In business, are relationships more important than the product?

The 2023 London Wine Fair took place recently. I hadn’t been for a few years and was intrigued to see how the latest iteration would turn out. Would it be buzzing and dynamic, filled with innovation and new things, a valuable time for its target market, or flat and tired, a downbeat reflection of our troubled times?

Since returning to the characterful surroundings of Kensington Olympia a decade ago, after thirteen years in the warehouse that is Excel in London’s docklands, 2023’s Fair felt more individual and less corporate. Smaller than the boom years after the turn of the millennium, before Germany’s Prowein became the go-to fair for the global wine trade, the flavour was of all things independent and a little bit different. Gone were the massive French or Australian stands of old, gone the ostentatious branded bling of major importer-distributors. In their place were countries like Greece, Georgia, Armenia , Rumania – and yes Ukraine – along with a strong representation of No and Lo products, GB wines, a host of small specialist traders, a few bigger wholesalers, and many other sectors and interests. It felt very different, very UK.

There were an enormous and diverse number of talks and teachings at the Fair. I went to two. In ‘What the wine industry can learn from spirits’ the dynamic Dawn Davies from Speciality Drinks ?made an entertaining plea for wine communication to get out from under its rock, stop talking to itself about its product characteristics and engage with consumers (she said educate) in a way that helps them overcome feeling scared by wine. As she said, no one has ever been scared by Rum or Tequila.

Dawn referenced the No Lo stands - which just happened to be right next door - with a comment along the lines of ‘ we can’t let them beat us, we have to see wine with alcohol fight back’.?Which was interesting as the second talk I attended was ‘The good, the bad and the ugly of Lo and No’ presented by four trade practitioners of the cause.

My big takeaways from this session were that consumers of these products are not primarily teetotallers but people who drink alcohol and want something that tastes great when they don’t want the booze, not just Coke out of a hose; that the category is bursting with creativity and innovation, producing drinks of great quality where flavour and texture can be as good as those with alcohol; that the task is to ensure consumers perceive these drinks as having equal merit to those with alcohol, not as a downgrade; and that as a result people wanting a non or lo alcohol drink can ?feel included, rather than excluded, from the drinking occasion.

Both of these talks - ?and the Fair as a whole - reminded me that the product is only the first step. It is relationships that are of paramount importance to business success. Most people in the trade think their product is great quality, or great value, or has an exceptional and unique aspect to it – or all of these – but even if it were true (and in my experience it usually is not) these positives will fall on barren ground unless the relationships exist that eventually lead to someone choosing it from a restaurant list or plucking the bottle off the shelf to take home. That means relationships with retail buyers who are the gateway to the consumer, and with the consumer themselves. Dawn Davies talking about the benefit of learning from spirits was at root about how to build relationships with people; so were the No Lo advocates about their incipient sector; I hope the producers from Greece, Georgia, Rumania et al were aiming to do the same.

In his article ‘Why private label is the gift that keeps on giving’ on the London Wine Fair website, Richard Siddle applied the logic of building strong B2B relationships to doing business with big retailers. His argument was that while branded wine sales are in decline, retailer own label sales are rising (including own, private, and exclusive label), with 50% of grocery sales now private label. Ergo, if you want to sell your brand to the big guys of your sector you need to be ready to give them what they want under their own label – and with top quality in the bottle, not the leftovers.

I have a ‘yes but’ response to this.

Yes, because in my experience big retailers (a relative term varying?by sector in off and on trade) have wanted easy, efficient, comprehensive supply relationships for decades. I was selling soft brands and private labels of all types to the major off trade retailers in the early 1990’s. It isn’t new, it’s been around forever – for those companies prepared to grasp the nettle. We supplied retailers with brands we owned, brands our producers owned, and wines under their own brand. (I use the word brand here to denote ownership of the intellectual property, not the market power of the product.)

Many comapnies whose raison d’etre was solely to build their own brands were not prepared to do this. But were they wrong? Not necessarily, any more than those who grasp it are right. It depends on the chosen business strategy.

If the supplier’s strategy is to be a service provider to the retailers it makes sense to supply them with whatever they require. For these businesses success is measured in terms of EBITDA and the strength of the relationships that enable it. Any sale that makes the required margin is good business, regardless of who owns the brand. A company pursuing this strategy is 100% dependent on the strength of its relationships with customers (and suppliers) for its value.

However, a company focused on developing brands they own are seeking longer term consumer loyalty and ?greater security of revenue, a better annual cash pile, and (importantly) equity value in the brand. They will think hard before they jump into private label. Any brand owner who has gone into a private label agreement with a major retailer on the promise that some of their brands will also be listed (with good distribution and activity) knows this often doesn’t work out as they imagined.

If a supplier ‘brand’ is listed but is not an established market leader, the risk of the retailer suggesting the label is changed to one owned by them is ever present (same wine, different label and ownership). When the retailer owns the brand they are free to choose who fills the bottles for them. That may or may not remain the company that supplied the original product. Entering the fray of retailer own label business can create many opportunities, not least building strong B2B relationships that may be long lasting. It is simply wise to go in with eyes wide open.

While there is no right and wrong here, what is best for each business can be facilitated by answering questions like: What are our values, our mission, our purpose? What is our long-term goal? What do we want our company profile to look like in five or ten years’ time??Referencing the answers to questions like these makes deciding whether private label fits the strategy a lot easier. Whatever is decided, building strong, value adding relationships will be central to long term success.

This article first appeared in harpers.co.uk