Researching the Business Side of Wine
Studies on importance of branding highlight wine business researcher conference at Sonoma State
Rohnert Park, Calif.—Earlier this week, academics from around the world gathered at Sonoma State University (SSU) to present research on a vitally important part of the wine industry: selling the stuff.
Ten years ago, researchers in management, economics and business at universities around the world formed the Academy of Wine Business Research (AWBR), which has met each year at wine business schools around the world including SSU. Next year the group will convene in Stellenbosch, South Africa.
“I was pretty lonely working on wine marketing and wine business research in Australia; there weren’t many people to talk to,” said Larry Lockshin, outgoing president of AWBR and the head of the School of Marketing at the University of South Australia Business School and professor of wine marketing at the Ehrenberg-Bass Institute for Marketing Science, about forming the group. Lockshin said the group was for other wine business specialists toiling away by themselves in business and economics departments where their colleagues’ only appreciation of wine amounted to a glass or two at the end of the day.
Lockshin said he is proud to have seen the AWBR provide a collegial environment for sharing ideas and sparking collaborative research among the wine business schools of the world. “It’s collegial in all senses of that word,” he said.
Taking place over two days at SSU, the conference included presentations about wine sales patterns, sustainability analysis, risk management, wine tourism, case studies and even statistical analysis of the effects of wine ratings. Speakers included researchers from U.S. wine regions such as Texas and North Carolina and from international locations such as France, Germany, Australia, New Zealand, China, Spain, Brazil, Italy, Chile, Sweden, Norway, Austria, the Czech Republic and Greece.
And contrary to some of the conventional wisdom regarding wine clubs and other direct-to-consumer strategies for lesser-known brands, the experts at the conference suggested the best route to better sales is finding new customers and increasing one’s share of the wine market.
Just like any other consumer good
Several of the presentations during the first day of the conference concerned the buying habits of consumers. Research indicates that people appear to buy wine just like shoes, groceries, televisions and other consumer goods.
Armando Corsi from the University of South Australia made several presentations that analyzed wine-buying trends and found they followed a “negative binomial distribution” trend, or that most people just buy a few items of a particular category over a certain amount of time. Larger brands with higher market penetration also dominate, and smaller brands face the consequences of what’s known in marketing as “double jeopardy,” in that producers who are less known have a smaller share of the market.
This trend is also at the basis of what is known as the Dirichlet model, or a process that can be used to predict buying behavior.
In analyzing how consumers shop for wine online, Corsi and other researchers studied data from one of Germany’s largest online wine retailers. Taking out purchases for short-time sales, fortified and sparkling wines and special purchases based on loyalty points, Corsi analyzed 154,000 orders from 22,000 customers. He found that wines from well-known countries such as France or, in the case of Germany, South Africa, acted just like large brands with high market penetration in that they performed the best.
Niche products such as Pinot Grigio had small penetration but high purchase frequency because of consumer loyalty. Consumers reacted to country of origin and price, and so the concept of double jeopardy applies to wine. “The market behaves in a certain way,” he said. “Whoever is the leader will continue to be the leader.”
Hervé Remaud, senior professor of marketing at KEDGE Business School and associate researcher at the Ehrenberg-Bass Institute for Marketing Science, discussed a comparative analysis of online and retail shoppers to see if they act differently. That study, based on data from Belgium, also found shoppers purchased either just one bottle from the store or the equivalent of one unit from the online retailer, which offered free shipping based on a minimum order. Higher quantity sales occurred at a much lower frequency.
Shoppers also gravitated toward the wines with the largest market penetration. “To some extent there is no difference in the way people buy online versus in a brick-and-mortar store,” Remaud said.
A similar conclusion came out of a study comparing how shoppers in the U.K. market respond to country of origin for wine and butter, and whether that would change over time. Shoppers were just as likely to keep buying French wine a year later as they were to stick with English butter.
Remaud also discussed an analysis of buying trends for wine and beer between rural and urban residents and found the same trend that fit the Dirichlet model. Brands owned by large corporations dominated, while brands with smaller market share had far fewer sales. While there was more fragmentation of sales between multiple brands in the urban market, those with the highest penetration enjoyed the best sales.
The experts said small brands or wineries in lesser known wine-producing countries such as Portugal or Greece would be better served trying to expand their market presence than expecting more from existing customers. “If you want to grow your brand, you need to focus on getting more customers rather than increase the amount of buying by your existing customers,” Corsi said.
The model can be useful for small brands looking to build a growth strategy. Rather than trying to compete with the largest brands, a small winery could use the model to create realistic benchmarks for market growth. “If you have money to invest, you’re better off trying to get one new customer rather than building loyalty programs,” Corsi said.
What retail buyers want
Lockshin presented some early findings from a thesis project by Anne-Marie Azzurro at the University of South Australia, on trying to determine the factors influencing retailers’ decisions to stock wines. The study is seeking to determine of taste, value, variety, region, price, packaging and other factors, which are the most important for retailers.
The qualitative study was based on interviews with buyers in Australia and is intended to help wineries determine how to best position their brands to capture the influence of retail buyers. Lockshin said the Australian market is split between two large companies—Woolworth’s and Wesfarmers—that account for about 60% of the market; the rest is covered by independent retailers who can have multiple locations.
Lockshin said in initial interviews retailers said “everything matters,” so the researchers decided to change the format to a series of questions in which retailers were compelled to make a decision based on a choice of factors. “We tried to create some scenarios to force the retailers to tell us what they were doing,” he said.
The interviews also were analyzed to see which factors kept coming up in the discussion, or essentially what the retailers talked about the most.
Taste was the most important factor, with several retailers saying they had regular tasting panels in which they would compare a potential new product to what they were already carrying. “If it’s not better, or it doesn’t have a better deal or label or taste as good or better than what’s selling, they won’t put it on their shelf,” he said.
After taste, the most important factors were price, availability of shelf space, label and packaging, supplier terms, variety, region, uniqueness, brand, if a competitor offers the wine, awards, winemaker, exclusivity, vintage and winery size, in that order.
Retailers also will always have their core set of brands because they sell well, consumers expect them and they come with marketing support from the suppliers. For a lesser known winery in a not-yet-famous region, Lockshin said it may be a better bet to focus on building one’s brand. “If your region is good or growing, in a sense it will take care of itself over time,” he said. “If you have a chance of putting money into a branded promotion rather than a regional one, I would always go for the branded event.”
From a comprehensive 2016 study of the U.S. wine consumer I was pleased to co-author (2016 Merrill Wine Monitor, Merrill Research), "varietal" tops the list as most important in deciding what wine to buy at a store. Next most important is "great wine for the price, followed by "style, e.g. bold, smooth, fruity", "high quality" and "prior experience with the brand" in 5th. 2/3 do research before buying wine at a store, with wine information sites mentioned most often followed by friends/family.
While brand building and capturing new customers/ market share makes sense, wonder what the cost benefit is compared with customer retention which is 6X less expensive? Cheers