Examination of Witnesses (Questions 660
- 678)
WEDNESDAY 2 MAY 2007
MR JULIAN DYER AND MR DAN JAGO
Q660 Viscount Brookeborough:
I spoke to the lady on the till while my wife was paying for everything,
and I just asked her how she knew which wines to stock and how
she decided to organise her shelves and everything else, and actually
only about 15% of it was French wine. But she said that one of
the staff watches every food and wine programme—not an individual,
but at all times there is somebody watching every food and wine
programme throughout the week—because "If we do not
catch on by Saturday when they all come shopping, we lose out."
To what extent does that affect it? Does the trend change?
Mr Jago: I think the trends take a lot longer
to develop and mature than that. I would love to think that we,
as a retailer, reacted as quickly as that. I think in terms of
where our range is positioned and what promotions are on and off,
we decide that fairly far in advance, and certainly how products
are merchandised on shelves and where they go and how many are
faced centrally on a fairly regular basis. I think it is important
for us—and we have a large customer insight within our business,
who spend a lot of time talking to customers and asking them about
what they think is important to them, and that applies to food
and to various other things. I think understanding your customer
is what supermarkets have proved to be extremely good at and,
if we did not understand what customers want but at the same stage
assisted them in leading and changing their behaviour, I think
we would not be in business for very long.
Mr Dyer: I have just a couple of comments to
make. Recommendation is key, as I said earlier, because wine is
so confusing. So, if a TV programme mentions a wine or a mainstream
journalist mentions a wine and you stick up some point of sale
saying, "So-and-so selects," you will get some pretty
good uplifts. But it is short burst and it is simply on the basis
that it provides a bit of navigation whilst the customer is at
the fixture. There are, none the less, some bigger trends taking
place, one of which is the growth in rosé wine, which is
spectacular—the wine market is flat but rosé is growing
at 30%, which is huge, driven by more sophisticated marketing
by the likes of us to get these out to customers, having better
summers over the last few years so more people want to drink rosé,
and better quality rosés coming on to the market, and the
real growth of the Californian wine rosé style. These are
trends that are taking place and clearly we need to make sure
that we are at the front edge of them to offer the best to our
customers.
Q661 Baroness Jones of Whitchurch:
You have touched a little already on the question I wanted to
ask, which really follows on from the last question. How much
are people, individual consumers, objectively discerning about
what wine they like? And how much of it are they told what they
should like, either by recommendation or by the little blurb that
you write, "This is a good wine to eat with fish" or
whatever you write on the label on the supermarket shelves? How
much are you driving people's tastes rather than just relying
on your tasting sessions—and presumably Sainsburys do something
similar? It seems to me that people are massively confused and,
therefore, it is an open door for you to tell them what they should
like.
Mr Jago: Wine is enormously confusing, there
is no two ways about that, and all the evidence says that a personal
recommendation is the strongest endorsement of a product you could
ever see. If one of us says to somebody, "I think this is
a delicious wine; we had it yesterday, it was absolutely wonderful,
great value," from Sainsburys or from Tesco, they will go
and buy it and there is very open accessibility and influence
possible in wine. I think we have to be responsible in that and
try to find a balanced series of suggestions or recommendations
and we will put up journalists' recommendations. Whilst I do not
think they account for an enormous percentage of sales' uplift
on a particular product, people do find it much easier to navigate.
But previous experience is generally the biggest defining point
and why people buy a certain wine before price—if they have
tried it and liked it they will go back to it again; and promotions
will be where they start to experiment with new wines that they
have not tried before. So recommendations are important but they
are not above and beyond anything else.
