets represent 25-30% of total U.S. sales,” Sharoff continues. “Some 2,000 brands are vying for customer attention. Two-thousand brands cannot compete! Somehow, it’s going to come down to 10 or 15, especially with retailers becoming part of the brands.” PLMA research reveals that only one in four consumers prefer a specific brand, and one in three buy wine “randomly.”
Store brands today account for one of every five products sold in supermarkets, and, according to PLMA, private label sales are outpacing national brands in growth. America’s three largest supermarket chains, WalMart, Kroger and Albertson’s, all offer exclusive brands of the most popular wine varietals; Safeway has a range of private label liquors under its Safeway Select brand.
“You saw what happened with Trader Joe’s,” Sharoff notes, referring not just to the startling Two-Buck Chuck phenomenon, but the chain’s own French Market brand. “Five or six ret’ailers can become the five or six major brands of wine. The consolidation you are seeing on the branded side is also being seen by the retailer, who is thinking, ‘while you guys are consolidating, your wine’s going to be on my shelves. I’m going to decide who that is.’ It has to do with a company like Wal-Mart, so large and powerful that if they decide to have a Wal-Mart brand wine, it will become the second or third largest selling brand in the U.S. If Kroger or Costco decides to do it, their reach is so great that they will automatically change the balance of power.”
Powerful Words, indeed, but, supervalue bargains aside, Sharoff assures producers, “The private label wine market is not made up of cheap, poor wine that you offer at $1.99.” For an effective exhibit at the PLTS, he says, “The most important thing they need to exhibit is their wine. Companies that can show the major varietals, even some of the more esoteric, unique wines,” can let the attending retailers know that they are available. And, Sharoff insists, private label sales are not limited to the largest producers.
“A minimum sale is only found out when buyer and seller come together. Every retailer that comes to our show is not Wal-Mart. Smaller retailers like Smitty’s are there, and many retailers divide their sourcing,” he points out.
The bottom line, as Sharoff sees it, is that, “Private label as a market strategy is now worth about $40 billion, exclusive of wine. It didn’t get to $40 billion without knowing how to make arrangements.”
Jim Razzino, vice president/general manager of Sonoma Hill Winery, Graton, Sonoma County, endorses that sentiment. Sonoma Hill has quietly been producing private label wines for about 15 years, sourcing its wines from a major, premium California winery which prefers to remain in the background.
One of Sonoma Hills’ claims to fame is that it will provide exclusive private label products with a minimum order of 225 total cases per year. Typical customers at this lower end of the production scale would be small chains or package stores desiring their own brands. Larger customers, the core, or medium-volume buyers, would be typified by a chain of 10 or 20 restaurants. Many of Sonoma Hills’ clients may be in the small lot category, but the small lots alone add up to approximately 50,000 cases per year, according to Razzino.
“What’s happening all over the country is that retailers are getting larger, and store names are becoming brands. It’s easier for (the chains) to sell store brands,” Razzino observes. “You can’t buy them anywhere else, the profit margins are high and they can control their purchase prices. A lot of brands are out there that consumers wouldn’t even know were private labels.”
Veteran On The Volume Side
When you think private labels, most likely an outfit like Golden State Vintners comes to mind. For some 20 years, this Napa producer has built brands for major national and international retailers, including Safeway, Albertson’s, Trader Joe’s and Wal-Mart. According to director of marketing Steve Lindsay, Golden State concentrates on highvolume accounts.
“We are completely vertically integrated, with 15,000 acres of vineyards throughout California that we own or lease, seven facilities including five wineries plus a bottling plant and barrel storage. We do the labels, brand development, coming up with a brand and package design, compliance. We produce and deliver the finished package,” Lindsay explains.
“Private label is growing, retailers, on-sale and off-sale are all pursuing private label. They want a brand they can promote. With a winemaking staff of 20, it’s not just strawberry, chocolate or vanilla–we’re developing custom blends for each customer. We’re making it to order–it’s like renting a kitchen. We’ll fine tune and hone it to meet a target audience…. We physically see it through. Especially for large international retailers, we have scale, consistency and quality.”
