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Cost of wine on the High Street

Once again Peter has challenged me, so here is my response on excess drinking and the cost of business. Thanks Peter!

I mentioned that I thought the Threshers “3 for 2″ campaign was a good thing, to which Peter asks:

“So you don’t agree with recent claims that such offers encourage binge drinking?”

In general terms no, I don’t agree that a “3 for 2″ encourages binge drinking. I am still of the opinion that all consumers (who can legally buy alcohol) should be treated as reasonable and responsible adults. I really don’t like this government’s campaign to control personal decision-making in all sorts of areas and not just alcohol.

Do you think that Majestic insisting on people buying a case of 12 is 4 times as bad as Thresher? Of course not. Binge drinking is an issue I’m sure, but restricting the sale of these products is not the answer.

So, assuming people can buy more than one bottle without drinking them all at once, why should we encourage this?

“The real problem with Threshers is that the single bottle price is so inflated. With Tesco, their instore prices are equivalent to the discounted Threshers price, and so an additional 30% is a deep discount.”

The issue is cost and convenience. Threshers operates out of small shops on high streets. They specialise in certain types of wines, those the consumer is familiar with and wants to buy fairly regularly. This means that they are not competing with independent wine specialists whose niche are small production, probably higher cost wines, but directly with the supermarkets who sell the same wines. Of course the supermarkets can afford to get prices very low because they have bulk buying power and other economies of scale.

So where does it leave Threshers? We cannot really expect them to be able to sell the exact same wine as Tesco for the same price can we? Why should they? We really ought to be prepared to pay a premium of some sort to be able to buy that single bottle of wine on our way home without having to negotiate all the aisles and checkouts of the supermarket.

They could have left it at that, and maybe survived, but the pressure would have been ongoing (arguably what is happening to Oddbins). So instead, they have a contract of sorts with their customers that goes something like this:

“If you are prepared to buy in slightly greater volume (thus increasing our cash flow and turnover of bottles), we will reduce our total price to you to be in line with those places you might otherwise shop”

That is obviously too complicated a message, but anyone can understand “3 for 2″ and it is therefore a good marketing concept. Do I begrudge them trying to survive? Not at all. You can still buy that single “emergency” bottle on the way to the party, or after a tough day or whatever. If you think that premium is too much, you can still go to the supermarket instead.

No-one criticises Majestic in the same way for a vaguely similar model, quite the opposite. In fact their prices are also more or less in line with other retailers but only because they demand that you buy in volume. They won’t even allow that single bottle purchase. Surely this is something we could praise Threshers for?

When Tesco, Sainsburys et al offer a further 25% or 30% discount, Threshers and other smaller retailers simply cannot compete and still make money. However, they have to find ways to stay in touch as they still need to trade. Where I have the problem, as I have raised elsewhere, is when they try to do so by ‘bamboozling’ customers by talking about percentage discounts instead. I would like to see them try and find a differentiator that was not price and discount driven instead (as discussed many moons ago here and here) – it seems a sensible suggestion for longer term differentiation.

I should state for the record that indirectly I am involved as a supplier to Threshers (as well as Tesco, Sainsburys, Majestic and many others), but that my views on this are quite definitely my own and presented in the spirit of improving wine knowledge and discussion rather than promoting or knocking any specific retailer or wine.

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