Mr Dyer: The wine industry is considered to
be flat, so clearly we have an interest in making sure that we
are driving value and encouraging customers to trade up and trade
across different categories and try new things. If you look at
most supermarket own labels these days—Sainsburys, Tesco—we
are pretty good at putting taste and food recommendations on packs,
so every own—label product will say, "Try this with
this; this goes great with that", to get people to think
that this is part of a food occasion and not just a drink on its
own, and to get them to trade up and try different products. All
the marketing that we do around the store is around saying to
customers, "Look, if you like this, try that." We do
drinks festivals and wine festivals during the year, where we
put up point of sale and say, "If you have thought about
this, why do you not try that?" We do that in our media in
the Sainsburys magazine and other customer drops, just to encourage
them to break out of their repertoire, because a lot of customers
buy a relatively small number of products. So it is all about
trying to engage, educate in the right way and to get them to
experience wines outside their common purchase repertoire. That
is the future of wine retail in the UK, to get people to drink
it more with food, to actually understand the wine styles better
and to experiment more; that is what a lot of the retailers now
are dialling into, to try and push that one. So we give them more
information, that is the way to look at it.
Q662 Baroness Jones of Whitchurch:
When we were talking earlier about the labelling, how much research
is there? Do you do detailed customer research about what they
would like to see on the label?
Mr Dyer: Yes.
Q663 Baroness Jones of Whitchurch:
As you were saying, it is sometimes deliberately obscure. Is there
in the public domain something that we could go back to the EU
and say that these are the changes that British consumers are
demanding in labelling, for example?
Mr Dyer: Actually specific, I am not sure of
anything in the public domain—you might want to differ,
Dan, or know something I do not—but we commission a lot
of internal research. Our suppliers, particularly the brands,
commission a lot of research into what does and what does not
make a good wine label and what we should do, but I have not seen
anything in the public domain on labels. There is a lot of wine
research on sales—white and rosé, up down; countries
up down; price points up down; colours; every which way you want.
But I have not seen any empirical statistical research to say
that this is what a good label does or does not look like.
Mr Jago: As you pointed out earlier, it is so
subjective as well that it would be quite difficult to come up
with something that was definitive, and I have not seen market
research on what makes a good label and what makes a not—good
label. Those with the money to fund them tend to be focused on
their own product, and certainly we undertake research on own—brand
packaging with customers. But it tends to be within our own customer
sphere. We have a thing called the Wine Club, which actually is
an opt-in club which now has 568,000 members, and they get a mailing
every four to six weeks, which has lots of information about wine
and about labels and styles and we use that quite aggressively
to interact with our customers to get them to understand a bit
more about what we are trying to do to get their feedback, and
we do get quite a strong dialogue, and the style of labels is
not something that comes up very often.
Q664 Chairman:
Does your back label compensate for the confusion and lack of
information on the front label?
Mr Dyer: Yes. All our back labels, whether they
are New World wines with a very simple front label or Old Wine
wines with a relatively simple front label, provide what grape
varieties are in it, what the alcohol level is, what it will taste
like and what you should drink it with, and obviously any other
legal constraints, such as that it contains sulphites, et cetera,
et cetera, and we have a fairly consistent standard across all
own label.
Mr Jago: We are looking at back labels currently
on Tesco brand products where we have had similar levels of information
for some time. With the changing legal requirements in terms of
back labelling, with current voluntary know—your—limits
legislation, with the increasing likelihood of the pregnancy message
being again voluntary but required, if you like, with the units
of alcohol legislation within that. It is becoming plus recycling,
plus all the information you need, plus a bar code—the back
label is increasingly becoming a desert of usual consumer information
and the home of technically and legally, shall we say, controlling
information, and I think that is a real challenge because if you
look at the bottle it is only so big.
Q665 Chairman:
Your back labels are very good.
Mr Jago: I think it has become genuinely quite
a challenge to get enough information on to a label and we are
experimenting with ever decreasing font sizes, and as I get older
I find I have to take my glasses off more often to read them than
I did before!
Q666 Lord Ullswater:
Can I just introduce one further thing? What about the international
competitions and the awards that are given at international competitions,
which you can then put on your wine bottle? Does that influence
sales?
Mr Jago: The dominant ones are UK—based
now, with the International Wine Challenge, the National Wine
and Spirit Competition and Decanter being three of the primary
ones. Most of the others tend to be national specific, so Australia
will have its own set of competitions and California likewise.