In addition to its private label business, Golden State caters to the wine industry, which can outsource custom programs “from grape to bottle.” “Our main pitch to other wineries is, ‘spend your precious resources on sales and marketing,'” Lindsay says. Golden State attended the PLTS last year, and, says Lindsay, “were very pleased. We actually had a lot of traffic, good leads and attention from retailers. The key customers were there.”
A Niche For The Small Producer
Like Sonoma Hills and Golden State, Signature Wines, Hayward, Calif., exhibited at PLTS last year, and plans to repeat this year. “It was hugely beneficial,” says Kelli Negro, Signature’s vice president of marketing. “Last year, we spent a lot of our time doing education. This year, I think we’ll actually be selling on the floor.”
Unlike the others, though, Signature provides private label clients with wines from a wide variety of sources, including smaller, artisan wineries. Founded in 1998, Signature experienced dramatic growth in 2002, with sales up 70% from the previous year. The company has developed partnerships with major labels like Robert Mondavi, KendallJackson, Ravenswood, Schramsberg, Franciscan Estates and Chateau Ste. Michelle, but also works with smaller wineries, serving retail, hotels and restaurants and alumni associations with individual private label programs.
Negro cites Fritz Winery, Cloverdale, Sonoma County, as an example of a smaller producer that is thriving in the private label arena. Fritz produces about 17,000 cases per year. “We partner with them, and sell their wines in the hospitality market. We bring their wines to corporate decision-makers at hotel chains and alumni associations. At tastings, their Chardonnay is the No. 1 choice for alumni groups,” Negro explains. Currently some 20-plus alumni groups market Signature’s partner wines to their memberships, receiving a percentage of sales. Orders are delivered in as little as a four-pack up to a case on individual orders.
Signature’s hospitality clients include Omni, Hilton and San Francisco’s Mark Hopkins hotels. The private labeler also supplies customized private labels for duty-free shops at SFO and LAX airports. Signature also functions as a negociant, buying and vinifying juice sold under its own label, Blackridge Canyon.
“Some of our own wines start at a low price-point, though not $2 by any means,” Negro says. “They could start at $5 and up because we’re a private label and buy juice from a lot of sources. We can work with a retailer or an off-premise, sit down and work out wines that make sense for them.”
Although private label sales can certainly build profits, they will not necessarily build loyalty for the source brand. A winery’s name, or Signature’s, may appear on a back label, or not at all. “On the retail side, they want to build their own brand and customer loyalty. They want the label to be their own,” Negro says.
Nevertheless, she points out, “The last thing we want to do is compete with our partners on the market. We are introducing their wines to people they might not have reached otherwise, representing them and building their brand.”
The opportunities are out there. Negro comments that Signature has just brought in a number of new wineries. “We are always looking for good partners.”
Tasting Rooms Adopt Discounting
Discounted wine was on sale in at least two North Coast winery tasting rooms in mid-July, yet another reflection of the current wine surplus. Jepson Winery in Mendocino County reduced their Viognier by 50%, along with Zinfandel and Chardonnay, according to a report in the San Francisco Chronicle. “It helps move inventory,” manager Sean Flynn said.
Sonoma County’s Pezzi King also offered deep discounts on case sales. 2000 Chardonnays, normally $228 per case were discounted by 30% for a single case, 40% for two cases and 50% for three or more cases. Zinfandels and Cabernet Sauvignons were also marked down.
PLMA’s 2003 Store Brands Confidential Private Label Trade Show will take place at the Rosemont Convention Center, Chicago, Ill., Nov. 16-18. To exhibit or attend, contact Private Label Manufacturers Association, 369 Lexington Ave., New York, NY 10017. Tel.: (212) 972-3131; Fax: (212) 983-1382; Web site: plma.com.
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