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Private Label Brands Grow by 30% in Last Year

November 14, 2006

Sales of private label wine brands are growing, and the category looks to be a significant portion of the market in the future. In the ACNielsen-tracked sales channel*, private label brand sales have grown 30 percent in the 52 weeks ending September 23, 2006, on top of 18 percent growth over the same period in 2005. By contrast, branded wines have grown 10 percent in the 52 weeks ending in 2006, and 9 percent in the preceding year.

Still, it's important to understand how private label wines actually fit into the overall marketplace. Currently, private label sales account for about 1.4 percent of the grocery store wine market, roughly the same size of the Chilean wine or Chianti segments. Off of such a small base, high growth rates are much more easily achieved.

"Private label wine sales continue to grow well in excess of non-private label wine sales, which in themselves are healthy," said Danny Brager, vice president client service at ACNielsen. "This is on a relatively small base, certainly when compared to the private label share in many other categories outside of the beverage alcohol department. That fact alone, together with the higher margins offered by these products, likely signals opportunity to many retailers."

However, there is much more to the private label story than what can be seen in the grocery store channel. As accurate as the ACNielsen data is for the food store channel, it has some limitations. First, it does not track the on-premise category, which is a major outlet for private label brands. Secondly, sales at stores outside of the food store channel are excluded, including Trader Joe's, Wal-Mart, Target and Costco Wholesale.

John Crean, CFO and vice president of business development at WineryExchange, a global supplier of private label wine brands, estimates that the U.S. market is far larger than the ACNielsen figures suggest. "When we got into the [private label] market here seven years ago, we thought the market was about .3 [of the total wine category]," said Crean. "Now it's somewhere between 3 percent and 5 percent, which includes the house, merchant and control brands. We think the growth will continue to outperform the branded segment for some time."

Given that private label wines will become a much larger part of the American wine landscape, traditional, branded winemakers are going to have to decide how to private labeling fits into their business model.

"Private labeling will probably end up between 20 to 50 percent of the business," predicted Crean. "It may be something [traditional wine companies] do not focus on, but this is going to be a part of the business."

Private label brands create the opportunity for a retailer to build trust and loyalty with a consumer. The goal for a retailer is to create a private label brand that consumers feel over-delivers on quality for its price point, who would then seek out that brand when making later wine purchases. The retailer then benefits because of the positive association consumers have with the brand and, by association, the retailer itself.

Although private label wines are already competing at several different price points, many in the wine industry feel that private labels will be most successful at the lower end of the market. It is anticipated that within the next five to ten years, private label brands will have a significant impact on the wine category, especially at the value and fighting varietal price points. However, premium, super-premium and higher price points will continue to be driven by branded wines.

According to the ACNielsen data, private label brands sell at an average price point of $4.64, 15 percent lower than the average branded wine price of $5.47. "However, more than half of the exclusive label brands examined had an average price exceeding that $5.47 category price," said Brager.

Annette Alvarez-Peters, assistant general merchandise manager<\m>corporate wine, spirits, beer at Costco Wholesale, indicated the company's house wine portfolio ranges in both price and geographic origin. The Kirkland Signature brand uses small lots of fruit, creating the opportunity for an ever-changing mix of wine for consumers. Kirkland Signature has carried price points from $9.99 to $37.99.

"It seems many companies are doing private label; from what we know, we are one of the very few doing super- to ultra-premium wine," said Alvarez-Peters. Costco is also not afraid to go even higher on their price points. "We [might even] look at super-ultra premium. If the right opportunity from a high-end winery came up, to make a $75 bottle of wine under Kirkland Signature, we most certainly would take a look at it."

Geographically, Costco sources fruit from all over the globe. They have sold wines ranging from Australia's Barossa Valley Shiraz, Oregon Pinot Noir, Napa Valley Cabernet Sauvignon, Super Tuscans from Italy and a range of wines from Bordeaux in France. "When we seek out a private label, we are looking for quality juice. There is a lot of juice on the market<\m>from low end to super-premium," said Alvarez-Peters.

The increasing globalization of the wine industry will have an impact on private label wines. Even when one wine region is short on supply, there are other regions in the world that are experiencing a grape glut. "If we ever come into a tight pricing cycle again in the California wine industry, I think that the affordability and quality of imported wines is going to put a damper on that," said Crean.

"The theory is, the greater the supply the more inclined producers will be to consider private labeling," Crean continued. "On the retail side, if the retailers are demanding it, regardless of where we are in the market cycle, you will see growth because that's what the marketplace wants to do."

Look for the full Private Labeling report in Wine Business Monthly's December issue. Don't have a subscription? Click Here!

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