Going private: building profits with private labels

Wines & Vines, Sept, 2003 by Jane Firstenfeld

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.