Majestic boss says wine price inflation has stymied growth

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Majestic Wine’s chief executive Steve Lewis says wine price inflation over the past two years has stymied growth at the retailer.

Speaking to Harpers.co.uk following the group’s results yesterday, Lewis described the group’s total sales growth of 1.4% to £278.2 million as “not where I’d want it to be”, adding that the combination of poor harvests and duty increases had made for “difficult trading conditions”.

Steve Lewis

Majestic boss Steve Lewis

Majestic’s Steve Lewis admitted that yesterday’s results weren’t where the company wants to be, and revealed plans for upcoming investments in more personalised marketing.

Looking at upcoming opportunities for the retailer, Lewis said he “wouldn’t rule out” Majestic own label wines and is revamping its marketing in line with its growth ambitions.

Profits before tax were up just £100,000 for the 52 weeks to March 31, 2014, but Lewis was confident about the year ahead, given the duty escalator ended a year early and global crops were looking “pretty good” – with the exception of Burgundy.  “We’re starting to see sharper pricing back in the market – with the likes of South Africa and the weakness of the Rand,” he added.

The group opened 13 stores in 2013, with 12 to 16 in the pipeline for the coming year. It has also put in place the infrastructure, in the form of new headquarters and a larger distribution centre, to support its target of 300 stores, which have contributed to expenditure. “Last year we had increased costs from the new offices and double ownership for the new ones as well as the existing properties,” Lewis said.

In the coming year it is looking to improve its marketing and online proposition, which Lewis admitted it “needs to take to the upper level”. “We have to recognise that as we grow we need to put the right infrastructure in place.”

With this in mind its marketing will become more personalised and segmented. “If a customer buys Portuguese wine then we’ll talk to them about Portuguese wine. Two to three years ago I thought this was quite intrusive, but the market has changed and customers now expect more personalisation.”

He said the group appointed a new marketing agency in March, after using the same one for the past 10 years. The new approach will be “more multi-channel – at the moment we’re a bit too differentiated”.

Online sales currently stand at 11.4% of its total UK retail sales, but Lewis wants that figure to reach 15%. “We’ve been online for 13 years, so these are substantial figures,” he said, adding that its click and collect service has grown by 38% in the last year, albeit off a small base.

Changing its promotional structure to 33%, 25% and 15% off, as well as removing the requirement of buying two bottles of the same wine to get a discount, has helped boost experimentation and higher spending when compared to previous offers.

Exclusive wines are of major importance to the retailer, said Lewis, “obviously we can’t insist [on exclusivity] but we want a quality product and in volume”. Suppliers are very keen to work with Majestic, especially over the longer term, he added, given its position in the market. Its average bottle price was £7.94 for the 52 weeks to March 31, 2014, compared to a market average of £5.38.

Being able to control its own labels is vital, especially when it comes to business to business sales, which grew 20.6% to £37.3 million in the last year, said Lewis.

“We don’t brand our own-label wines, but I wouldn’t say we would never do it,” he added.  

Fine wine sales – those above £20 – have grown by 19.7% in the past year. Over a year ago it made changes to this category to make it more accessible for consumers, and broadening the range to include wines priced over £20 compared to £40 the year before. The range now includes Brunello, Barolo and Chateauneuf du Pape. “It’s fine wine at house wine prices,” he added.

 

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