Wine of the Future Today: how business models and packaging are changing.
Co-authored by Guzeliya Sayfullina and Simon Clark
During the recent COVID-19 lockdown off-trade sales of alcoholic beverages jumped significantly with some markets seeing an increase in alcohol sales of over 250%. Looking ahead there is uncertainty about how consumers will behave: will they develop a habit of drinking at home or will they rush back to restaurants and bars once the lockdown is finally over?
In this blog we focus on the wine category and explore the following for both on-trade and off-trade:
Business model shifts
We have selected the wine category as it is served both on-trade and off-trade and where possible we look to compare the UK and US markets.
Recent Wine Industry Dynamics
So what does the wine industry look like now and what are wine companies looking to do in addressing limitations of lockdown?
According to various sources retail sales of alcohol in the US increased during lockdown by over 200%. Ecommerce of alcohol sales jumped by over 233% with wine commanding a 70% share of all US internet alcohol purchases.
In the UK the value of wine sales over lockdown increased by 27%. However, the total volume of alcohol sold over lockdown dropped by 35%. This drop in volume came from the closure of on-trade venues such as bars restaurants and pubs. The increase in value of wine sales came from people treating themselves to higher price point bottles of wine. As a result, retailers such as Waitrose in the UK reported its online wine sales grew 238% during the course of the Covid-19 lockdown period.
So, what will consumer behaviour look like in the future and how will that affect the future purchase of wine?
At Julius & Clark we believe we will see ecommerce of wine continuing to grow as going out with a loved one for a meal or for a night out with friends will take a long time to return to normal. Even though consumers will want to get back to eating and drinking out, initially the number of people per venue will be limited and the experience will be more intrusive as bars and restaurants want to know personal details and masks/visors are likely to be required.
To survive, on-trade venues will need to rethink their business models and instead of relying on people visiting them, those venues could look to go to the customers by registering for food and beverage delivery apps and organise online events such as pubs quizzes to keep revenue coming in and remain relevant.
Wine Business Models: Ecommerce, subscriptions and more
Online purchase of wine is not new with major grocery retailers In the US and specialized alcoholic beverages’ distributors such as Drizly meeting that need. In the UK various ecommerce channels have also existed for many years from online supermarket delivery, online only shops such as clickndrink and wine subscription specialists such as Laithwaite's Wine.
Subscription models are well established for many consumer goods products e.g. mens razors (Harry’s and Dollar Shave club) as well as for wine. With the emergence of Covid-19 and restricted access to supermarkets wine ecommerce and subscription organisations like Firstleaf and WineDirect benefited significantly.
New business models have also emerged. A recent US example in the ecommerce space is from Gary Vaynerchuk a wine guru and social media personality. In 2019, Gary and co-founders Jon Troutman and Nate Scherotter set up Empathy Wines. Empathy Wines is a digital only company that cuts out the middle men from the wine value chain sending wine directly from wine makers to customers and passing on the cost saving. So successful was this business model that Empathy was purchased by Constellation brands in July this year.
A different business model comes from Naked Wines in the UK. Founded in 2008, Naked Wines is an online customer funded wine business. Customers known as “Angels” make a regular £20 contribution to their account to fund independent winemakers in return for exclusive access to delicious wines at wholesale prices. As a point of difference Naked Wines provide access to wines not available on the high street. Unlike some other subscription services there are no tie-ins or membership fees. Angels can spend money on any of the wines or get their money back if they change their mind. Naked wines was purchased by Majestics wine in 2015 who are the UKs largest bricks and mortar specialist wine retailer.
With the ecommerce wine space becoming increasingly crowded organisations are looking to differentiate themselves through aspects such as: simplifying the customer journey; bulk buy of wine; types of wine they offer, personalization in the form of label creation or a short questionnaire to help the wine company understand the consumer’s preferences and therefore recommendations to make.
Wine packaging to date: incremental at best
Overall packaging in the wine industry has been fairly static over the last 15 to 20 years. However, the last 2-3 years has seen an increase in activity as technology and materials have advanced.
Let's start with the glass bottle. If glass were discovered today for use as a packaging material it is highly unlikely that it would be selected. Yes the barrier properties are great, however: a tremendous amount of heat is required to melt its main ingredient, silica; additives are required to colour it to prevent UV rays negatively impacting beverage freshness and shelf life and the wall thickness has to be thick enough to withstand filling/packaging and transportation.
The second vital wine packaging element is the cork. Traditionally made using bark of the Quercus suber tree, a cork’s ability of preventing oxygen ingress varies depending on its quality and reactions with the chemicals used in the cork processing steps. This can sometimes cause a reaction with the wine making it go bad known as being “corked”. Synthetic polymer corks were introduced in the 1990’s and in the early 2000’s New Zealand was an early adopter of the screw cap. Traditional wine makers were initially outraged as screw caps were not seen as premium or traditional, however, screw caps brought much improved quality, shelf life and consistency which saw them being rapidly adopted globally.
