Partnerships for growth: the 'Two-Buck Chuck' phenomenon
today's increasingly cutthroat grocery business it can mean the
difference between long-term growth and short-term failure.
But building a brand need not be an expensive project, and even the most unsophisticated product can be successful in carving a niche for itself, particularly if it is given a helping hand by the retail trade, as the phenomenal success of the Californian wine brand Charles Shaw clearly shows.
The wine, more commonly known as 'Two-Buck Chuck' because of its $1.99 price point, has sold more than 10 million cases over the last 18 months, despite being available in just 12 US states and sold through just one retail chain, Trader Joe's. So how has it managed to make such an impression in such a short time?
According to Marc Engel, an analyst with US-based consultancy BRS Group, there are a number of reasons for the success of the brand. Speaking at the recent Wine Evolution conference in Paris, Engel said that while a low price point was not necessarily a strong selling point for a product such as wine - where quality is generally seen as more important - the competitive pressures in the US market had recently made this less of an issue.
"Two-Buck Chuck was created as a response to the particular demands of the US wine market," Engel explained. "There was a surfeit of wine in the US market as a result of overproduction, allowing the brand's creator Fred Franzia to produce the wine at a fraction of the usual cost. Coupled with this, competition from low price imports from Australia [where there was also an excess of wine] was intense, and this meant that a US brand which was able to compete in this lower price bracket was always likely to have a good chance of succeeding."
But price is only part of the reason for Charles Shaw's success. "The exclusive deal with Trade Joe's played a major role in the fortunes of Two-Buck Chuck," Engel said. "This is a supermarket chain that customers really respect, and which has a history of selecting quality products at a reasonable price. Any product sold through this chain's stores benefits from this quality image, and this was certainly the case for Charles Shaw."
This, Engel explained, allowed the wine to overcome its low-price positioning, with regular Trader Joe's customers trusting that any wine sold by the chain would be good value for money.
The impact of the credibility that Trader Joe's gave to the brand cannot be underestimated, Engel said, citing research carried out by BRS. "Two-Buck Chuck drinkers are people who buy and drink wine regularly, at all prices, sometimes even at $14 a bottle, and while we found that most of them did not consider themselves to be sophisticated, they were clearly prepared to pay more for a product they appreciated and were not just interested in the cheapest products available."
He added that there were only a few new wine drinkers among Two-Buck Chuck consumers, suggesting that price is not, in fact, the main obstacle to drinking wine in the US. "Culture, religion and puritan values are all major barriers to wine consumption in the US, much more so in fact than price," he said.
But the producer/retailer relationship has to work both ways, of course. Trader Joe's own image as a quality retailer would have suffered if Charles Shaw did not live up to consumers' expectations. The brand consists of four different varietal wines (Cabernet Sauvignon, Merlot, Chardonnay and Sauvignon Blanc), already giving it an edge over most wines at the lower end of the price spectrum, which tend to be blends, and its packaging and label design also give off a quality impression.
Looking good and giving off the right quality message is all well and good, but that counts for nothing if people do not actually like the wine. "Our research shows that consumers started buying Charles Shaw because their friends and colleagues had recommended it, and word of mouth played an important role in the success - there was no paid advertising at all for this brand. Most said they would also continue drinking it because of the taste. In our study, 20 per cent of interviewees thought it was good or even excellent. They like it for everyday consumption, to drink alone or with friends."
More importantly for the US wine industry as a whole, BRS research suggested that the so-called 'super-value' wine category created by Charles Shaw would have a long-term beneficial effect on sales. "Nearly one in four consumers said they were drinking more than six months before as a result of super value wines. Consumption has grown by 5 per cent since the creation of the category. The drawback is that it has cannibalised sales (especially of wines between $6-10 a bottle), but this is more than offset by the fact that it has created an excitement about wine.
"Consumers used to feel intimidated, they didn't know what to like and what to buy. Two-Buck Chuck has reassured them, and they now feel more comfortable about wine. If they don't like the wine, then they can throw it away without feeling that they are wasting money; if they do like it, they feel they have got a real bargain because of its low price."
For many US consumers, Two-Buck Chuck has proved that wine does not have to be expensive to be good, Engel added. "Nearly 50 per cent of Two-Buck Chuck drinkers feel that they are retaliating against companies that had been overcharging them before."
Some 96 per cent of those questioned by BRS said they would keep drinking Charles Shaw, even if the price went up to (the still very reasonable) price of $3 a bottle.
"People now expect good wines at reasonable prices, and feel it is legitimate. If a wine is more expensive, they want to understand why," Engel said. "Two-Buck Chuck has triggered a durable shift in consumer demand, because it has demystified wine (especially European wines) for US consumers. For the industry, it has made it possible increase wine consumption."
But more than anything, the phenomenon has highlighted the importance of a good relationship with the retail sector.
Wine companies, especially in the Old World, frequently complain that they do not have the resources to support brand building, but Two-Buck Chuck has shown that money need not be a barrier to success. What is important is an ability to react quickly to both market conditions and consumer demand. This is what Fred Franzia did with Charles Shaw, giving consumers a product of acceptable quality at a competitive price, and using the reputation of his retail partner to give the brand the necessary impetus.
A lesson that brand owners the world over would do well to learn.
