Wine & Liquor Report

The wine and spirits industry has seen a bubbling of mergers and acquisitions in the past several years, but smaller beverage makers say they -- and their independent corner store cousins -- are still finding ways to keep and expand their customer bases.The fear, however, is those mergers will play a more powerful role in stores as brands fight for floor space. Truth is, government regulations on how wine and liquor companies advertise and market their products have remained status quo for the most part, with some limits on sweepstakes and cross- merchandising, so the larger challenge has been the ever-shrinking space available for in-store displays."I see fewer displays and smaller displays," says Gary Heck, owner and president of Korbel, Guerneville, CA. "I would think it's retailer-driven. Everybody's watching their pennies so close now; everybody's trying to get just-in-time delivery." Retailers have been asking wineries for quality rather than quantity, says Andrew Rice, creative director of Trinchero Family Estates, St. Helena, CA. "Racks always go wire, wood, wire, wood, high quality, low quality. Now the pendulum has swung," he says. "They want high-quality wood, nice racks. That's been a very recent nationwide trend. They're speaking up and asking for high-quality pieces, and we're delivering."Chris Comstock, brand manager for Buffalo Trace Distillery, Frankfurt, KY, sees the same thing on the spirits side. "Stores are looking for high quality and, a lot of the time, permanent pieces," he says. "A lot of the inexpensive cardboard displays have a short lifespan." He adds: "I'd rather produce fewer, quality displays and get them to our retail customer rather than produce larger quantities of cheap displays that are going to end up in a Dumpster in two months, or not even get set up."Justin Fisch, brand manager for Seagram's Coolers and Seagram's Smooth, which is distributed by United States Beverage Co., Stamford, CT, agrees that high-quality pieces speak to a brand's best interest. "We try to make our point-of-sale hugely colorful, attractive and inviting," he says. "It's one way we try to sell Coolers and Smooth. The creative design is becoming more important because of the clutter you'll find in stores these days."Since the success of the movie "Sideways," wineries have begun to market more toward non-connoisseurs, with a rise in festivals aimed not just at restaurateurs, says Kate Morris, an independent wine representative for Edvon Canada, West Vancouver, British Columbia."They're open to regular people to come and get entrenched in the whole culture around wine," she says. "You're mixing the elite wine drinkers with the regular, $15-a-bottle drinkers." Typically, she adds, wineries "can be fairly elitist and think their product is above some people. Now, some wineries are really getting hip, and hiring people who have a background in marketing to the masses."A significant part of this effort has played out via more playful labels, with brand names like Kissing Bridge and Fat Bastard that sound like microbrew beers, Morris says. "They're understanding that they really have to push their product out and get people over the fear of, 'What do I pick?' " she says. "It's completely changed. Wine has become really fun and more accessible. You don't feel like you have to know too much when you drink it anymore."Consolidation EffectThe wine and spirits industry has undergone noticeable consolidation during this decade, driven by multinational companies with deep pockets, say marketers and other observers. "With globalization has come consolidation, and we are witnessing that both on- and off- premise," says Taylor Rau, editor of Nightclub & Bar Magazine and former writer for sister publication Beverage Retailer. "You're seeing a lot more global players.""God, yes," agrees Jim Nikola, vice president of marketing for Crillon Importers Ltd., Paramus, NJ. "That's all that's happening right now, especially with distributors.... The industry is definitely consolidating, which makes it even harder for small companies to compete."Larger distributors want to work with larger beverage-makers, says Brian Berish, managing partner of 3 Vodka Distilling Co. "Their loyalties are to the bigger companies," he says. "That's who they focus their time and energy on, and it does affect us."Jeff Muller, director of national promotions for Canandaigua Wine Co., Canandaigua, NY, cites his company's acquisition of Robert Mondavi as being "at the forefront" of the trend. "There's going to be much consolidation in the wine industry, as much as there was in banking a decade ago," he says. "There's a lot of efficiencies to be had in the wine business, and consolidation makes sense."Morris has noticed a sub-trend of beer and liquor companies buying