Swimming the Grocery Channel

Larry Bird“Push yourself again and again. Don’t give an inch until the final buzzer sounds.”
… Larry Bird

The Client

I’d been listening for more than a hour, taking notes, watching for signs or cues that my client wanted more than a confirmation that the strategic business model conceived more than 7 years ago was still viable in this new, emerging economy. Sometimes it’s just best to let someone talk and talk. And after all the points are expressed, restated and then exhausted the steam just runs out. As my client turned in his chair, at images-3the large cluttered antique desk, holding the latest account sold report, he looked at me and said one last time, ‘just a little more hard work.’ ‘Yep, that’s what we need, a little more hard work.’ I leaned forward in the faded leather club chair, pinching my eyes closed with my thumb and forefinger and started to feel the onset of a migraine. A migraine that would only go away when my client saw the light. I fought back the urge to answer withDana Carvey as Bush 1 my best Dana Carvey imitation of Bush 1 saying “Not gonna do it.” But, self preservation and 7 years of history got the better of me, and I responded that it was time to rethink the winery’s business model. We needed to flatten out the growth curve of the principal brand, while continuing to focus on the best quality. Some of the juice would have to declassified to be sold in bulk, bottled as a value tier or launched as a new brand. If the new tier or label strategy were to be implemented then pricing tactics would allow the winery to open up new channels for wine by the glass (WBTG), independent retail, or grocery distribution. The word grocery resonated like a scratch on a blackboard. My clients face scrunched-up as if he had just smelled a carton of month old milk. He looked up at me over the top edge of his bifocals and said ‘GROCERY?’

The Grocery Channel

I understand your reticence. You’re concerned with endangering, what Tim McDonald CSW refers to as, your winery’s ‘Reputation Engineering.’ And, based on old models, this concern was once justified, but no longer. Today’s grocery is more than a viable constellation solar winerydistribution alternative for wineries of small and moderate size. The world of grocery distribution seems to the uninitiated to be dominated by the big boys, the 30 largest wineries in the USA market. And it seems to be most appropriate as a channel model only for those wineries producing 100,000 cases or more. Well the grocery market, like the wine market is highly differentiated and segmented. Groceries are classified and merchandized by neighborhood and product selections determined by local demographics. A sharp, regionalized well conceived channel strategy is a must. There is a spot across most price points somewhere within the grocery segment for your wine brand(s). There are convenience store concepts, independents, mid-chainKrogers, large regional multi-unit stores, and then there’s Safeway and Krogers. Within these larger grocery brands several regional sub-brands keyed to the needs of their local markets exist. Consolidation, a current trend in the adult beverage business for producers and distributors, has also found its way into the US Food & Drug business segment. It is not a one-size fits all solution anymore. As I look across the country, I see data that demonstrably reveals pricing segment shifts and channel shifts that favors due consideration of grocery distribution for your brand(s). I believe that it’s time to reset your expectations. It’s time to innovate. It’s time to realize that there are new points of price sensitivity that factor into consumer wine purchase decisions. It certainly is time to recognize the need for real-time category information as a key part of your decision making matrix.

Please note that large areas of the country, including the Inter-Mountain West, several control states such as Pennsylvania, and Whole Foods Wine Sectionlarge US Eastern population centers including Maryland, New Jersey, New York, Connecticut and Massachusetts don’t as yet allow wine sales in grocery stores. For the smaller, niche, highly-differentiated winery single unit independents and mid-chains are the most appropriate targets for selected distribution. In the nine county San Francisco Bay Area, the small and mid-chain grocery market is vibrant. Within 100 miles of most wineries in Napa and Sonoma several points of potential distribution exist. Although not meant to be comprehensive, the following list represents strong premium grocery retail wine locations: Oliver’s, Fiesta/Pacific, Molsberry Market, Sonoma/Glen Ellen Markets, Vallerga’s, Ranch Market, Sunshine Foods, Oakville Market, Dean & Deluca, Molly Stone’Nugget Markets Wine Sections, Paradise Foods, Nugget Markets, Real Foods, Andronico’s, Berkeley Bowl, Monterey Market, Farmstead Cheese, Draeger’s, Lunardi’s, Cosentino’s, Diablo Foods and many more. Whole Foods, and Trader Joe’s are also larger specialty food retailers with strong wine programs, and a significant Bay Area presence. Although, I’ve focused on my back yard, I would also target strong local or regional grocers such as the Carolina’s Harris Teeter, Chicago’s Treasure Island, Seattle’s Metropolitan Market, Portland’s New Season’s Markets, Los Angeles metro area Gelson’s and Bristol Farms, Florida’s Publix Markets, Texas’ Central Markets, Arizona’s AJs, Cleveland’s Heinen’s and St. Louis’ Dierberg’s.

