Concha y Toro: UK commitment pays major dividends
Concha y Toro believes it now owns more hectares under vine than anyone else on the planet, with 9,194ha in Chile, 1,142ha in Argentina and 468ha in California. It is a colossal player in the wine world, dwarfing all other South American producers, and its largest market is the UK.
Our island, 7,452 miles north east of Chile, drinks nearly a quarter of the wine CyT produces. It set up a UK subsidiary in 2001 and has grown rapidly to become one of our trade’s largest wine suppliers. Annual sales of 6.8 million cases leave it vying with Treasury Wine Estates for the position of number two supplier, behind only Accolade.
“That’s a reflection of commitment to the UK,” says Simon Doyle, general manager of the UK subsidiary. “The company has taken a long- term perspective and no other South American company has done that. The Australians started the model, we came in on the back of that and it has certainly paid dividends.
“When we set up, to be close to Jacob’s Creek and Wolf Blass was a massive aspiration for Casillero del Diablo. But it has overtaken them and is now the fourth largest brand in the UK.
“Casillero del Diablo passed the 2 million case mark in the UK in 2016.
“Across our brands, we have the UK’s number one Cabernet Sauvignon, Merlot, Malbec, Sauvignon Blanc, Pinot Noir and Viognier.
“We can plan for growth. If you don’t invest in infrastructure to allow you to deliver then it’s meaningless,” adds Doyle. “Having these vineyards, wineries and brands allows us to realise the distribution goals we have and sustain growth.
“We have had that nice growth platform. It’s built on good distribution and a strong, dedicated team. We have strong investments in customer marketing, insights, revenue management and commercial finance. We are making good progress across all functions of the business to support the channels we want to invest in to do better.”
The growth figures on CyT’s brands are phenomenal: Casillero del Diablo is up 46.1%, Isla Negra 21.2%, Viña Maipo 36.1%, Cono Sur 21.2%, Frontera 6.5% and Trivento 62% (IRI, year to November 2016).
UK sales have been soaring for years, so the obvious question is: can the company keep it up? Commercial director Clare Griffiths is bullish about its chances. “A lot of our growth has come from household penetration,” she says. “Casillero del Diablo penetration went from 5.8% to 8.5% in 2016 (Kantar). The highest penetration in wine is Hardys at 18%-19%. Even if we were to get to that, there is still a big opportunity to get to more households. Seventy per cent of households buy wine and there is a big opportunity for growth. Cono Sur has gone from 2.6% to 2.9%, Trivento from 1.9% to 2.8%.”
Concha y Toro has been very strong in supermarkets but has not grown to the same extent in the convenience channel, so that is a priority for 2017. “There is still an opportunity for distribution. It is around getting retailer distribution and shopper penetration,” says Griffiths. “Brands are key for consumers in a convenience store. It’s an occasion purchase, they don’t have much time and brands are reassuring.”
One of CyT’s main tools for growing the overall wine category in convenience is a free service called Wine Wise. It is similar to Molson Coors’ 60 Second Shop, or Diageo’s My Store Matters in that it offers category advice for retailers that do not have extensive knowledge of wine, and 1,200 have signed up so far.
Wine Wise tells retailers the top three brands in each of the best-selling grape varieties, along with pronunciation, taste profile, food matching and information on how to display wine.
“We have a barrier with retailers when talking about wine, because it’s a very complicated category, with varietals and countries of origin, and a lot of products look the same,” says CyT’s Laurie Billson, customer marketing manager and the brains behind the service. “There are 28,000 licensed independent c-stores and that’s a great opportunity, but also a challenge because there are 28,000 decision-makers running stores and some know wine but the majority don’t have the foggiest. Some aren’t drinking alcohol for religious reasons. It’s a different tack we have to take. Rather than the quality of the grapes and the accolades, they want the reassurance that these are brands people are looking for. They want to de-risk it.
“Wine is a signpost of a good store. A good wine selection makes it worth crossing the street for. You wouldn’t go out of your way to find a better store for tinned vegetables but you would for wine.
“It’s in our interests to keep it as objective as possible. We are one of the leading suppliers but it’s a fragmented market and it’s in everyone’s interests to get retailers better at wine. Wine is worth twice as much as carbonated soft drinks to convenience stores.”
While the wine category is down 3.4% in volume and 2.9% in value, in convenience it is up 1.3% in volume and 1.5% in volume (IRI), with supermarkets suffering the decline.
CyT sees great potential for the convenience channel to grow even further. “Convenience is doing a really good job in the £6-£7 price band,” says James Leacy, category and commercial planning controller. “In the total market only 18% share of volume is at £6-£7. Within convenience that jumps to 27%. In forecourts it jumps to 29%. Typically they will carry a slight premium anyway because of the nature of the store, but it shows consumers are willing to pay that bit more in these stores.
