The digital future of wine

The digital future of wine

Meininger´s Wine Business International
Issue 02/2015
Thursday, 7. May 2015

After a day of listening to top experts talk about wine retail and digital, the conclusion is clear: retailers hoping to avoid the online revolution simply by offering better customer service or an enriched retail environment are making a grave mistake. And that the challenges facing retailers are also going to affect wine producers.

Opportunities and challenges

The first speaker was Dr Kai Hudetz, managing partner of the Institute for Retail Research (IFH), who had some predictions about the future of retail. “Whatever scenario you look at, it’s moving from bricks and mortar to digital,” he said. “Catalogue and direct marketing is going down. Wine online sales in Germany account for €250m or a share of about 2.7% of sales. Online volumes will double by 2020.” Shopping behaviour has already changed drastically. Although traditional shoppers will only go online if they have to, the new generation of ‘smart natives’ will only visit bricks and mortar if they must.

Dr Hudetz had, he said, five propositions about the way the future is likely to evolve. “Proposition one – reinvent or die,” he said bluntly. “We have no time to lose. Customers have already changed.” It’s critical that retailers and sellers have mobile-friendly websites because customers have already taken to mobile shopping and expect mobile-responsive websites. “We’re in a winner-takes-all market,” he went on. “Speed triumphs.”

His second proposition is that 90% of “pure play online retailers with no physical presence” won’t survive, because of Amazon. “What are other online retailers going to do? Compete on range? On price? In Luxembourg [where there?s an Amazon office] there are 58 people just working on price. Compete on delivery? Good luck with that.”

Dr Hudetz’s third proposition is that because customers expect to be reached inmany different ways, retailers will have to work with “multi-touchpoint management”. Fourth, the future of retail is the creation of flexible, relevant and entertaining formats, all along the customer journey. “The customer is becoming more fickle, so we need more flexible formats, like pop-up stores – they’re a way to get people back to the city centre. Why not a wine pop-up store?”

Fifth, strong brands will dominate, because customers trust the big names. In conclusion, Dr Hudetz made it clear that there was still room for small players, but that they would have to use their unique strengths, such as their regional identity. “Retailers can be a brand inside their own region,” he said. “The more a customer appreciates a brand, the less they’re interested in a low price.”

The future of online is offline

Next up was Professor Dr Gerrit Heinemann, who leads the eWeb Research Center at the Hochschule Niederrhein. He quickly ran through the situation in Germany, pointing out that 39% frequently shop online. He issued a warning to those German and other European businesses that claim digital is not for them: “Austria has a similar online share of shopping as Germany – but 50% of online revenues are with other countries. Cross-border trade revenues are developing even faster across Europe.” He noted that Europeans were even buying online from the Vatican, though Professor Dr Heinemann wasn’t sure why. A brisk trade in candles, perhaps? “We have more and more EU harmonisation that will foster cross-border trade,” he went on, noting that the development in e-commerce has been much faster than even experts predicted. “There are still some traditional retailers who say ‘we want to re-educate the consumer’, but this will not be possible,” he went on. “The customer doesn’t need advice. They don’t have questions left, because they checked on the Internet before they came into the store.”

Professor Dr Heinemann says that people now expect to be able to check if an item is available before they go shopping, which means retailers need an electronic goods management system. “Many retailers don’t have it – they still do it on paper, like in the Middle Ages.” One potential strength that local retailers could capitalise on is their proximity to their customers, which will allow them to deliver speedily. “Amazon already offers same-day delivery, but local retailers are much closer and could supply much earlier, or let the customer know the items are in stock,” he said.

Another possibility is to downsize the store and use it as a showcase for what is available online, which is what big players like IKEA and Media Markt do. Professor Dr Heinemann said retailers need to be aware of ROPO behaviour – meaning ‘research online/purchase offline’ –and vice versa.He noted that some German stores are asking customers who take photos to leave, but should be aware this means the customers are unlikely ever to set foot in the store again. “John Lewis [department store] in the UK has 30% online sales,” he said. “They make it possible for customers to use smartphones in their stores. You need to make it possible for the customer to have wifi and QR codes and use their mobile devices.” He went on: “The online store should be the flagship store – the British have already understood this.”

So let the customers take their photos – and then make sure the online store they’re ordering from is yours.

Transparency

“Thirteen years ago when I entered the wine retail market, the competitive environment was very calm,” said Nikolas von Haugwitz, managing director for marketing and purchasing of direct retailer Hawesko. “Today, there are new retailers entering the market every month, with very different business models.” And yet, despite the proliferation of competitors, he sees digitisation as the biggest challenge to his business. “Companies are becoming more transparent.” For example, customers can now go online and discover the ‘true’ price of a wine. “That’s a change, because from a competition and corporate strategy point of view, we never used to be transparent. The implications of this new transparency and rising customer expectations is that we have to meet these demands somehow, and get all of our staff on board.”

Von Haugwitz sees traditional retailers struggling in this environment. “Digitisation requires us to handle more and more data. There’s the speed aspect – the market has accelerated hugely. Products need to be available on different devices. Marketing and IT, which didn’t have much to do with one another in the past, have to come together.”

Retailers need to focus on capturing and using data to give their customers personal offerings. It’s also important to get involved with the social networks to engage with customers. “Networks are incredibly important,” said von Haugwitz. “We need to have a presence. We can’t use them as intensively as a blogger would, but it’s a world we need to be present in.”

Finally, he said, Hawesko’s strength lay in their ability to connect with consumers through multiple channels. He noted that wearable and augmented reality devices are entering the marketplace now, which will speed things up even further.

Small can still prosper

Producers who don’t have a direct marketing arm, much less a retail store, can’t hope the digital revolution will quietly leave them alone, because more will be required of them as well.

Eamon FitzGerald, managing director of what was then Naked Wines, Norwich, said that his business had made targeting the middle of the market – which represents about 15% of customers – a priority, because this is the most profitable and least competitive segment. Before they work with a winemaker, they want to know that he or she not only has quality wine at a good price, but also has a story that consumers will understand, along with a willingness to get out and interact personally with them.

For those who do engage, the rewards can be high. “There’s a new Berlin restaurant opened by a sommelier,” said wine writer Wolfgang Faßbender. “One year before it opened, it ran a campaign of awareness and created a buzz. Once it opened its doors, it had bookings for weeks and weeks. That’s the sort of anticipation you can build through social media.”

Martin Kössler of Kössler & Ulbrich said social media was important for his business. “Seventeen percent of discussions are about price, and if we’re going to sell wine we have to talk about price and why wines are worth their price tag,” he said. “I can use social media to justify that price, with text and images that come across in a different way than with printed media.” He added that while Twitter didn’t work so well for his business, Facebook did.

Overall, the conference was lively and engaging. The fact that it was packed was a testament to the high interest the wine trade has in the topic. While it did sometimes sound as though the future belongs to the big players, with sophisticated algorithms at their fingertips, it was also clear that the path to success lies not in whizz-bang technology, but an obsessive focus on the customer. This remains a challenge for many businesses in Europe, which are still primarily production-led. As one speaker said, when a survey of stores was done and shop assistants were asked for their understanding of ‘customer satisfaction’, it was perhaps no surprise that one definition they offered was: “whether I like the customer or not”.

“Customers have to be the heart of everything,” said Voker John, vice president sales of new media communications company DACH. “Know their needs, Provide what they are looking for. Make it comfortable – but don’t bother them with your business processes.”

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