With fine wine potentially entering a period of “profound structural change” with industry consolidation “inevitable”, businesses “have to plan for a leaner, more efficient world”, according to Jeremy Howard, CEO of Cru World Wine.
Howard pointed out that there were “too many sub-scale merchants and fragmented inventory holders… within the distribution chain”, which created duplicated costs and “unnecessary friction.”
Previously the temporary surge in demand during Covid had “masked these inefficiencies”, he said, but that was no longer the case.
Leaner and meaner
He pointed to some analysis he had conducted indicated that “the top 15 UK fine wine companies are losing nearly £20 million a year at the moment – and it’s not sustainable.”
“They’re eating their balance sheets,” he argued, pointing out that “they need a more efficient way of operating” by becoming “leaner and meaner on the inside”.
“There are lots of reasons to be cautious about top line [stats] as the top 15 UK fine wine companies are still selling almost £850 million pounds a year in wine. And if you multiply this around the world, that is a lot of fine wine being bought. But the problem is, they’re spending £210 million pounds a year in admin expenses to sell £850 million pounds of wine, and the margins just aren’t there to support it.”
He argued that there was “some denial out there” and many people were “holding out for the market to bounce back”.
“If it happens, it will be great… but it feels to me that the boom in fine wine feels like a generational thing for a certain generation,” he said. Even if millennials and Gen Z drink more than many headlines allow, “I’m not sure they’re going to build 3,000 – 4,000 case wine collections in a way that I did and people I know did.”
“I think we have to plan for a sort of a leaner world, more efficient world.”
Resilience
Speaking to db back in the Spring, Brett Fleming of Armit Wines had said that while he wanted to be optimistic, the headwinds of Trump and Putin’s wars increasing inflation as well as the UK’s current fiscal policy (“we have a government that doesn’t understand business,” he said of the then Starmer administration) meant businesses have to be resilient.
“You have to be more resilient, you have to be adaptable, you have to take opportunities, and you’ve got to be able to absorb challenges. And sadly, other companies won’t,” he said.
At the time, he argued that the consolidation was likely to both continue and “be more aggressive as it continues”, not just for distribution, but also in the on trade. He pointed to Heston Blumenthal’s decision to close his two-starred Michelin restaurant ‘Dinner by Heston’ in the Mandarin Oriental at the end of January 2027, as an example.
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“I think they’re going to see more of that, and that then just adds further pressure to the supply chain, because you’ve got fewer outlets of prestige, iconic status, being trying to be supplied by the same number of distributors. And lot of this can trace back to government fiscal policy.”
Helen Miller, commercial director of Goedhuis Waddesdon (which was the product of two businesses coming together itself) agreed that the industry has to work together to survive the current challenges. She argued that the economics of business “had to make sense” and businesses are struggling. “I think when you can share – as we have with the infrastructure – and share the risk, I do think it [consolidation] makes sense.”
“I would imagine that’s something that we’re going to see more [of],” she concluded.
According to Howard, there is “just so much duplication” across the industry.
“Every little company has to have somebody doing inventory management and somebody doing marketing and somebody doing finance and somebody placing purchase orders and somebody managing tech.”
“Unfortunately, we are going to have to see some reductions in admin expenses in the industry, which is going to be unfortunate for some people, I fear. But I just I don’t see what the alternative is.”
Technology
Technology in particular can prove “terribly difficult for smaller companies to keep up”, he argued.
“The likely outcome is a market increasingly centred on one neutral, technology-driven marketplace owned by the participants who create its value. Ownership will extend beyond private collectors to include producers, merchants and major stockholders, all of whom stand to benefit from a more efficient and transparent marketplace.”
This is the opportunity he sees for Cru World Wine to become the Rightmove of wine – “if we can provide a platform for them to operate, but to take away some of the costs that they currently all have to have in-house, then we might be able to have a situation where most of the companies survive, but under the hood, they’re much smaller, and they don’t have to have the same overheads.”
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