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What The Market Says
Crumbling Brand Access Fees for New Zealand Sauvignon Blanc
Monday, 17th March, 2014  - David Farmer

Goodman Fielder and Pacific Brands, both sell many icon brands, yet struggle to convince retailers that they have 'brand power'. The big chains suggest the opposite is true as strip away the brand and what is dressed up as powerful is just a basic commodity.

The grape vine is a productive plant and water and sun work wonders in making fruit that can be manipulated into an alcoholic beverage which has found favour for over 6000 years. For producers there is a slight problem as at times there is not enough of this beverage while more often there is far too much.

To maintain brand power it is preferable to have under supply but investors are always seeking good returns and the wine business has seen wave after wave of new plantings. Oversupply creates problems as prices tumble and brand power can be eroded.

In 1973 Montana planted the first vines in Marlborough, New Zealand. Sales of the new wine called sauvignon blanc began slowly though by the early 1980s were showing signs of life. In passing one of the many strange stories than can be read in the graveyard of brands is the tombstone for Montana, as despite what tech folk call first mover advantage, the rewards so deserved were to go to others.

The Montana label shortly before it was
phased out for Brancott Estate.

Others followed Montana to the new fields of Marlborough, particularly those with wine interests on the North Island, while local enthusiasts also realised something important was underway and joined the rush.

The early branding produced nothing novel or original until Cloudy Bay, about 1985, developed the idea of presenting the Marlborough landscape in a visually appealing way, and this innovation I describe as a topographic 'critter' label.

Sales volumes steadily grew though the marketing in my view failed to see the possibilities explored by Cloudy Bay with sadly many companies clinging, perhaps naturally, to established family brands and old design ideas.

Recent look of the Cloudy Bay label.

It takes decades to develop a new wine region to an international scale and it was well into the 1990s before the producers of Marlborough could venture forth to show the world the miraculous beverage they had created. My guess is that production at this stage was less than could be sold which is good for brand power.

I was an early adopter of this wine and have followed with great interest the acceptance of consumer favour and nominate the turning point for sales in Australia as the year of the 2000 Olympics. By this time production was large enough to allow normal marketing methods such as volume discounts to be used and there was enough of a surplus to supply house or retailer labels.

The house brand Robinsons developed by
David Farmer and Michael Selak in 1996.

In around 2003 Nobilo introduced the Oyster Bay idea, in many respects a derivative of Cloudy Bay, but with innovative use of colours and appeal which cleverly matched the image of the wine. The growth of this brand was unusually fast and as the wine business generally plods along I was fascinated by this success.

For the next 4 to 5 years sales for all producers galloped along with Oyster Bay reaching the No 2 spot of best selling wine in Australia while the Marlborough sauvignon blanc category carved off 30% of total Australian white wine sales. The category also found global success.

The look of the big seller Oyster Bay.

The times from 2000-2010 were good for the Marlborough producers and they had done what any businesses would do, they took the profit which the end customer provided. Most of the established brands in Australia such as Oyster Bay, Giesen, Stoneleigh, Villa-Maria and numerous others were sold for $13 to $16 with a smaller selection selling for far higher prices.

The financial crisis of 2008 caused a great deal of nervousness and large quantities of bulk Marlborough sauvignon blanc were offered onto the market. Many large retailers and all manner of entrepreneurial types saw an opening and a plethora of new labels, invented to absorb this stock entered the market.

During this time the gap between the cost of making the product including recovery of vineyard, winery and some overhead costs, and the wholesale price to customers was large. It is this gap which I refer to as the 'brand access fee'.

To give you an idea of the size of the 'brand access fee' I will relate a story. Glug was approached in 2008 to develop the designs for a range of Marlborough 'house brands' for a large wholesaler. As related I had specialised knowledge and provided them with Lobster Bay, Rangi Tane, Tangotango and several others. These products landed in Sydney for this wholesaler at just under A$40 a case. With handling fees and profit margin for the wholesaler, the retailers could buy these wines for $60 or $5 a bottle. In turn they could make excellent margins by selling them for $7.99 or higher.

Lobster Bay developed by Glug in 2008.

Oyster Bay and other brands had a wholesale price of around $120, and when adjusted for discounts, additional costs and whatever else you wish to add, returned a very healthy profit which perhaps reached $50-$60 a case. With Marlborough having 30% of the white wine business and with millions of cases being sold, this is a lot of money. It can be seen however that the 'brand access fee' was high and this is always cause for concern.

The large chains naturally are very interested in who makes the money and began importing their own house brands. Coles and Woolworths are very large companies and they will not allow profits to flow to producers who demand a high 'brand access fee', not when they can have this themselves as what producers forget is they control the customer flow.

Even worse for producers is the simple truth that all things being equal the sunshine in Marlborough is the same for all vineyards and no reason exists at all for general wines being different. The brand access fee is closing and what is handed back will be determined by the chains. As always this is disrupted by the idiosyncratic nature of consumers and this will continue for a long time as they pay more when they could be paying less.

So as much as they may hope I think the easy profit days for Marlborough producers are behind them as the brand access fee shrivels. As oils is oils, bread is bread and underwear is underwear so it is that a label grows to become a brand and without a difference returns to being a label.

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