wineries, which provides the usual benefits of diversification. "You're selling your spirits all in one," she says. "That takes the burden off the wineries. They have a cushion."Retailers also continue to grow larger, with mass merchants, club stores and specialty stores like Trader Joe's and Cost Plus World Market stiffening the competition for grocery chains and mom-and-pop liquor stores. But that does not concern smaller wine and spirits makers, who believe the smaller stores will continue to be creative and find their niche."They're very fraternal. They have a very solid network. They're all on the same side with wanting to maintain their livelihood," Rau says. They typically use neighborhood-based marketing, creative concepts and personalization to combat volume-based stores that compete on price, he says. "That's been one great retaliation from independents. Definitely we've observed more creativity," he says.Korbel's Heck sees independents specializing and getting higher-end, while major groceries cut budgets and determine what to stock at the individual store level rather than regionally. "It appears that there has been a resurgence of the fine wines in the independents, that seem to be doing very well," he says."I think everybody's thriving," Muller says. "All of the different retail segments have a specialized niche. There are so many wine brands out there that I think everybody has an opportunity to play and benefit in the same category."He adds, "Trader Joe's has carved out a niche with bargain-priced brands, in-and-out brands, unusual brands; and definitely the mass stores are offering tremendous values on wine [with] very low mark-ups. They're making up their profits in volume, but with less of a selection."For smaller beverage-makers, independent stores are critical partners, Nikola says. "Like anything, it's harder to compete with a massive company. For the mom-and-pop places, it's difficult," he says. "But the Costcos, they're not going to carry the high-end, niche brands. We empathize with the small liquor stores. They're our best friends.""There's always going to be a place for the independent stores because they can offer great service, and hard-to-find products," Buffalo Trace's Comstock says. "You can't go to an Albertsons and find a vintage, allocated bottle of wine, or a 50-year-old Scotch. For that customer, the independent stores provide a service."Dealing With RegsGovernment regulations on the marketing of wine and spirits have not noticeably tightened in recent years, say in-store marketers and other observers. "Marketing has loosened in a lot of ways," Rau says. "The offset to that has been not only nightclubs and bars but also off-premise stores really utilizing e-marketing, databases, those kinds of things, as well as websites. That's kept flyers off windshields."Heck says regulations such as California's restrictions on wineries that limit sweepstakes and cross-promotions to a value of no more than $1 have hurt marketers in the past, but there hasn't been anything recent in that regard. "It hasn't changed much," he says. "We've been able to fight the battles pretty well."Wineries have a difficult time launching national promotions due to states' widely varying regulations, Muller says. "You've got 50 states and 50 completely separate sets of laws," he says, few of which impact display pieces themselves. "What is limited and varies greatly by state is what we can offer to the consumer in terms of promotions." For example, Canandaigua did an on-pack, single-serving Caesar's salad kit about 18 months ago. "In certain states such as New York, you can't attach a food item to wine, so we had to run an alternate promotion there," Muller says. Overall, the climate hasn't changed much, he adds. "Some states have loosened [regulations], and some states have tightened. It all equals out."States have extended promotional restrictions to liquor companies, a welcome development for smaller brands, Nikola says. "I like it because it gives more of a level playing field to the smaller companies," he says. "You can't get away with giving stuff away for free. Everybody has to compete by the same rules."Seagram's finds retailers' restrictions to be much more noteworthy than those of states and municipalities, Fisch says. "A lot of it is driven by the store manager. It's driven by the account," he says. "The biggest concern for alcohol companies like ourselves... is, 'Is the P-O-S in good taste, and not targeting minors?'"That's partly for theft-related reasons because Seagram's believes minors are most likely to steal displays or products themselves, Fisch adds. "We're featuring the product attributes but not specifically targeting a below 21-year-old consumer," he says. "The first step is to make sure a creative design does not do that."Wine