Yes, customers love endorsements from that forum, they have said
this frequently, and we will use all of the recommendations and
medals and awards that we get in our material and on our literature,
and there is nothing like sticking a few big gold medals on the
front of a bottle of wine to make people steer towards it—I
think that has been proven.
Q667 Lord Plumb:
The Lord Chairman is always reminding us that we are an EU Committee
and, therefore, we should look at this whole business in that
context. You did say that there seems to be a small but growing
domestic market, nevertheless, but the Chairman reminded us also
at the beginning in his opening remarks that the cost of the wine
regime at the moment is something like €1.5 billion. You
see the dilemma we have as a Committee in looking therefore at
the EU wine regime and that cost, when we see the graph that you
showed us, with the increasing volume of wine coming in from New
World areas. Do I take it that you are saying that quality wines
are coming in now more from the New World than was hitherto? And
are they replacing the quality wines with which we are familiar
from some of the European countries? Are they exploiting that
market, which you can understand them wanting to do? But how do
we balance, therefore, the table wine, which is the familiar wine,
which is increasing in consumption, with the higher—priced
wines and the quality wines which are still more so perhaps in
competition, from what you have said, than hitherto?
Mr Jago: I think it is a fairly complex question,
but I think one of the things that you as a Committee will be
looking at is an understanding of the definitions between quality
wine and table wine, which are very much European—driven
legalistic terms designed to separate those who abide by the law
from those who do not abide by the law, or those who produce within
certain qualitative guidelines. The New World does not have the
same regulations around it and they certainly do not define their
wine as being table wine versus quality wine, and neither do we
as retailers. If you look at the traditional Vin de Table or Vino
de Mesa versus Appellation Contrôlée, we sell
Appellation Bordeaux at under £3 a bottle. We also sell Appellation
Contrôlée Bordeaux at £100 a bottle, so there
is a fairly broad reach, and our consumers certainly have no understanding
of the difference between a Vin de Pays and an Appellation Contrôlée.
As far as they are concerned, it is the way in which the product
is marketed and the price it sits at that defines its qualitative
hierarchy rather than necessarily any form of legislative burden
or support that is being given, particularly within the EU. I
would like to make the point that I have always felt that one
of the problems that the EU legislative environments, Appellations
Contrôlées, particularly DOCs, have is that they
have been generally protecting their members rather than protecting
the quality of the product. If you look at Bordeaux, my understanding
was that two years ago the Appellation Bordeaux Contrôlée
actually rejected 30 wines out of a production of, I think, somewhere
in the region of hundreds of thousands of wines as not being suitable
for membership of the Appellation Contrôlée. These
were individual wines which were tasted by the committee, and
one would suspect that there are probably a great deal more wines
than that which might not live up to the consumers' expectations
of quality Bordeaux.
Q668 Baroness Miller of Chilthorne Dormer:
Without disclosing any commercial confidentialities, how would
you really see the wine trends in terms of demand now, looking
back perhaps a couple of years and then into the future between
EU and New World wines?
Mr Dyer: Clearly it is well documented, the
growth of New World wines in the last 10 years, frankly, taking
advantage of a relatively fragmented and split EU production base
to really advance their sales in the UK; taking advantage of good
grape prices and good strategy. One thing I just thought of, as
Dan was talking, was actually the role that trade bodies have
to play as well, because some of the trade bodies from the New
World have been extremely dynamic and unified in terms of uniting
industry to understand what the customers want and assisting the
producers to develop that. A good example, I buy Australian wine,
the Australian Wine Bureau organises the buyers' visits, gets
us all out there, hosts conferences and has done a tremendous
job over the last 10 years in terms of working with the industry
jointly to develop wine sales. There is no such body in Europe.