A Very Short Course in Category Management

Category Management GraphCategory Management is “a retailer/distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.” …FMI ECR Committee

Selling to groceries can seem daunting to the first timer. The concept of management by objective is key to your grocery presentation. What specifically are your goals? How do you hope to achieve your placements? Do you understand how to leverage your brand equity with that of the retailer’s equity? You don’t have to be Gallo or K-J to have definedTrader Joe's goals and a plan. Your brand’s equity is based on your prior distribution achievement, sales history, reliability, pricing and promotions. Understand that this is a business relationship that requires candor, confidentiality, participation and the ability to give unbiased recommendations in reference to the category, varietal and other winery’s products. Wineries of all sizes have the ability to grow and diversify their depletions by taking the category management approach with retailers seriously. Understand that retailers are seeking multiple points of input to get a holistic view of their marketplace. Use your unique position as a smaller winery and your knowledge of the super and ultra-premium price segments to become a trusted adviser helping the grocery buyer to be better at focusing on the end user. In your presentation be objective, be consumer oriented, keep the message simple and focused, be action specific, and sell a ‘win-win’ program.

A very simple analysis is to quantify your opportunity  by comparing the Consumer Development Index and your Business Fine Wine SalesDevelopment Index, What may sound like geek speak to you, is actually a simple concept. CDI is a specific market accounting of the % of sales for an item based on type and price. To access this information you need to refer to data from IRI, Nielsen, Trade Pulse, or other previously discussed wine consumer insights firms. BDI is your actual % of sales within a defined geography. Select markets where CDI>BDI. Calculate the gap as CDI-BDI = a positive opportunity. Then utilizing the formula (Volume/BDI)*Gap = opportunity volume, develop a plan. This is allows you to ask and discover the answers to the 3 basic questions of distribution:

  1. Where are we?
  2. Where should we be?
  3. How do we achieve desired targeted distribution objective

Swim to Win

imagesSelling wine to groceries tends to be a more technical and specialized arena than other available wine sales channels, but not necessarily more complex. Sales is sales. My Dad used to always say ‘sales is a contact sport.’ And in any contact sport you want the best tools in order to just not survive but to succeed. You’ll need to incorporate your market, brand and wine knowledge, salesmanship, business skills and your entrepreneurial mind set. Yes, it’s tough out there, always has been, always will be. But, you’re in the game to win. And if you close your mind to any available channel before a thorough strategic market analysis, win you won’t. As you swim in the grocery channel, utilize technology to access the best market and category information tools to target, prepare, present , close and win.

Note: Copyright © 2009 Think Wine Marketing® All rights reserved.

10 thoughts on “Swimming the Grocery Channel

  1. Wow, another fantastic piece that is enlightening and enjoyable read to even as a consumer and not in the trade. Very high quality content you’re offering here- I appreciate you sharing this. I particularly enjoyed reading your list of high quality local grocery stores. I’m familiar with some of them and agree that they’re great places to shop with high levels of customer service. The others I’m not already familiar with I’d look forward to checking out based on your recommendation.

    One minor MINOR point on the the Massachusetts wine in grocery store situation. Some grocery stores in the state do sell wine. The law is that any one entity (grocery store or liquor store) can only hold 3 licenses. Therefore, most of the grocery stores that operate here sell wine at 3 of their locations.