companies don't need to worry much about theft, says Edvon Canada's Morris. "People are going to steal liquor before they're going to steal wine," she says. "Some stores, in some dodgy parts of Vancouver, do have individual alert devices they stick on the bottle."3 Vodka's Berish has seen such anti-theft tags, which he likens to the plastic tags used by some clothing retailers, at grocery stores in the Chicago area. "They're doing that on several brands, not in all stores. It depends whether they've had a problem," he says. "Some retailers will not even display the product on a shelf, and a consumer would have to ask a clerk to get the product for them. What we do is place a photo, or some sort of point-of-purchase image of the product, and let them know, 'You have to ask the cashier.' " Buffalo Trace keeps its displays 5 feet tall or shorter because its liquor-store accounts don't want anything that a would-be thief could skulk behind, Comstock says. "I've come out with things that are 7 feet tall, but not a lot of accounts will let you put one in," he says. "Because you don't know what's going on behind that display. There might be someone putting a bottle of whisky in their pocket."Store shelves are stocked with fewer low-calorie or low-carbohydrate products than a couple years ago, when the low-carb craze hit hard. The latest trend is a spike in flavored liquor, most notably vodka."Flavor is the hottest thing going, on- and off-premise, hands down. We're seeing a massive number of new flavors in almost all categories.... We're seeing a lot of new experimentation," Rau says, naming flavors like cherry-flavored whisky.The wine sector has not seen as much growth in flavored sub-brands, Muller says. "That's a real niche segment that definitely has a strong place in the market and has an upward trend in growth, but it's not exploding by any means," he says.Crillon Importers will roll out a flavored cognac and a second flavored beverage that Nikola declined to describe in March. "You can tell by how many flavored vodkas there are that the elasticity is pretty large," he says. "Flavor is in everything from beer to spirits to wines. Flavor is everywhere. In the spirits category, it's definitely here to stay."Although regular, non-flavored vodka still sells the best, flavored beverages do continue to grow, Berish agrees. "Probably more so for the younger consumers of legal drinking age; flavor, I think, will always be an important part of the category," he says. But brands that simply ape their competitors may not do as well, he adds. "Somebody comes out with flavor 'A,' and then everybody else comes out with flavor 'A.' I don't know how excited the trade is about that."Mixing in TechnologyBeverage-makers are marketing their new selections using both time-tested and innovative methods. New technologies such as digital and interactive marketing have gained a presence, and ethnic marketing continues to gain adherents. Old standbys like sweepstakes and cross merchandising continue as regulations allow, while holiday-themed P-O-P remains huge for wine and liquor marketers.Rau has seen digital text-messaging used on-premise to announce specials on certain products or to advertise a party or other promotional event. Off-premise locations text-message directly to consumers and use e-mail, sometimes with a video clip attached. "We invite you to this tasting of this premium new whisky, next Wednesday at 6 o'clock. Hors d'oeuvres will be served," he says as an example. "The ones I've spoken with have reported absolute success."Trinchero's Rice has not seen much use of new technology among wine-makers. "The wine industry is kind of slow to endorse technology in some respects," he says. "I can't explain that. In my opinion, we take a very cautious approach." Trinchero is considering the use of in-store TV but has not made a decision, he adds. "We're kind of on the fence. We're not quite sure of the benefit specifically to the wine category," he says. "It's a big question mark. The wine consumer is different than a box of Kraft macaroni and cheese."Canandaigua has concerns about video or interactive technology becoming too enticing to underage drinkers, Muller says. "That definitely mitigates some of the things you can do at retail," he says. "We have to be very careful with the bells and whistles at retail. ... It's a fine line you have to toe."Comstock says Buffalo Trace has been approached by technology makers but has not bought into any video or interactive displays. "I still haven't developed an opinion on how effective they'll be, for the cost," he says. "When I'm in a liquor store, I don't want to spend 10 minutes playing on a video screen."Ethnic marketing continues to gain favor, Rau says, who has noted pairings with ethnic foods among other techniques. "With good