France is OK—that actually works together as an industry
to drive sales in the UK. A great example for me was a talk I
gave at an Italian seminar a few years ago. I met up with the
guy who ran the Italian Trade Commission, and I said, "What
is your focus for the year?" He said, "It is the wines
of Valtelina," which is a tiny province in north—western
Italy near the Alps, which produces very little. But they give
them a pot of money, so that is what was going to be his focus
for the next six months in the UK—completely unacceptable
if you are actually trying to engage with customers on Italian
wine. It is that kind of approach, represented many times throughout
Europe, which is hampering a unified approach to UK. That said,
if you crystal-ball gaze, I do think that the New World is slightly
running out of steam. It has flogged the mainstream consumer brands
extremely successfully and they will continue to be viable. But
it has not had much attraction driving sales over £5, which
is, as we have said, where the Old World is strong, and there
are some problems coming up. The Australian vintage this year
is down 30%. OK, there is a lot of wine still in tank, but the
vintage next year will probably be small again. They have had
no rain for goodness knows how long, and they have had some frost
problems, so they will probably have a smaller vintage next year.
So, potentially, supply could be slightly constrained—wow!
That would take a big player out of the market in terms of driving
some big volumes through the UK. I think the Old World is starting
to get its act together in terms of it has the right styles of
wine, some good growth from Spain this year, some pretty good
growth from Italy. If we can just go that extra mile to engage
with customers and make them really understand the quality and
the range and breadth of styles, we could see a bit of life back
in the old warhorse yet. Crystal-ball gazing, I would say growth
will be neck-and-neck and, if anything, the Old World might be
growing slightly faster than the New, but a lot could depend on
what happens in the next few years with vintages and currencies—and
anything really.
Q669 Viscount Brookeborough:
We have talked about Old World/New World. What do you see as the
most significant constraints on English wine producers? Are producers
currently sufficiently responsive to depth, quality—all
the issues that you were mentioning earlier that were important?
Does demand outstrip supply? Or is it the other way round at the
present time? Do you see English wines and French wines being
pitched as premium products in future? Would you give us your
overview of the English wine situation?
Mr Jago: The English wine industry historically
has been a hobbyists' pursuit. There are in many ways, like some
of the more regional Old World producing regions, an awful lot
of people who do it because it is fun to do and a little bit interesting,
and they put something in their cellar and give to their friends
and that is about it. Large commercial operations within English
production are almost non-existent. The one that tried hardest
probably, Denbies down in Surrey, did not work, I think it is
fair to say, although there seems to be a significant re-interest
in English wine right now. It is warming up; there is no doubt
about it. We have some very good south-facing chalky soil on the
South Downs and all the way through to Dorset, and I think there
are a lot of people from traditional agriculture where the vines
are an opportunity. I think we burden English wine production
in terms of the duty regime. The European countries seem not to
have that sort of burden placed upon their agriculture and yet
we insist as a country on placing it upon our domestic production,
and I think that is something that seriously needs to be looked
at if we are going to support it. As we start to see the growth
in desire by consumers for more aromatics and lower alcohol, the
UK market, funnily enough, is absolutely perfectly placed to produce
that style of wine and we as a retailer are certainly encouraging
and supporting as hard as possible people who are doing that.
But it is expensive. A really good bottle of English wine is £10
and there is very little of it. It is quite hard to come by.
Q670 Lord Moynihan:
You could sell a lot more?
Mr Jago: We could sell an enormous amount more.
If I could get good, fresh, bright, not bone dry English wine
that I could sell at £5 or £6 a bottle, and occasionally
promote, I could sell mountains of it without a doubt. But there
is not enough, simply.
Q671 Lord Cameron of Dillington:
Bearing in mind that we are looking at the EU wine regime—and
you have probably answered this already but you may have something
more you want to add to the question—what do you see as
the underlying causes of the differences between your relationships
with EU producers and New World producers?
Mr Jago: From a Tesco perspective, I would go
back to my earlier comment about the way in which these businesses
and industries have historically been financed and structured.
The European market is pretty much family and dynastic: the New
World is corporate and large and, therefore, has found the ability
to deal with retailers on a much more professional level perhaps
than some more relationship-driven styles of the Older World.
Every time I read through the questions I kept coming back to
my comments about being product-driven versus being market-driven.
