Pros and Cons of Private Labeling
July 24, 2019
One of the speakers at the two-day International Bulk Wine and Spirits Show Tuesday was Kurt Lorenzi, vice president of global sourcing at WX Brands (previously Winery Exchange), the Novato, Calif.-based producer selling some of its own brands such as Bread and Butter as well as numerous private labels.
Lorenzi shared the pros and cons of entering the private label business.
About 1,500 visitors were expected at the two-day International Bulk Wine and Spirits Show in South San Francisco which ends Wednesday. Among the 118 vendors at the two-day show which started Tuesday were producers from as far as New Zealand, France, Spain, Argentina, Australia and Chile hoping to enter the US wine market. It is the world’s biggest market with 400 million cases of wine sold annually.
Being in the private label business is like filling a “leaky bucket,” with wine companies constantly losing SKUs and customers, he cautioned. “There is no permanency to this business,” Lorenzi said.
At the same time, the demand for private labels or exclusive brands is growing in the US and Europe, Lorenzi said. Selling private labels takes some pressure off a wine company’s primary brand, he said.
European retail stores, which is dominated by large chains such as Carrefour, have sold private labels for a long time. The United States, whose culture is brand dominated, has been slower to embrace private labels, Lorenzi said. However, the private label market is now at 8 to 10 percent of market penetration, he added. “And that’s growing.”
Private labels are an option for wineries that want to sell wine to balance their inventories, he said. But wineries have to take a number as customers consider other offers. The business does takes time and resources, Lorenzi said.
Lorenzi urged the audience at the South San Francisco Conference Center to develop “an ongoing relationship with strategic customers.”
“We've worked over the last 20 years to develop a partnership or partnerships around the world with some of the best retailers,” Lorenzi said of WX. “And this takes a significant investment of time and resources to do so. From concept through delivery on the shelf, we work collaboratively to develop brands that we can sell exclusively through these retail partners, and work with them to develop the categories."
Lorenzi also urged wine companies to understand the market they want to enter, consider prices and trends.
One of the primary reasons for retailers to sell private label is to build extra profit margins. “You need to understand what their requirements are,” Lorenzi said, referring to the retailers. “Are they going to ask you to participate in a promotion? Build that into your price,” he said.
Producers interested in entering the private label business should consider varietals and regions that are trending, Lorenzi said. “Because it’s ever shifting,” he said.
“Roses over the last five years has been on fire and still continues to grow. How long that will go, nobody knows. What I hear from our retail customers, they don’t see any end in sight,” Lorenzi said.
The growing popularity of lower alcoholic beverages such as spritzers has grown. “So there is an ever changing business out there. There is an opportunity to take a piece of that,” Lorenzi said.
Lorenzi also urged wine companies considering to enter the private label business to understand where their wines fit and their competitive advantage, including location. “And don’t tell me it’s great wine. What we see is every year the quality of wine in the world is improving,” said Lorenzi, a winemaker.
Producers should taste the top selling brands, evaluate their packaging and taste their wines to know where they stand, and should understand how retailers operate, he said.
Retailers want to make sure wine producers have guaranteed sources of supply, such as long-term grape contracts or vineyards. They also want to know quality systems in place. They also expect on-time delivery of the package and quality of wine the companies had agreed to.
Steve Dorfman, partner at Ciatti Co., gave an overview of the bulk wine market. Global wine production is up while consumption is flat, he said. California’s bulk wine inventory remains high, a fact Dorfman attributed more to slow wine sales than the size of the 2018 harvest.
The premiumization trend in the wine industry continues and consumers consider sustainability when they buy. Like other speakers, Dorfman urged companies to understand consumer trends, adapt and innovate.