intentions, we're seeing a lot of off-premise establishments that are supporting their local ethnicities," he says. "We have witnessed it most with Latin, and that continues to be very, very strong, very hot. We're also seeing it with Asian, African-American, Indian."3 Vodka has partnered with hip-hop producer Jermaine Dupree, the head of Virgin Records' urban division and owner of So So Def Records in Atlanta, to market to African-Americans and other urban groups, Berish says. "We are utilizing him to help us attract the premium consumer of whatever ethnicity, but we're also taking advantage because he does have a following in the urban area," he says. Stores in urban areas use Dupree's likeness on P-O-P, and he will make limited appearances and bottle-signings, Berish says.Canandaigua does no ethnic marketing nationally, although regional offices have explored it, Muller says. Korbel has created Spanish-language marketing but is concerned that anything beyond that would play to stereotypes, Heck says. "It's like a slap in the face. I don't think that's good marketing."Sweepstakes and cross-promotions continue to draw in consumers, Rau says. "The suppliers have been more creative with their sweepstakes," he says, citing one that launched a competition for bartenders, the winners of which formed its first board of directors. "It's not so much, 'Win $1,000 or a trip for two to Tahiti.' We've seen some very creative rewards. Sweepstakes are still effective."Cross merchandising could be more effective, Rau says. "It's untapped, I think. It's underdeveloped. ... The possibilities are so open. It's not relegated to one food category. There are so many pairings you can do."Although limited in California and a few other states, Korbel runs sweepstakes and cross-promotions where it can, teaming with fruit juice makers, florists, chocolatiers and wedding cakes. "We do it with anything the major grocery chains want us to do it with," Heck says.Trinchero does sweeps and cross-merchandising on an "ongoing" basis, particularly with its Sutter Home brand, Rice says. "Retailers are saying, 'Hey, you want wine on the floor? Give me a coupon for ham.' That's changed. They have some clout they didn't have five, eight years ago."Canandaigua ties sweepstakes and food partnerships together. For example, the company ties its Robert Mondavi selections to coupons for products like olive oil or seafood. This year's theme was flavors of the Caribbean and asked consumers to send in their recipes to win a free trip."That's generally how our sweepstakes run," Muller says. "We like to tie everything in nicely. A sweepstakes is a secondary element to our partner programs. ... The whole idea is to offer an added value to consumers that will catch their eye in a very cluttered category, perhaps the most cluttered category in-store." Canandaigua links partner companies to its website, and vice versa.Seagram's has not run any sweepstakes recently but has a cross-promotion with audible.com, an online audio book company, Fisch says. "For Seagram's Coolers, it ties into the whole escapism imagery we're portraying," he says.3 Vodka is not running any sweepstakes this year, "but I see that all the time," Berish says. "The toughest part of those is having them implemented properly. With all paper point-of-sale, sweepstakes, or even as basic as a shelf-talker, if it's put up one day, it's a very competitive business, so it may get taken down or moved."That's particularly true during holiday periods, when in-store marketers say they ramp up their efforts. Korbel starts in the mid-fall with a Halloween haunted-house case, a larger display the week before Thanksgiving, and then three-case and four-case racks with drink recipe booklets for New Year's Eve, Heck says. "New Year's Eve is the biggest, then Christmas, then, believe it or not, Halloween," he says.Seagram's Coolers and Smooth sell more during the spring and summer, Fisch says. "We try to tie in with Cinco de Mayo, any of the summer holidays. The 4th of July is probably the biggest," he says. "Christmas is a huge holiday for the brand. A lot of our point-of-sale will reflect those holidays."Companies tend to roll out similar displays every winter holiday season, which Berish has mixed emotions about. "That's a good thing and a bad thing," he says. "You see the same thing because it sells. It works."Buffalo Trace experimented a few years ago with a campaign that didn't tie too closely to Christmas, and it backfired, Comstock says. "It wasn't red, it didn't have bows and Santa Claus. The market came back and said, 'Don't do that anymore.' " The fourth quarter is important for Buffalo Trace for another reason, he adds: "Not only is it the holidays, but that's bourbon-drinking season."

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