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                 Sydney Time

           Copyright © Ric Einstein 2008

State of the Australian Retail Wine Market - April 2004

© Red Bigot (Brian Handreck)

A somewhat grandiose title, this article could perhaps be better titled "A Consumer assessment of wine-buying in the Internet age during a wine glut" but that's a bit too long. J  This is obviously not a serious academic or economics-based study, it's based on my own personal experiences and observations in buying wine over many years and in researching the regularly updated The Red Bigot Red Buyers Guide.

What I intend to do is briefly describe the the stages of evolution of Internet-based wine merchants, how their operations tend to change from start-up to survival or fold-up and the gimmicks or "differentiators" that they use for survival.  Buying wine in a relative wine-glut can be a boon for wine-consumers/collectors, but as we will see there are many ways you can waste your money if you buy carelessly or fail to notice that your favourite merchant has subtly moved to a new mode of operation.  After setting that scene I'll give a brief general market assessment and then a personal assessment of each of the wine merchants I've had dealings with in recent times and those which I have observed closely enough to comment on.

The stages of an internet wine merchant. These probably apply to bricks-and-mortar merchants too, but it's more pronounced and easier to track for those merchants who rely significantly on internet sales)

Start up
There are degrees of scale here, from the ambitious debut of Wine Planet early in 1999 (to closure around the end of 2000 or early 2001, the best and quickest example of all these stages) to the early days of WineWerdz (now Winestar) that were a lot less ambitious, but have resulted in survival and maybe even prosperity. 

Whatever the scale, this stage is characterised by shaving margins to give very competitive prices, maybe even making a loss to build business.

Ramp-up
This is the stage where commercial reality dictates that prices must rise to allow a desired profit to be realised, the changes can be relatively swift (and hence quite noticeable) or more subtle and accompanied by continued weekly specials or other measures to distract from the otherwise rising prices.

Plateau
At this stage the pricing regime reaches stability and the marketing differentiators start to become more obvious.  This may take the form of the type of stock offered, periodic super-specials, "free" freight, bonus points for awards, buyer-community encouragement via forums, dinners etc.

Correction / Stabilisation
If the market in general tightens, trade falls off due to rising prices, new competitors emerge, a wine glut occurs, etc there will be adjustments in either prices or one or more of the market differentiators.

Expansion / Takeover
If the business has survived to this stage, there may be sufficient happy customers to provide stability and/or steady growth.  This may lead to a desire to expand more rapidly, either by some change to the basic business model in an attempt to reach more people or expansion by buying a complementary business.  Alternatively the success may attract a well-heeled competitor or start-up and the business is sold, perhaps leaving the principals to start all over again if the buyer didn't have a tight contract.

Closure
This can happen due to lack of success or due to takeover by a competitor resulting in closure of the business and absorption of the customer base into the takeover business.  (There are quite a few examples of both of these over the last few years.)

State of Play in early 2004

Most of the Australian internet wine retailers are in the Plateau / Stabilisation stage, with recent new players mostly jumping straight to the "me too" pricing Plateau stage (often from established shopfronts, eg Jims Cellars, Kemenys) or attempting to have a marked differentiation (eg Cloudwine with small-maker specialisation). 

The main retailers that I deal with and observe seem to be doing it reasonably comfortably at the moment (I'm sure I'll get some feedback if that's not true), despite pressure from the majors and general street prices well below RRP:

• there is no single aggressive price-leader, previous price-leaders in start-up have all ramped-up to join the next level pack;

• freight-inclusive pricing is common (at least for Melbourne-based merchants, not much in Sydney);

• "me-too" pricing is common place for a lot of lines;

• the many specials are wide-spread (some obviously winery-supported) but different enough between merchants to keep you looking; and

• if you ask you will often be able to score a slightly better deal than advertised if you are a regular buyer (this could be also an indication of competitive conditions as well as of "disposable margin" for good customers).