The New World has made itself a market-driven business. The Old
World has absolutely made itself a product-driven business. When
I used to supply Sainsburys, Julian and I used to joke occasionally
about the idea of the traditional French producer coming in and
saying, "This is my wine; I'd like you to buy it", whereas
the New World producer would come in and say, "The answer's
yes. What's the question?" It really is as stark as that
historically. The important difference, and the opportunity for
the Old World, comes from heritage and history. One of Australia's
greatest wines is a wine called Grange and one of the reasons
it has such authority in the marketplace is that it has been going
since 1951. That is a long time in wine. If you look at how long
some of the cha®teaux of Bordeaux or the vineyards of Burgundy
have been going, or the great estates of the Loire, they have
an enormous amount of history and heritage and provenance. They
have been through consumer cycles on more than one occasion and
I think they have the opportunity to revert to that with some
authority. If they do not seize that opportunity, then, by the
time they do, the New World will have grown up and got it itself.
Mr Dyer: Also, some of the big, more sophisticated
producers with a plethora of product will say at the beginning
of the year, "OK, how much can we grow with you? What do
we need to do to facilitate that growth? How can we support that
with promotions? How can we support that with marketing? How can
we support that with new product developments?" It is that
level of service and engagement which is lacking from a lot of
the Old World, largely because the producers tend to be smaller
and more diverse. That no doubt has played a big role in New World
growth in the last few years—just a more sophisticated approach
to targeting what they have to our customers and doing it better
than other people.
Q672 Lord Bach:
Let us come back to the maze of restrictions and regulations that
the present EU system is made up of and the reform proposals that
we are looking at in the round. In your daily lives, as it were,
and the lives of supermarkets and the business of buying wine
and selling it, how much do the regulations and restrictions in
the EU affect the production and marketing of EU wines from your
point of view?
Mr Dyer: For me, not directly, although indirectly.
If you are looking at a southern French wine, a Vin de Pays d'Oc,
you like the quality, the quantity is good and the price is right,
you can buy it. However, behind that, there are some things which
are obstacles; for example, it has to come from quite a small
region and that could mean that the quality next year will not
be as good if there is a problem with the vintage conditions in
that particular area or the prices go up or down. If you look
at the New World model, where a lot of wines are more generic
than that, a great example is south east Australia, which is not
just from south east Australia, it is basically from anywhere.
That enables big producers to come up with consistent quality,
year in, year out, to pick and blend wines and to come up with
a style at the right price point. Indirectly, that puts them in
a better position, because that means they can come up with consistent
styles year in, year out, which are more likely to maintain a
place on the shelf, whereas if you are an Old World producer from
a smaller area, you know the vagaries of the individual climate
or region or pricing that is going on there.
Q673 Lord Bach:
It is simply that and no more than that? It is an important issue
you raise, but no more than that? I was very interested in your
comments about how you thought the Old World was slowly, as it
were, getting its act together, that potentially there was some
life in it yet. Is that because there is a view that the old restrictions
have to alter and are going to alter? Or is it in spite of the
fact that those regulations and restrictions are still in place?
How important are those regulations and restrictions in selling
Old World wine?
Mr Dyer: A tricky question. We have had pretty
good growth from the Old World in the last year with the current
regime that is in place. I suppose you would call that working
with the current regime that is there. Unquestionably, with more
flexible regulation—rightly or wrongly, and I do not have
a view on that—that would give you more ability to source
wines from more regions within the Old World. Maybe if there were
a constraint on the supply of Pinot Grigio from northern Italy,
you could source it from elsewhere and come up with a blend—who
knows? It would give you more flexibility. At the moment we are
working with the regulations that we have.
Mr Jago: It is about commercial opportunity.
For example, you are not allowed to bottle Rioja anywhere outside
Rioja, therefore we cannot have bag-in-box Rioja, which I think
customers have said they would like, but we work within those
regulations. When we design new labels, we know that legislation
says we have to have, from Chablis, the lettering in relation
to the size of the region of production. I think you work within
the regulations. If they were not there, we would probably try
to be more innovative and we would probably try to find new ways
of communicating with the consumer that we cannot do at the moment.
