A MATTER OF GRAPE CONCERN

STEPHEN DOWDELL

HEALDSBURG, Calif. -- Wine is not ketchup. Or is it? That determination is not as simple to make as it may sound, at least when it comes to selling wine in supermarkets.

The thing is, some of the best wine merchandisers in the supermarket industry are taking a hard look at the category right now, and they are using the same tough management principles that would be applied to ketchup, or any other grocery category expected to carry its own weight in the store.

In many cases, that's likely to lead to yanking significant numbers of stockkeeping units off the shelves, which is what Safeway's northern California division did earlier this year. It probably will mean less of a selection of labels in the stores and more of a reliance on brands with stronger consumer recognition.

That hard-nosed perspective worries a lot of people in the wine industry -- especially those that market 750-milliliter premium and superpremium varietal wines. John Moramarco is one of them. He is president of The Wine Alliance here, a group of California wineries with a rapidly growing supermarket business. The group sold more than 600,000 cases last year, all at the superpremium and ultrapremium end, ranging from about $7 a bottle on up to $25 or more.

The Wine Alliance and other players like it had been happily watching consumer preferences edge toward the higher priced wines, pointing to a bright future for sales in supermarkets.

Then Safeway, one of the most sophisticated wine retailers in the supermarket trade, trimmed about 100 SKUs from its stores in northern California, in the heart of the domestic wine industry, on the instruction of Senior Vice President John Cartales. It also brought in Gallo, the jug wine giant, to help captain the category.

"I don't like to hear of wine being examined by retailers as just another grocery category," said Moramarco, in an interview with SN.

However, Moramarco knows, and accepts as inevitable, that Safeway's initiative to manage the category more tightly is a sure indication of the direction savvy retailers are likely to take.

"The business is changing. A lot of people would like to grow their grapes, make their wine and watch it sell. But the marketplace is getting more complex than that -- a lot more."

Supermarkets sold 18.6 million cases of domestic varietal wines alone last year. About 60% of the country's stores can sell wine. But if the wine category had 100% supermarket distribution, it would rank fourth among the five fastest growing categories in the store, logging 31% growth last year.

Table wines in 750-milliliter bottles are the biggest and fastest growing chunk of the supermarkets' total wine business, in terms of dollar sales.

"You are seeing a shift in where the business is being done," Moramarco said. "More higher quality wine is being sold in supermarkets, and in club stores, and sales are declining for independent retailers. That is exciting. But it is creating big changes in the marketplace, making it more difficult for small wineries to do business.

"Look at the typical supermarket operation. The small producer has a tough time even getting the attention of the buyer. Look at the merchandising aspects that are required in the store; they look for a lot of support."

It is the familiar grocery dynamic of the big players playing together, leaving smaller ones squeezed out. One could say, for instance, that's what makes ketchup a category dominated by a handful of brands with a lot of facings of different sizes.

"But wine is not ketchup," said Moramarco. "There's no way that three or four brands will satisfy anybody."

On the other hand, there are strong arguments for gaining greater control over the department's inventory.

"Safeway is looking at how much they have invested in the category, and what the returns are. It is an attempt to reduce the capital employed, and is in line with everything going on in category management, in Efficient Consumer Response.

"From a business perspective, I think they are asking some of the right questions. Quite a few retailers had reached a point where they needed to expand the wine SKUs in order to satisfy the consumer, because wine is a category where you don't necessarily have specific brand loyalty.

"The only way the supermarket is going to attract the real wine consumer -- who is usually a real food person, too -- is to offer selection. But you can go too far, and have too many products."

Safeway decided it had drifted over to the losing side of the variety question, and pulled back. Other chains at the vanguard of assortment-building may follow.

"The implication is that retailers want to focus on stronger brands," Moramarco said.

Jug wines, the old supermarket mainstay, are strongly dominated by a few brands, but it is not the growing side of the business. The popular, or fighting, varietals segment is also "segmenting into some strong brands, about 10 of them, led buy Glenellen, Sutter Home, Gallo and Blossom Hill," he said.

"Now there is the super/ultrapremium end, where we compete. There are about a dozen brands that repeatedly figure prominently in scanning reports, such as Kendall Jackson, Clos Du Bois and Beringer."

It is Moramarco's expectation that, given a year or two of closer category management, the typical strong departments will emerge more brand-oriented than now.

The department size is likely to remain the same or slightly smaller, but within assortments we'll see significant reductions of jug wines, and more space allocated to superpremium and ultrapremium varietals.

Moramarco said that even now, judging from current scanning data, department assortments should on average be about "14% superpremium 750s. In reality, how much chains are carrying now varies greatly by market demographics and even by operator.

"In Florida, for example, some Publix stores are probably close to that 14%, while nearby Winn-Dixie assortments are nowhere near it," he said.

In stores, merchandising is likely to reflect the trend toward premium wines.

"We'll see more facings of certain products in order to make sure they are always in stock, rather than the historical patterns of one facing. We are seeing it already in California. Those retailers don't want back-room stock; they want it all on the floor," he said.

"I still believe the superpremium side is under-represented, but that will be slowly corrected over time," he said. "You will see more promotion for the higher end of the business. Retailers are learning that if they put a three-case pack of $8 chardonnay on the floor, they will make a lot more money than having three cases of 3-liter jugs of chablis out there."

Another likely change: an uptick in advertising and promotion, commensurate with the new, more-branded bent.

"You'll start to see more advertising, especially as brands get bigger. "