WINE'S BETTER OUTLOOK

STEPHEN DOWDELL

SAN MATEO, Calif. -- Are supermarket shoppers becoming wine snobs?

That's not likely. But many shoppers certainly are developing more sophisticated tastes in wine, and are a lot more likely to pick more expensive bottles off the supermarket racks.

That's good news for chains that stock the best-selling premium and superpremium varietal wines, two segments that together account for almost 60% of dollar sales in supermarkets and drive growth for the category.

The trend also looks good to executives at Heublein Inc., a leading wine and spirits maker and one of the top three wine marketers in the nation.

"As people drink more wine at meals, they are becoming interested in drinking better wines, which are more expensive," said Richard L. Fuller, vice president of sales and general manager for Heublein, interviewed from its wine division offices here.

"The fastest-growing segment is premium varietals, in the $3 to $6.99 range, and superpremium varietals in the $7 to $9.99 range. In fact, the superpremium category grew 27% in supermarkets last year. That is really driving dollar sales growth," Fuller said.

Wine has been making a lot of people happy lately. Nielsen ScanTrack data reveals that sales of domestic wines grew 10% in 1992, and another 5% last year to reach $1.5 billion, based on dollar sales in supermarkets. By comparison, beer sales grew 2.2% last year, and carbonated beverages were up 2.7%, according to Nielsen. Thirty-four states allow supermarkets to sell wine.

Fuller said total category sales are expected to grow by at least 5% in 1994, while Heublein anticipates its own growth will hit 8% to 10%, helped largely by the consumer trend of trading up.

"People are actually drinking about the same amount of wine as they have been in recent years, but they now buy better wines consistently," Fuller explained. It is a trend that has been gaining momentum for a decade but reached a milestone last year, when varietal wines outsold generic wines for the first time.

It does not hurt that wine has been getting some favorable press. Red wine, for example, has been reported in some studies to offer health benefits when consumed in moderation. In 1993 red wine sales increased 13%. But even within that segment, varietals shined, said Fuller. Merlot sales grew 50%, cabernets jumped 85% and pinot noirs grew 26%.

Food stores today make up 48% of the U.S. wine market and together with warehouse clubs are leading the industry's growth. (Clubs hold about 10% of the market, drug chains 8% and mass merchants 4%, while liquor stores have 30% of the market.)

To capitalize on these trends, Heublein set up a retail business development group, headed by Vice President Robert D. Beck Jr. Its mission is to tailor promotions to specific accounts, offer expert advice on assortments and help chains encourage greater impulse buys of wine.

"About 70% of wine purchases are unplanned," Beck told SN. "At the same time, the popular price points are trending upward. The average price of a 750-milliliter bottle is still under $3, but that segment of the business will decline. The price points now key to growth are between $4.99 and $9.99. But a lot of growth is even centered in the $7.99 to $9.99 superpremium area."

To Beck, that means "if retailers are buying wines that sell for more money, they've got more opportunity to trade their customers up over time."

However, just buying pricier wines does not guarantee supermarkets a bigger chunk of trade-up sales. Liquor stores are still a strong trade channel, if declining, and typically offer big assortments of varietals, often along with in-house expertise in choosing among them.

Meanwhile, Fuller said, studies show only one in seven consumers actively shops the supermarket wine department. And many shoppers that pass down that aisle are becoming increasingly bewildered by the growing variety of wines available in stores that not too long ago offered smaller selections dominated by the best-known generic jug wines.

Fuller and Beck said two solutions to this marketing challenge are emerging among more progressive chains: increased cross-merchandising of wines with food in other parts of the store and re-evaluations of assortments to focus on the strongest-selling varieties and cut down the confusion.

"Wine is a complex category, and is generally one of the highest [in terms of stockkeeping units] in the store. Consumers don't understand all the choices that well," said Fuller. "Retailers are looking at the right trends, and are shifting their selections from an emphasis on generics to varietals to increase transaction size."

Beck added, however, that managing an assortment heavy on varietals can be tricky. "They are looking for variety, but variety at what cost? You need to offer variety, but a lot of retailers [have too many SKUs of] varietals that don't sell, tying up inventory dollars while some of the most popular varietals run out of stock," he said.

"We know that a lot of stores have too many SKUs, and there is going to be a shakeout over time. Suppliers and retailers have got to work together to improve department returns, to cull out the fringe wines without hurting the category. Together, we also have to try harder to build sales by cross-merchandising high-profit, popular varietals."

Some chains are cross-merchandising successfully in floral, produce and meat departments, said Beck. They are using compact, permanent racks that hold four to five cases, or are building bigger promotional displays on endcaps. Some are cross-couponing specific wines with specific foods, to simplify the choices for consumers. Ads that recommend wines to complement fish or meat dishes are another tactic.

"Typically, the retailers who are cross-merchandising successfully have good communication between the wine buyers and the floral, deli and grocery executives," Beck added. "That's the proactivity that would help sales and break down the intimidation factor among consumers.

"Consumers will appreciate simple information that helps them understand the relationship between wine and food -- for example, that a Rutherford cabernet is a perfect complement to red meats," he said.

Rutherford is one of Heublein's varietal labels, among a stable of eight brands the company markets, which also include Inglenook Vineyards, Almaden, Beaulieu Vineyard and Blossom Hill. Heublein is part of Grand Metropolitan's sprawling International Distillers & Vintners subsidiary, which operates in 45 countries. Heublein is headquartered in Farmington, Conn., along with IDV North America.

DOLLAR SALES OF DOMESTIC TABLE WINE BY PRICE SEGMENT

Retail sales in the premium varietal and superpremium varietal segments are consistently increasing and account for alomost 60% of the category dollar volume.

1991 1992 1993 (millions of$)

Box wine $50 $60 $75

(less than $3.00)

Premium table wine $380 $390 $370

(less tha $3.00)

Premium varietals $480 $550 $575

($3.00-$6.99)

Superpremium variet. $75 $80 $100

($7.00-$9.99)

Ultrapremium variet. $10 $15 $15

($10.00 )