    • Robert, thanks for the input re. Mass. I’m am aware of the limited license situation, but only aware of it’s use in the indy package store world, Marty’s, Kapys and Yankee. Also with the club store BJs, but not grocery. Thanks for correcting my oversight.

  2. John…once again you are providing great advice…I did some research of my own..typically with CPG products small manufacturers always approach the corporate level and frequently use a broker with established relationships to “get in”. It can be a daunting task to try to establish relationships with individual buyers at some many places for individual wineries (even the Big 30). It can be a “long swim” just to “get in” at one grocery chain. What I wasn’t able to determine is whether there are brokers out there that also handle wine…but just because no one has done that before doesn’t mean that there are not brokers out there who would consider representing a winery.

    In fact, with the changes going on legally, it would surprise me that if legislation passes that allows mass merchandisers to sell wine that it doesn’t become imperative for brokers to find wineries that they can represent.

    This much I will tell you, a winery doesn’t want to try to deal with the likes of Walmart on their own!

    • Mark, there are wine broker’s that function within specific channels. Wineries in CA can sell DTT themselves, or through a licensed sales agent. A system of small, independent niche distributors exist that serve as intermediaries for grocery adult beverage buyers and wineries. As consolidation of distribution occurs, I expect to see the development of many more smaller distributors that service niche sales channels in specific markets

  3. And don’t forget the ethnic channel! In CA, the Hispanic chain grocery business is big. Some high-end store locations have started building impressive wine departments.

    • Cinde, the ethnic channel is a market that is significantly under served by the wine industry as a whole. Before the grocery sector rapid consolidation Boys Markets in SCA developed Viva Markets, and they were a great wine account. Lucky’s, Freys, Foods-for-Less, and Stater Brothers are examples of regional chains that have great penetration in the hispanic market in CA.

  4. John, great education for wineries! This past year, the number of “never in grocery” wineries that have been popping up on the shelves of Safeway and other chains is definitely taking a bite out of the major players’ numbers. It has never ceased to amaze me that winery owners neglect to consider the convenience of grocery for consumers- the days of the elitist attitudes are over for those who want to have sustainable business models.

  5. Good article.

    My question would be, how does one enter the supermarket channel without cannibalizing existing non-chain sales in the independent wine shops? When I go through my local grocery store, I’d guess that at least 80% of the wines on the shelf have a “club card” flyer on them which usually means $1-2 off per bottle (and that comes out of the winery’s pocket, not the supermarket’s as you know).

    So as a consumer, if I can now go to Safeway and get my favorite local wine for $2 less, why am I going to buy from my local wine shop? In other words, doesn’t this strategy run the risk of taking sales from higher margin independents and giving them to lower (net) margin chain stores?

    How do I, as a winery owner, avoid robbing Peter to pay Paul (with a discount on top of it)?

    Also, if I’m not in chain stores, how am I going to have any IRI/Nielsen info?

    • Vincente, thanks for the read, the comments and the questions. I’m a strong believer in a diversified channel distribution strategy for any winery without regard to size, something that I have come to understand, having been around for a few ups and downs in the business cycle. The idea behind this post was to encourage winery owners or winery marketing managers to consider alternative channel distribution strategies for their brand(s). Times have changed. It is my belief that CPG marketing is not a series of isolated actions, but a set of integrated actions hoping to achieve a desired planned outcome. Yes, it is true that in some markets selling your wine into the grocery segment will have some impact on other channels. The fact is that in this economy and in this age of permission marketing wine sales are for the most part flat or in decline for many wineries that sold into single or limited channels. I’m not suggesting grocery to be a small to mid-sized wineries only outlet, but to not consider grocery sales is perhaps folly. Data for wine(s) not sold in a channel obviously isn’t avail, but competitive frame data is and will be. The question leading to close by most grocery wine buyers is,’ if I put your wine in what should I D/C.’ Having this info is somewhat important. I’m also a strong supporter of the selling within the independent retail channel. The sharp independent retailers like The Jug Shop, Domain547, Bin Ends Wine, and too many others to list, understand it’s about building relationships one at a time and changing customers into clients. So, most likely where you sell your wine may have less impact than your relationship with the gatekeepers, buyer and decision makers.

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