THE ROLE OF IMPORTERS
IN THE UK MARKET
(PAPER 4, THE BUSINESS OF WINE)
Jon Pepper MW
Managing Director,
Buckingham Schenk
BUCKINGHAM SCHENK
• Agent / Importer based in the UK
• £18m turnover
• c.18m bottles
• 14 staff
• Multiple off-trade specialists
• UK arm of pan-European Schenk Group (£250m)
PAST EXAM QUESTIONS
• “How can the role of the intermediaries between producer and on and offtrade retailers be justified? How is it changing?” (2013 P3 Q2)
• “As an export manager for a medium sized wine estate, what strategies
would you employ in the USA, Europe and China?” (2013 P3 Q6)
• “What factors would you consider when creating a distribution strategy
for a range of New World wines in a mature market?” (2012 P3 Q3)
• “How important is vertical integration for the success of wine brands?”
(2009 P4 Q1)
WHAT THIS SESSION WILL COVER
• What is an agency?
• What role do agencies play?
• What are the challenges currently facing UK agents?
• Exam tips
WHAT DOES AN AGENT / IMPORTER DO?
• Imports wine
• Sits between supplier and retailer / distributor
• Understands local market needs and supplier aims
• Uses this knowledge to service market and drive sales
• NB In the UK the terms “Agent” and “Importer” are used
reasonably interchangeably; in many markets “Agent”
refers to somebody working on commission whereas
“Importer” is a company which buys and sells
• Works on margin of 5 to 25%
WHY DOES ANYONE USE
THIRD PARTIES LIKE AGENTS?
1 – SUPPLIER PERSPECTIVE
UK IS A COMPLEX MATURE MARKET
UK Still Light Wine Market estimates 2010
m cases
Off – Trade 98.6m cs
Northern Ireland, 7
Internet /
Mail Order, 15
Catering, 7
Multiple Grocers, 82.7
On-Trade, 21.8
Impulse, 15.9
solid areas - Nielsen & CGA Market Tracking
patterned areas - estimates
Source: Nielsen and CGA Strategy 2010
UK OFF-TRADE SALES BY RETAIL PRICE POINT
Volume in ‘000 hL
Source: AC Nielsen 52 weeks to 11/10/14
UK OFF-TRADE SALES BY COUNTRY
Source: AC Nielsen 52 weeks to 11/10/14
UK OFF-TRADE SALES BY COLOUR
Source: AC Nielsen 52 weeks to 11/10/14
UK OFF-TRADE SALES BY VARIETY - REDS
Source: AC Nielsen 52 weeks to 11/10/14
UK OFF-TRADE SALES BY VARIETY - WHITES
Source: AC Nielsen 52 weeks to 11/10/14
FAVOURITE VARIETIES
Source: YouGov Survey Dec 2014
UK ON-TRADE SALES BY COUNTRY
Source: CGA Strategy 52 weeks to 04/10/14
UK ON-TRADE SALES BY COLOUR
Source: CGA Strategy 52 weeks to 04/10/14
GB On Trade Universe & Structure: Sept 2014 vs. 2013
Great Britain
123,597 1.3%
Eating
37,597 +2.6%
Drinking
56,622 -4.3%
Enjoying
17,179 +1.0%
Restaurant
26,271 +4.0%
Wet Led Pubs
27,545 -5.6%
Nightclubs
1,898 -2.4%
Food Led Pubs
11,308 -0.5%
Social Clubs
12,736 -4.4%
Large Venue
3,406 +9.8%
Circuit Bars
15,447 -1.3%
Sports Clubs
11,875 -0.7%
Sleeping
12,217 -2.2%
SOURCE: CGA Outlet Index, September 2014 vs. September 2013
N.B. Chart shows selected breakdowns only
Hotels
7,643 +0.4%
ROUTES TO MARKET
x
Nat Wholesale
Macro Reg
Wholesale
x
Nat Wholesale
Macro Reg
Wholesale
Reg Wholesale
x
Nat Wholesale
Macro Reg
Wholesale
Reg Wholesale
x
Local Wholesale
& C&C
Nat Wholesale
Macro Reg
Wholesale
Reg Wholesale
.
