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Will Aldi and Lidl change grocery store wine?

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Aldi and Lidl

See all this wine? You won’t find it at Aldi and Lidl.

Will German discounters Aldi and Lidl change grocery store wine in the I.S. the way they’ve changed it in Great Britain? That’s the question to answer as Aldi grows to 2,000 stores over the next couple of years and Lidl opens its first stores on the east coast.

Because the chains have significantly changed the way wine is sold in Britain, not only forcing traditional retailers out of business but cutting sales at mainline grocers.

“You wouldn’t have believed it possible five years ago, but Aldi and Lidl are now setting the pace in the U.K. supermarket wine trade,” writes Finoa Beckett in the Guardian newspaper. “Between them, the pair have 10 percent of the U.K. grocery market, with Aldi alone accounting for one in every 13 bottles of wine we buy.”

By comparison, Costco, considered the biggest wine retailer in this country, has about eight percent of the U.S. market, while Kroger may account for about four percent. In other words, two upstarts in the U.K. have done almost as well in that market as two multi-billion dollar retailers do here. What does that say about the way grocery stores have traditionally seen wine in the U.S.?

What accounts for the Aldi and Lidl success?

• Cut-throat pricing. Each does $10 wine, even allowing for exchange rate foibles, in a way we can only dream of here. Beckett recommends Lidl’s £6.99 (about US$10) Cremant de Limoux, sparkling wine from the Limoux region of France; a similar wine costs $16 here. And she says Aldi does a French red and South African white for £5.49 (about US$8), about two-thirds the price of each in the U.S.

• Supply chain brilliance. A British grocery store consultant told me the companies get such good prices because they make producers an offer the latter can’t refuse. The grocers will buy all of a vintage at one time, so that the producer is happy to sell at a lower price because it has the cash immediately and doesn’t have to wait for the wine to be sold over the course of the year.

• Smaller selection. The same consultant said that smaller selection translates into lower overhead and keeps costs down. “The traditional supermarkets’ massive range makes choosing hard for the 99 percent of consumers who have no idea what most of the wines are,” he explained. “And the discounters have been winning awards and getting plaudits for the quality of their wines, which when combined with their much cheaper prices is a sure fire winner for most consumers.”

That’s the good news. The bad news? So far, Aldi hasn’t shown it wants to do the same thing in the U.S. My local Aldi, as well as the others I’ve visited, has good prices and a small selection, but most of the wines are of indifferent quality — too much Winking Owl and not enough Vina Decana, and I’ve yet to find a white to buy regularly. If Lidl follows the Aldi example, we haven’t gained much.

Still, there is reason for optimism. Most experts ignored Aldi and Lidl when they entered the U.K., and now even ASDA, owned by Walmart, is suffering badly from the discounters’ success.  Besides, given the sad state of cheap wine in the U.S., any sign for improved quality and value is welcome.

Wine pricing skulduggery

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Wine pricing

“This must be a good deal — we spent $40 to save $4.”

It’s bad enough that post-modern wine pricing is designed to make wine buying even more difficult, but what happens when retailers take wine pricing confusion to another level? Call it wine pricing skulduggery, and it turns out wine isn’t the only category that suffers from it:

The fake volume discount. Store A sells Rene Barbier white for $6.99, but offers a 10 percent discount if you buy four or more bottles. Store B, about 10 minutes away, sells the same wine for $5.99. Drive the extra distance, and you can buy four bottles at store B for less than the discounted price at store A ($23.96 vs. $25.16). Or you can buy two bottles at store B, which is all I wanted, and not have to listen to someone at store A tell you that spending $13.98 to save $2.80 makes good sense.

• The previous vintage two-step. This is the time of year when retailers start to get the current vintage, 2014 for reds and 2015 for whites. So beware older vintages with big signs proclaiming deep discounts, like store C did with the 2013 vintage of the legendary Domaine du Tariquet Classic. It was “marked down” from $12.99 to $10.99, even though it’s usually about $10. That’s bad enough. But since it was a previous vintage, the retailer likely got it from the wholesaler at a significant discount so the wholesaler could get it out of the warehouse. In other words, store C is selling the wine for the normal price, even though it probably paid less for it and there’s a good chance that the 2013 suffered after sitting in a warehouse for two years.

• The private label shuffle. Also saw this at store C (though store A is notorious for doing the same thing): A California red with a cute name and a bright and enticing label, in a big display promising all sorts of things a $15 wine can’t deliver. Look at the back label, and the bottled and vintaged information mentions a company no one has ever heard of. That’s because the company only exists to sell this wine to this retailer, and the $15 price is not as much a reflection of the wine’s quality but how much margin the private label company promised it could deliver to the retailer. In other words, $8 wine in $15 clothing.

Depressed? That’s understandable, given how many retailers think wine drinkers are ripe for the picking. As I noted in the cheap wine book: “The best retailers do more than sell wine. They help you find wine you didn’t know you would like.” Obviously, the retailers mentioned here never read the book.

Wine prices in 2016

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wine prices in 2016Wine prices in 2016 won’t necessarily be higher or lower; instead, they’ll be more confusing. That’s because more retailers will move to tier pricing, where each wine has two or three or even four prices, making it that much more difficult for consumers to figure out what’s going on.

This approach, which grocery stores have used successfully for the past five or six years, features a combination of sale prices, club prices, and quantity discounts, and it will become more common for a couple of reasons. First, the big chains like it — for example, BevMo, with 155 stores on the West Coast and in Arizona, offers a regular price; a cheaper, club price; and sales prices. Spec’s, with 160 stores in Texas, has cash, credit, club discounts, and sales prices. And World Market, once a bastion of fairly priced cheap wine, now has so many prices — as the photo shows — I’ve stopped shopping there. The Matua, for example, is $10 or $11 elsewhere for one bottle.

Second, it makes price comparison that much more difficult, and retailers don’t like price comparisons. Showrooming, where shoppers check prices on-line before they go into a store, makes retailers crazy. But if you’re not sure what the price in the store really is, showrooming becomes less effective. Third, tier pricing makes it seem like the product is cheaper than it is. If a bottle of wine is $12.99 list, $10.99 with your club card, and $8.99 if you buy six bottles, you’re more likely to focus on the $8.99 price, even though most of us will never buy six bottles at one time.

Fourth, no one is sure where prices will go in 2016, and tier pricing allows retailers to hedge their bets. Christian Miller of Full Glass Research in Portland, who studies wine pricing, says he expects prices to be flat between $8 and $15 even if some retailers want to raise them. That’s because the biggest distributors and retailers will keep suppliers and producers from raising prices, since the former can still make money on the smaller margins — and higher sales — that come with lower prices.

There is also evidence, says John Gillespie of the Wine Opinions research group, that the $10 to $15 range is still the most attractive price for wine drinkers, regardless of all the talk about premiumization. If that’s the case, then retailers will want to keep prices steady.

In addition, there are a couple of wild cards for wine prices in 2016:

• Several retailers I talked to, including one of the biggest in the country, said price resistance seems to be holding at $25 and up, and some high-end producers who raised prices last year were discounting their wines at the end of 2015 to get rid of excess inventory.

• Will the strong dollar, which should make imported wine cheaper, do that, or will importers and distributors keep the difference for themselves? If they do, then retailers will have more leeway on pricing for domestic wine.

• The California drought, which cut yields for some varietals in some areas in 2015. No one is quite sure what this means to pricing, either this year or next. If higher prices for grapes, thanks to the drought, force wine prices up, will consumers trade down instead of paying more?

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