Distribution revolution fuels take-home rethink

The growth of home shopping could shake up the take-home sector. Shilen Patel is a business consultant at Datamonitor

The UK take-home drinks trade faces a period of profound industry reorganisation, at least as important as the changes which have fundamentally altered the structure of the pub, club and bar trade in recent years.

The take-home trade has experienced a period of relative quiet since a major round of consolidation among specialist chains in the late Eighties and early Nineties.

However, it now seems ripe for a new burst of joint ventures, mergers and acquisition activity as a new threat emerges. The growth in “alternative” distribution formats, such as home shopping, may force existing retailers in the market to rethink their long-term strategies.

Despite the growing threat from cross-channel bootleggers, the take-home trade has grown consistently at the expense of the “on-trade” in both value and volume. But competition is fierce within the industry.

The winners in recent years have been the grocery multiples, which have successfully adapted their drink products to steal trade from off-licences.

The losers have been the independent outlets, as the chains out-gun them with both traditional advertising and the use of expensive customer loyalty schemes and direct marketing strategies.

The ability to persuade existing grocery customers to make their alcoholic drinks purchases on-site has given the grocery multiples competitive advantage. Their size has also allowed them to compete on the basis of a wide selection, low prices and anonymity.

The spectacular growth of wine sales in the UK in recent years has partly been driven by the ability of first-time buyers to make experimental purchases without any pressure from sales assistants. The negative image of wine as a product only purchased by connoisseurs has been eroded as a result.

In response to this growing threat from the likes of Safeway and Tesco, specialist chains such as Odd bins and Victoria Wine, have refocused their attention and resegmented their consumer base to target higher value, niche groups of the population.

One outward sign of this has been a diversification in store fascia in the past two or three years. Victoria Wine opened a specialist fascia, Victoria Wine Cellars, to appeal to more “discerning” customers and Threshers introduced Wine Rack for much the same reason. Majestic Wine Warehouse has found a niche appealing on price and choice to high-volume purchasers.

However, according to Datamonitor, the consumer trend that has driven growth in the off-trade may undermine its largest players.

An increasing focus on home-based entertainment and leisure has helped to transfer sales from the more traditional on-trade to supermarkets and off-licences.

But with consumers now looking for even more convenience, alternative distribution channels have grown rapidly. Between 1991 and 1995, mail order wine sales have more than doubled in value terms to reach about 130m.

Home delivery, covering both direct sales and mail order, has long been touted as the next big thing but has failed to live up to expectations. However, with strong brands, no need to view the products and severe price competition, the sale of alcoholic drinks is particularly suited to home delivery.

Having started as one-man companies serving an extremely select market, home delivery has quickly attracted drinks manufacturers such as Bass and retailers such as Sainsbury’s. The new channel enables such companies to put a very specific product portfolio together and appeal to a finely targeted niche, bypassing the expense of outlets and distribution.

However, those being bypassed weren’t enamoured with the idea of such a large loss of trade, and as Bass found out to its cost, they could still wield enough power to stop direct sales becoming nationally based.

With Nurdin & Peacock delisting several of its brands, Bass was forced give up its attempts at direct sales soon after it had begun.

However, alternative channel sales are significant and are growing fast. It is the threat posed by these new distribution methods that will drive industry restructure in the future.

One option lies in vertical integration between a major retailer and a specialist chain to combine, refine and develop both their businesses. Such a move would combine the bargaining power of the supermarkets and the low prices and wide ranges this brings, with the niche consumers specialists currently target.

This would cater for the mainstream audience as well as those segments of the population who want a specialised, well informed and better quality product range.

If speculation regarding the potential acquisition of Oddbins by Tesco proves well-founded then this may be the start of an industry rejig. What is certain is that after a quiet period watching pub companies fight for trade, players in the off-trade may have more than the cross-channel trade to worry about over the coming months.

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