x
Local Wholesale
& C&C
Nat Wholesale
Ind Retailer
ON-TRADE ROUTES TO MARKET
National
Hotel
Groups
Sports Clubs/
Golf Clubs
Ethnic
Restaurants
Gastro
Pubs
Top
Restaurants
Top
Hotels
Style
Restaurants
INDEPENDENT
WHOLESALERS
Country
House Hotels/
Small Hotel
Groups
Bars
Wine Bars
Brasseries
NATIONAL
WHOLESALERS
Branded
Restaurants
Food Led
UK
AGENTS
NATIONAL
PUB COMPANIES
Event
Caterers
Managed
Pubs
CASH
& CARRIES
REGIONAL
PUB COMPANIES
Branded
Food
Pubs
Middle
Tier
Restaurants
Leased/
Tenanted
& Free
Pubs
PRIMARY ROLE – SALES
• Represent wineries in the local market
Knowledge of supplier commercial and strategic aims
+ in-market expertise
+ customer relationships
= targeted channel-driven strategy to maximise sales
• Off-trade: filter wines and suppliers for customers
• On-trade: trend-and customer-driven sales
• Understands and develops optimal route to market /
distribution strategy for each brand and product
EFFICIENT AND LEGAL DISTRIBUTION
• Small volume distribution is very expensive per case
• Only very large wineries can handle multi-country
distribution
• Agencies consolidate supply across lots of wineries,
enabling efficient distribution
• Agencies also offer expert knowledge of local laws
MARKETING
• Most Importers run their supplier brand marketing in
the country
• Brand managers often funded by supplier
• Joint Brand and Business Plans agreed
• Annual events and marketing programme
• Brands benefit from country-specific expertise#
• Importers should develop and execute appropriate
promotional plans for all brands they handle
ALTERNATIVE – SET UP YOUR OWN OFFICE
• Vertical integration
• Same financial impact as using an Importer
• 10% cost to run
• But complete control of distribution and marketing
• Critical mass needed e.g. Concha y Toro in UK
• Very successful but > £100m turnover
2 – CUSTOMER PERSPECTIVE
MULTIPLE GROCERS / SUPERMARKETS
• Importers offer:
– One point of contact for multiple wineries
– Customer-specific knowledge
– Understand consumer and commercial needs of customer
so can propose only relevant wines
– Understand customer’s internal needs / processes /
paperwork
– Understand customer’s promotional mechanics and
funding requirements
– Audit suppliers to ensure they meet necessary standards
COMMERCIAL
• Many producers have unrealistic pricing expectations
• Fully mature markets have very low price elasticity
• UK is a market of almost infinite substitution
• All customers have clear visibility of price / quality
ratio of all significant wine regions and styles
• Importers negotiate hard on behalf of their
customers in order to get wines which are
commercially competitive
LEGAL
• Packaging / local laws
• Compliance
• Relationship with trading standards / Wine Standards
Board for any issues in-market
TECHNICAL – AUDITS AND QA/QC
• Audit suppliers
• UK market requirements:
– HACCP
– ISO 9000
– BRC (set up to prevent multiple audits per site)
– Custom audits for specific retailers
• Importers handle Product complaints and recalls
INDEPENDENT AND SMALLER CUSTOMERS
• Importers offer:
– Consolidated warehousing and delivery
– Take care of all local logistics
– Small minimum drops
– Easy ordering with no language barrier
– Local reps who understand customer’s business
FINANCIAL ANALYSIS
• Two models: invoicing vs commission
• Ex-cellars business requires no capital, buy and sell
simultaneously
• Delivered business – UK warehousing ties up
significant amounts of capital
• Risk to capital – if you can’t sell all the wine
COSTS
Pinot Grigio delle Venezie