No internet merchant has been game (or foolish) enough to try to emulate the scale of offerings that Wine Planet attempted, they all seem to be happy in a market niche made possible by the neglect of the major wine chains, or perhaps the impossibility of the big chains being able to cover all niches, especially with ACCC oversight.  The most successful of the independent merchants seem to target the high-budget "serious" wine-buyers, those who graduate from Cellarmasters or walk out of Vintage Cellars or Dan Murphy stores in disgust at the range and prices and who want to source premium wines at a reasonable price or emerging small-maker wines without joining dozens of mailing lists.  This is a pretty obvious strategy, you can't make money offering "free" freight on casks or under $10 bottles of wine that the majors can buy cheaper.  It's also to some extent self-limiting, the pool of well-heeled serious wine buyers grows only slowly and probably accounts for less than 10% of wine-buyers.

Recent developments in marketing have seen increased incidence of:

• Specials lasting for much more than the week that was common in the past, often several weeks or even longer until sold out, some ongoing price points would seem indicative of producer support as well as general competitive pressure.

• Non-alcoholic bonuses (eg corkscrews, wine books, wine racks and travel goods), some of these must be producer-supported.

• Alcoholic bonuses (eg 13 or 14 to the dozen, magnums, beer, spirits etc) are becoming more common to encourage 6-pack or case buys, again some of these must have producer support,

• Extra discounts on slow moving stock from lesser vintages as the newer vintages appear,

• Rapid price fluctuations with large specials lists to keep consumers guessing (especially Dan Murphy)

Some of the main Differentiators
These are the main differentiators I see being used successfully:

• Price-Matching - overtly by Dan Murphy, less overtly (and quite widespread) by many others, especially for regular customers

• "Free" freight, mostly from Melbourne retailers, is there a lot of "light-loading" on returning freight trucks out of Melbourne giving them better deals or is it just worth the cost to get the Sydney/Brisbane sales?

• Scarce premium wine deals and small-makers at less than CD prices.  (eg Cloudwine, Auswine, Winestar)

• Clubs / Forums / Loyalty Bonuses or points schemes for regular buyers. (Cellarmasters, Vintage Cellars, Auswine, Winestar)

• Buy 3 bottles, get 20% off seems to be helping Candamber keep local shop business.

• Keenly-priced or "loss-leader" specials (mostly the majors)

• Exclusive wines or own-label wines (Vintage cellars, Cellarmasters)

• Cleanskins - nearly everyone these days, with the better merchants being very selective and offering quality wines at value prices.

Wine buying strategies

The beauty of the internet age of wine buying is that it is relatively simple to compare prices once you've decided what to buy (I've covered my strategy for deciding what to buy in a previous article) and describe the sources of pricing information (especially for a specalised segment of reds) on my RBG page. 

I still find it a little surprising that I see Sydney residents buying wine from Melbourne merchants when the same wines are available more cheaply in Sydney although the quirks of the market may see a buyer getting freight to their door included in ex-Melbourne orders but having to pay freight in Sydney or travel in horrid traffic to collect the wine.  It's a peculiar market in some ways, I've even bought SA and WA wine delivered from Brisbane cheaper than I could get it locally or from closer interstate merchants.

What is obvious is that the difference between the common good price and a readily obtainable better price can be substantial and as much as 40% or more for some moderately scarce premium wines in the $40 - $80 price range.  If you have followed the RBG page you will have seen numerous past examples of this and recently an example of the 2000 Houghton Gladstone's Shiraz being $45 at one chain merchant and $65 at one of the independents who used to be a price-leader but has now mostly ramped up to the next level pack. Price differences of 10% to 20% are common across most price ranges within the "competitive" group of retailers. 