“So, rather than having this big range of rosé, why not stock more stuff at £6-£7 or even £7-plus and put people in danger of spending that bit more. That comes with the backdrop of having to do that through big brands where people are assured of the quality they are going to get, but there’s also the opportunity for store owners to eke out that bit of extra spend from customers by not just having a really big range of cheap wine in their stores.”
Leacy adds: “The top 10 brands account for 29% of sales in the total market. When we look in convenience that jumps to 42% of sales. Big brands are really important to convenience stores. Typically convenience stores have a younger demographic and they are less educated about wine, so having things they recognise becomes more important. That tends to be why rosé wines such as Echo Falls and Gallo do really well in this channel, both because it’s over-faced, but also because consumers are familiar with them because their parents drink them or whatever. Getting the right mix of top 10 brands across relevant price bands can really grow sales in this channel.”
Chile is the sixth most popular country of origin for UK wine shoppers, but within convenience it jumps up to third thanks to the strength of its brands (IRI). It is one of the star performers in convenience, with sales up 20%, while New Zealand is growing at 18% and Argentina at 29%.
CyT has the leading brands from Chile and the top Argentinian brand in Trivento, and further growth in 2017 should come from specific brand plans. Each has a clear role to play in the portfolio and a clear idea of which consumers it is targeting.
The leading volume driver is Casillero del Diablo, and 97% of its sales come from its core Reserva range, but it is planning to champion its more expensive Reserva Privada in 2017.
“People are looking to trade up and they want to spend a bit more and have that reassurance of the brand,” says marketing controller Laura Thomas. “It’s from the best valleys, it’s more site-specific. It’s saying, ‘if you want to spend a little bit more, come with us’. It offers quality and good value for money versus its competitive set.” She points to Wolf Blass and Jacob’s Creek as doing a good job on tiering their ranges and believes Casillero del Diablo could emulate that.
“It is the number four UK wine brand – an impressive feat. When you think the top three all sell at a much lower price point and a very different proposition, that’s fantastic. We are pretty much the number one premium wine brand. We could easily become the number three brand by dropping the price and going for it, but we want to keep the special premium nature.”
Cono Sur is another priority for the company. Dan Featherstone, marketing manager for Cono Sur and Isla Negra, says: “Cono Sur has grown from £8.4 million to £24 million in two-and-a- half years. It has real momentum. In the context of a flat wine market we are really proud of that. We have the number one Pinot Noir and Viognier.
“In 2017 we will build our momentum in grocery and build and scale an impulse business. Bargain Booze and Nisa are key retail partners but we don’t have a scale impulse business. We want to go from 30,000 cases to 250,000 cases in the next three years in impulse.
“It’s not a brand a lot of retailers are aware of. We need to convince retailers it’s low risk and it will sell off the shelf. We are just going to focus on Pinot Noir. It’s the UK’s fastest-growing grape variety after Malbec.
“Isla Negra is a top 30 BWS brand comparable with Guinness. It has the UK’s number one Merlot and number one Sauvignon Blanc – close to 2 million cases a year. It is between 300,000 and 400,000 cases in impulse and we want to go to 750,000 in the next three years. Hardys is 2 million cases in impulse and that’s what our ambition should be for Isla Negra.”
The final core brand is Trivento. Brand manager Natasha Erlandson says: “Trivento consumers are AB demographic, 25 to 40-year-old blokes enjoying wine on grown- up occasions. We are going after barbecues. It makes perfect sense. Argentina is synonymous with barbecues, bold flavours, bold wines and great meat, especially steak. We are launching the campaign in May. National BBQ Week is at the end of May. Retailers start promoting it in May and it doesn’t end until September.”
On-pack promotions offer consumers the chance to win the “ultimate” barbecue party, cross-category promotions link it to meat at Nisa and a Wine to Water promotion gives a free bottle of water with every bottle of Trivento retailers buy at wholesale. Outside barbecue season a neck collar promotes Trivento’s position as the UK’s number one Malbec.
A key challenge for the wine trade is attracting younger drinkers, and CyT believes Frontera can do that thanks to its sponsorship of the Brit Awards, a label that apes craft beer and on-pack promotions giving away festival and gig tickets. Brand manager James Hick says: “We have proven appeal to younger wine drinkers. Research shows it appeals to 18 to 35-year-olds. Echo Falls and Blossom Hill have a female bias, but this appeals to both males and females. It’s a brand that targets risk-averse young adults, and we reached 6.6 million through the Brit Awards sponsorship.”
With all these bright young things determined to keep UK growth accelerating, plus a global business based on ownership of vineyards and control of the supply chain, the future is looking positive for CyT.
“We can plan for growth,” says Doyle. “If you don’t invest in infrastructure to allow you to deliver then it’s meaningless. Having these vineyards, wineries and brands allows us to realise the distribution goals we have and sustain growth.”