Beyond that, it does not present restrictions beyond those with
which we are comfortable because they have existed for some time.
Q674 Viscount Ullswater:
There are hundreds, thousands of geographical indications of the
Old World. We, as a Committee, have understood from the evidence
we have heard that people might know a dozen of them.
Mr Jago: Yes.
Q675 Viscount Ullswater:
The trade seems to know about the other 10 thousand but is that
something which you have to contend with and get on with? Or does
it set a restraint on your trade, do you think?
Mr Jago: It is not a restraint on our trade,
as I think I said earlier. We tend not to worry too much about
what the regulation and appellation and controlling nomenclature
of a wine is, if you like. We sell absolutely wonderful wines
that would be classified as Vino da Tavola from Italy which are
probably better than many of the DOCs from the same region. It
is just that, increasingly, producers try to work outside. The
Italians produce an IGT as a new quality classification, if you
like, specifically because a lot of producers said they would
not produce within the DOC and DOCG regulations. They needed another
way of producing varietal wines, so, rather than amending the
existing regulations, they created a whole new category. I think
that was fairly classical and indicative of the way these things
are done.
Q676 Baroness Jones of Whitchurch:
It could be argued that the reason British people now like so
much New World wine is because it was so much easier for you,
as buyers, to buy it. You had nice big suppliers, reliable sources
of it, et cetera, so somehow you have flooded the market with
these great new wines and persuaded people that this is all drinkable
stuff and so on, and you have altered the market. I can see, objectively,
that it must be easier to deal with some of these suppliers than
it is to deal with the plethora of smaller estates around Europe
and all the complexities you have just been talking about. You
could be responsible for this dip in drinking of the Old World
wine. Is that possible?
Mr Jago: It could be, but I would rather be
held responsible for changing UK consumption from below 10 litres
per head to well over 20 litres per head in less than 15 years.
I think the Old World and the New World have both been beneficiaries
of that. As to whether we have flooded the wine market to the
detriment of the Old World—
Q677 Chairman:
Keep on flooding!
Mr Jago:—I suspect one would argue with
that. Yes, it is almost certainly easier to deal with companies
who understand the way you operate your business. Yes, there are
a lot of regulations in Europe that make it much harder to buy
from those places. But, ultimately, we try to follow and work
with consumers' desires and that tends to be the way they want
to go. Customers like things to be easy as well, funnily enough.
Customers do not like things to be made more complicated for them.
Mr Dyer: We could not and should not be pushing
water uphill for our customers. Generally the quality available
now at the prices we have is a great position that we are in,
because we are offering better quality wine at better prices and
that is better for the customer. If that means that New World
wine has grown over the last 10 years and has had to wake up and
change its wine making styles—something on which we have
not commented yet—there has been a lot of change from wine-making
styles from Italy to bring them up-to-date.
Q678 Chairman:
I am going to come in with the last question—the Chairman's
prerogative. Do you have any suggestions on how you get the Old
World producers just to become more sensitive to the market?
Mr Dyer: Be more open-minded. Take a look above
the parapet and see what else is out there. Really understand
what customers are drinking. Produce modern styles of wine that
are in tune with today's palate. Be competitive on price. Work
collaboratively as an industry. Those industries that do well
work together. Australia is a great example: it is one industry;
they are in it together. In France, Italy, Spain it is each against
the other.
Mr Jago: One wonders, if there was harmonisation
of European duty rates, if it might encourage European countries
to look a little further afield in terms of a level playing field
for the price and sale of wine. It is much easier for them to
sell to their local village and their local supermarket when they
do not pay any duty for that produce in that region; whereas knowing
full well that, if they come to the UK, they pay £15 a case
before it gets to the consumer in duty probably tends to make
them err towards staying domestic rather than going international.
Chairman: Thank you both very much indeed.
That has been very, very helpful.
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