Another wine packaging format that has been around for many years is the bag in box. Traditionally used for low budget wines, bag in box holds around 4 bottles worth of wine. They consist of a polymer bag within a cardboard box. Per volume of wine they are much lighter than glass and freshness is maintained through a convenient tap. Historically consumer perception has resulted in a low uptake of this format yet once Covid 19 hit, bag in box has seen a renaissance in the UK as consumers have opted for better value for money and less trips to the supermarket.
New Off-Trade Wine Packaging
With the increase in wine ecommerce, packaging is something winemakers and packaging suppliers may need to re-think. First, glass is fragile and requires special packaging and handling to be delivered safely in one piece to a consumer’s home. Secondly a case of wine (12, 750ml glass bottles) is heavy, making the delivery more expensive and with a high environmental impact.
Santiago Navarro, CEO and co-founder of UK based Garçon Wines may have the answer to packaging of wine in an ecommerce world. Their multi award-winning flat wine bottles are made of 100% recyclable food-grade PET and the flat shape means they can fit through a standard UK letterbox. Being made of food-grade PET means the bottles are 87% lighter than a standard glass bottle. Shipping density of these flat bottles is improved by 40% vs round bottles as the flat bottles fit much closer together. All of this reduces shipping costs and environmental impact. The idea has been so successful that Garçon Wines have recently begun a collaboration with Accolade wines to use the bottle for some of their brands.
“Most wines are still packaged into round, glass bottles which is 19th century product hardware. This packaging format dates back to way before the birth of the internet or the dawn of ecommerce, when wine was mostly a locally enjoyed product. Today, wine is really and truly a global industry with products travelling great distances and with the product complexity and variety that benefits from web sales. Wine ecommerce is thriving. It is my view that wine requires a product hardware upgrade for the 21st century; with bottles that are able to cope with the rigors of the complex supply chains and last mile deliveries of ecommerce. This is why wine in a booming ecommerce era, requires bottles which are spatially efficient, lightweight, strong, beautiful, and with outstanding sustainability credentials. This is what we offer at Garçon Wines, the ideal wine packaging for ecommerce logistics and the Amazon generation of consumers.” - Santiago Navarro, CEO and co-founder of Garçon Wines
Some winemakers are exploring a packaging format familiar in another beverage category, aluminum cans. US based Graham & Fisk’s explains the choice of using aluminium cans to pack wine on their website: “aluminum cans are highly portable, more durable than glass and also highly sustainable”.
Whilst aluminum may arguably be more sustainable than glass, aluminium brings a challenge when it comes to wine. Perception in the mind of consumers.
Aluminum cans are usually associated with convenience, consuming on the go or relaxed environments/occasions such as a BBQ. Imagine going to a formal dinner party. The table is set beautifully and instead of impressing guests with a bottle of wine the host brings out cans of wine. What would you think? The implicit bias in consumers’ minds can be so strong that it can lead to non-acceptance of wine in a can simply because we are so used to seeing wine in bottles. However, this is beginning to change with the emergence of ready to drink cocktails in cans so it might only be a matter of time for wine in a can to become normal.
In the last few months some retailers such as Marks & Spence in the UK have gone a step further by removing the box altogether and offering a pouch of wine otherwise known as “bagnums”. This format uses a more robust bag and can be transported easily for picnics and take up less space when stored in the fridge vs bag in box.
As well as the packaging, where wine is packaged is changing. For example shipping huge bulk containers of wine from Australia to the UK by boat to be bottled locally brings a 40% carbon footprint reduction vs bottling locally and shipping filled bottles of wine by boat over the same distance. Some major wine producers such as Accolade wines are already demonstrating this with a packaging facility in Bristol in the UK.
New On-Trade Wine Packaging
With so many on-trade venues and such a large choice of different wines from around the world there are almost limitless combinations of wines and venues. Each bar, pub, conference venue or restaurant typically selects wines they feel best matches their menu and customer's willingness to spend. Depending on venue size and occupancy different scenarios can play out. For example, in smaller venues having a high turnover of small volume containers (standard 750ml bottles) open for a short period of time reduces waste and maintains freshness but requires sufficient storage space.
For venues that collect and use consumption data about which wines they sell most of and for larger venues, larger packaging solutions might make more sense such as having wine on draught like a beer. Not being exposed to oxygen like an open bottle of wine, draught wine shelf life can be up to 6 weeks. Wine draught systems such as The Wine Keg Company in the UK replace the equivalent of 32 glass bottles with a single keg. Kegworks in the USA also offer a similar system. Kegs reduce environmental impact from not needing glass to be produced and transported and can be reused many times over. Another potential benefit of using kegs is reduction of waste from not having open bottles that need to be used up or thrown away.
As we mention above at Julius & Clark we believe we will see an increased presence of online purchase of wine (and other alcoholic beverages) with on-trade making a slow comeback.
The days for glass bottles being the primary packaging material for wine seem to be numbered. This doesn't mean glass will totally disappear however we predict that we will see a significant increase in other primary packaging material options as producers and distributors look to keep costs low given the current economic climate and to meet the pressures of improving environmental credentials.
On-trade locations need to reinvent themselves and the customer journey especially if a second lockdown occurs.
If you are an on-trade, off-trade location or a wine, beverage or packaging company who would like to explore optimum future business models and supply chains for your organisation get in touch. We welcome the opportunity to discuss and explore with you.
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