So, if you spend $5,000 on wine each year, you could save more than $500 by buying carefully instead of habitually or carelessly, if you buy $10,000 worth of wine each year you could be spending more than $1,000 supporting the lifestyle or retirement plans of your favourite merchant rather than stocking your own cellar.  While it's nice (and often mutually beneficial) to be on friendly terms with a few retailers, don't forget that habitual buying without noting exceptions or a change in pricing policy will always cost you money.  If that "personal" relationship is worth the extra cost to you, fine, I don't have that money to spare and I'd rather save the money or buy more wine than support a merchant who is getting greedy.

So, where have I been buying so far this year?  Here's where:

Merchant Assessments (in alphabetic order)

Australian Wine Brokers
A new site for a quite new merchant with a shop front in Canberra.

Site: New, custom-built, quite fast, reasonable searching/listing, descriptions (mostly producer, distributor, third party) for many wines, the catalog looks like it's dumped from distributor/wholesaler lists, most have vintages, some don't and some have two vintages listed.  Online ordering does not handle card transactions, print and fax or phone to complete orders.

Differentiators: Case buys only, i.e. original producer 6-packs or cases of 12. 

Range: Extensive range of mostly premium and up level wines, still being loaded as at 6/4/04.

Prices:  Mostly with the bunch, some very good prices, but it remains to be seen if they can deliver at the prices advertised, they have a disclaimer to the effect they can changes prices or cancel any order at any time.  Two initially good prices have already jumped nearly $60/case, making it marginal.  Freight to Sydney and Melbourne around $8/case, Adelaide $11, Brisbane $10.

Service: TBA, I have an order in, waiting to see if they can deliver at the price.... So far they seem to be ordering in when you order, credit card not debited until stock arrives, quotes 7-10 days for delivery.  No reply to 2 emails asking for an update to orders after 12 days, a phone call indicates my Fox Ck Res Shiraz 2002 order will ship at the advertised price (as at 6/4/04).

Auswine
Adelaide-based retailer with Australian and US web sites, forum and email offers.

Site: Attractive site that works quite fast, quite a few "canned" lists (new wines, hot wines etc), but search facilities are limited.  Secure on-line ordering.

Differentiators: Auswine forum, email offers, good source of mostly SA small makers at good prices, Points scheme and sometimes extra discounts for frequent buyers.  Access to super-premium back-vintage cellared wines.

Range: Quite extensive at the premium and up levels.

Prices:  Struggles a bit with mainstream wine prices, but Auspoints rewards help cover freight etc.  More competitive on sourcing SA small makers with premium and hard-to-get wines regularly offered at reasonable prices, often less than CD.  Freight $11/case to major cities, includes insurance.

Service: Very good, I order by email and trust Gavin to safeguard credit card details, willing to hold 6-packs to make up orders at a later date.  Wines offered are not always in stock, be prepared for delivery delays on new releases offered, reliable delivery via Australia Post.

Avalon Fine Wines
Sydney-based retailer who has regular email offers and print adverts.

Site: None.

Differentiators: Email offers to mailing list members in advance and in addition to print adverts, some sharp prices.

Range: Unknown in-store, small range advertised.

Prices:  Competitive, but plus freight.

Service: Not bought there yet.

Boccaccio Cellars
Melbourne-based retailer with web site and email offers.

Site: Fairly basic, but works well and is quite fast, most wines have lots of info provided.  Secure online ordering.

Differentiators: "Specialised" range online, freight included for orders over $200 (eastern capitals + Adelaide), willing to negotiate prices for frequent buyers.

Range: Limited, premium-level only online.

Prices: Advertised prices are similar to the rest of the independent Melbourne internet retailers, a few very good prices, may be negotiable if you buy frequently enough.

Service: Very good, I order by email and trust them to safeguard credit card details, willing to hold 6-packs to make up orders at a later date.  Wines offered are mostly in stock, reliable delivery via Australia Post.  Contact Anthony D'Anna.

Next Instalment

That's enough for one instalment, the rest of the merchants I intend to cover (see the list above, plus more) will be included in the next article or maybe two, depending on how carried away I get.  I might even let loose my opinions on Cellarmasters in all it's myriad forms, that could be fun.

Part Two can be found here

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