Distribution velocity in wine retailing

From Firenze University Press Journal: Wine Economics and Policy

Martin Hirche, University of Cologne, Faculty of Management, Economics and Social Sciences, Albertus-Magnus-Platz

Simone Loose, Geisenheim University, Von-Lade-Straße 1, 65366 Geisenheim, Germany and Ehrenberg Bass Institute, University of South Australia

Larry Lockshin, Ehrenberg Bass Institute, University of South Australia, North Terrace

Magda Nenycz-Thiel, Ehrenberg Bass Institute, University of South Australia

Despite the recent successes of e-commerce and direct-to-consumer sales in the wine industry, “brick-and-mortar” retail sales of wine are important and growing. This trend can be followed in emerging markets as well as in mature markets like the US, which represents the most important wine mar-ket globally by total value and import volume [1,2]. According to Euromoni-tor [3,4], “brick-and-mortar” wine sales in the US grew by 19.1% to 2,609 million liters in a decade from 2009 to 2019. Over this period e-commerce of wine grew by 272.8% to 116 million liters. Even with this strong growth, e-commerce still only represents 4,3% of all off-trade sales in 2019. For wine brands to be sold and grow in the market, they need to be made available especially in traditional retail channels where most consumers shop. Retail distribution is one of the most important driv-ers of a brand’s market share [5]. However, decisions aimed at increasing market share usually involve a range of marketing strategies besides increasing distribution breadth (i.e., number of stores). This especially applies to the wine category with its naturally limited and varying production levels. Usually only a few large-scale produc-ers can supply enough volume to reach near full distri-bution or even grow volume substantially as demand increases. This highlights the need for wine brands to leverage additional strategies to grow in the market. In this study we investigate the role of distribution velocity in wine retailing by analyzing the relationship between distribu-tion breadth and market share for wine. We delve deep-er to specifically examine the influence of product and distribution characteristics on market share over- and underperformance, beyond expected market share based on distribution breadth. We find that despite the huge fragmentation of wine brands, the typical convex and increasing distribution velocity curve also exists in the wine category. In addition, results show that wine brands overperform when they are available across a variety of different retail channels, as opposed to single-channel distribu-tion. Wine brands also benefit from high in-store presence and sales consistency. However, store specialization in the wine category (more brands on offer) is associ-ated with underperformance (below expected market share), relative to a wine brand’s distribution cover-age (breadth). This may be related to higher levels of in-store intra-category competition in specialized wine stores. But, individual wine SKUs from strong parent brands have excess market share (overperform), which indicates the power of brand size and halo effects from relatively big parent brands. Also, country-of-origin, the grape variety, the packaging type, and not surprisingly price, can each be associated with market share beyond expected distribution velocity.The findings have implications for academia, suppli-ers and retailers. Practical implications are specifically related to product and portfolio management, supply chain management and retailer category management. Beyond that, the findings provide needed benchmarks — knowing what to expect — which add comparability and predictability for wine brand managers and retailers.

DOI: https://doi.org/10.36253/wep-14190

Read Full Text: https://oaj.fupress.net/index.php/wep/article/view/14190