Case cost Ex-Works
€7.98 = £6.38 (@ €1.25 / £1)
Freight to UK
£0.69
WRAP fee
£0.06
RHD
£0.05
26 weeks’ rent at warehouse
£0.62
Picking at warehouse
£0.16
Pallet
£0.04
Shrink Wrap
£0.01
Onwards freight to customer
£0.45
TOTAL COST
£8.46
Importer Margin @ 20%
£2.11
Sell Price
£10.57
PER BOTTLE PRODUCTION COSTS
Pinot Grigio delle Venezie
Wine cost
€1.07 per litre
€0.80 per 75cl
Production cost
€0.10
Lightweight bottle
€0.25
Cork
€0.03
Capsule
€0.01
Labels
€0.06
Carton
€0.03
Pallet
€0.04
Shrink wrap
€0.01
TOTAL COST
€1.33
For bulk prices: www.ciatti.com
FINANCIAL ANALYSIS – 3 MODELS
Company: Copestick Murray
Hallgarten Druitt
Bibendum
Channel: Off-Trade Specialists On-Trade Specialists
Mixed Model
Turnover
£15,500,000
£44,337,000
£172,263,000
Gross Profit
£1,727,000 11.1%
£9,754,000 22.0% £22,691,000 13.1%
Operating Costs £1,131,783 7.3%
£9,541,974 21.5% £21,418,000 12.4%
Operating Profit
£595,217
£212,026
£1,273,000
• Off-Trade Specialists: very lean business, few staff,
low margins (11%), low overheads (7%)
• On-Trade Specialists: high costs (21%), lots of staff,
significantly higher margins required (22%)
CURRENT CHALLENGES
• Changing market
• Buying direct (IPL)
• Squeeze on margins causing Importers to go into
administration (Thierry’s)
• Consolidation (PLB / Bibendum)
CURRENT TRENDS - UK BOTTLING
• Increasingly Importers are blurring the line and
becoming producers
• Cheapest way to produce entry-level wines
• Multiple label offers for exclusivity
CURRENT TRENDS - JOINT VENTURE BRANDS
• Important trend: agencies seeking
shared brand ownership
• Long-term incentive to build sustainable
profitable brands
• Enables development of brands which
meet market-specific needs
• Viñalba – Joint Venture between
Buckingham Schenk and Bodegas Fabre
VIÑALBA – KEY STRATEGY
• Retailer-specific wines
• UK-suitable style
• Branding developed for UK market
• Heavy emphasis on UK PR and
competitions
• Built on key relationships with UK offtrade
• Result = 1 million bottles per year at
> £7.99 retail
EXAM TIPS
STRUCTURES FOR ANSWERING QUESTIONS
• Key things to consider:
– Cost implication of everything
– Who is the consumer?
– Different parts of the supply chain
• Segmentation:
– Product: premium / mass market
– Distribution: on-trade / off-trade
– Markets: mature / developing / niche
ESSAY STRUCTURES: THE 4 P’S OF MARKETING
PRODUCT
– Style
– Range
– Quality
– Branding
PROMOTION
– Marketing
– Price Promotion
PRICE
– Price
– Value for Money
PLACEMENT
– Distribution
Sample Question: “What factors would you consider when creating a
distribution strategy for a range of New World wines in a mature market?”
(2012 P3 Q3)
ESSAY STRUCTURES: SWOT
STRENGTHS
OPPORTUNITIES
WEAKNESSES
THREATS
Sample Question: “How important is vertical integration for the success of
wine brands?” (2009 P4 Q1)
ESSAY STRUCTURES: SUPPLY CHAIN
• Grower
• Distributor
• Producer
• Retailer
• Shipper
• Consumer
• Agent / Importer
Sample Question: “How can the role of the intermediaries between
producer and on and off-trade retailers be justified? How is it changing?”
(2013 P3 Q2)
CHECKLIST FOR ALL ESSAYS
• DEFINITION OF TERMS in introduction
• GLOBAL MARKETS (Mature - UK, Monopoly - Sweden,
Producer, Developing - US, Emerging - Asia & India)
• WHOLE CHAIN (grower, producer, importer, distributor,
retailer, consumer)
• ALL CHANNELS (on-trade, off-trade, multiples, independents)
• IMPACT OF SCALE (winery producing 1,000 cases, 100,000
cases or 10,000,000 cases)
• PRACTICAL, RELEVANT & REALISTIC
ANY QUESTIONS?
[email protected]