If the new head of Sainsbury's wine department can feel someone breathing down his neck, the breath probably smells of Tesco's own label. Mike Conolly has taken over our leading supermarket wine retailer at a crucial moment. Having pioneered a dramatic change in our wine-buying habits during the Seventies and Eighties, Sainsbury’s now finds itself fighting off a serious challenge from a competitor which stole its original blueprint and has developed it to its own advantage. Tesco now has a 13 per cent share of the market; Sainsbury’s has 14.2 per cent.

Off their trolley. Pic: Corbis

It was not always thus. Beneath the railway arches, in among the market barrows, London's Brixton Tesco in the Seventies was the epitome of the high-street grocer. The grocery business was running neck and neck with Sainsbury’s. But wine told a different story. Tesco stretched to Blue Nun, Mouton Cadet, and a few other unappetising liebfraumilchs and clarets.

By the beginning of the Eighties, Leslie Porter and Jack Cohen, the son-in-law of the original Tesco barrow boy, saw the light. Tesco had been left for dead on the wine side. "We were fifth or sixth in the pecking order," recalls the trading director, Adrian Lane, who was poached from Sainsbury’s in 1982, "which everyone was desperately unhappy about". With 12 years' experience in the wine trade, the last two-and-a-half from the vantage point of Sainsbury's, Mr. Lane was in a strong position to convince the Tesco board that he was the shot in the arm they badly needed.

Today, Tesco is inching towards its rival in a business worth roughly £1 billion a year. It is in undisputed second place. Neither Asda, Safeway or Marks & Spencer have even half of Tesco's share. "When I started," says Mr. Lane, "we didn't have a buyer at all." One person was responsible for the drinks department. He now heads a team of 10 with separate buyers for spirits and beer.

On the wine side Stephen Clarke, a Tesco man for 17 years, manages a team of three buyers, each with their own assistant. Alison Easton covers France and the New World, Marcia Waters Italy and Eastern Europe, and Janet Lee Germany and the Iberian peninsula. "In 1982, the opportunity for own label was very obvious," says Mr. Lane." Sainsbury’s and one or two others were already doing it. We have plenty of customer loyalty, so the first thing to do was to offer them good-quality wine under the Tesco label."

It took a full three years to put phase one of the scheme into operation, building up the Tesco label range. Tesco now carries 550 wines, and adds a new one every five days. Tesco liebfraumilch now outsells Blue Nun, according to Mr. Lane. "Our own-label whisky is a major brand in its own right. But we've done very well, too, with lines like Escoubes [the Tesco version of Yves Grassa's phenomenally successful dry white vin de pays from Gascony] and Don Darias [a cheap, coconutty red and white rioja taste-alike]."

A supermarket empire is not built on own-label goods alone, however. Tesco-label wines account for two-thirds of the wine range. Tesco labels provided customers with their staple house wines, but, as Mr. Lane was aware, it did not stop them turning to specialist wine merchants for their fine wines and champagnes.

It may also have had something to do with an unspoken feeling that a Tesco label does not quite match the cachet of Sainsbury's or Marks & Spencer's labels. "The reality is changing," he says. "But unfortunately the image doesn't yet match the reality."

He believes that "drinking better but less" is no empty cliché. It is happening before his eyes. Tesco's computer-scanning big brother informs precisely on what customers are buying. "Our customers are becoming more demanding, their aspirations are higher, and tastes follow. We can see that the increase in sales isn't in the £2 to £2.50 range. It's coming from the £3.50 to £5 bracket. Not fine wine exactly, but a stage on from commodities. That's the fastest growing bracket."

Having allowed its competitors to run off with the mass-market boom wines, Tesco was determined not to let this second slice of the action slip from its grasp. The next plank in Adrian Lane’s strategy was to find a way of offering customers, buying anything from pre-packaged ham to smoked salmon, the equivalent opportunities in wine by expanding the range and choice to a series of exclusive wines. Not necessarily top-notch classified Bordeaux château, nor-run-of-the mill generic wines, but somewhere in-between.

At the top end, a range of fine wines, Master Class, would be the icing on the cake, symbolically rather than financially important. Mr Lane thinks France and Italy offer the best opportunities in this area, because of their almost infinitive variety. Italy has traditionally been one of Tesco´s strong points, especially the chianti range, from the spritz-fresh youthfulness of the simple 1989 Chianti, at a modest £2.79, to the grater complexity and flavor of the 1986 Monte Firodolfi Chianti Classico at £4.89. Marcia Waters’ brief is to “get away from chardonnay and cabernet me-too´s” and concentrate on winkling out individualistic wines made from traditional Italian varieties.

Australasia, North and South America offer opportunities, but when you have to spread the range across 400-odd stores, the problem is that volumes tend to be small. For sheer value, Tesco´s Australian Semillon, at £2.99, is a fine mouthful of clean, ripe semillon flavor. The succulent, raspberryish Bethel Heights Pinot Noir 1987 from Oregon, £7.79, shows that it is possible to find handcrafted wines of character. But the elegantly toasty Fetzer Barrel Select Chardonnay 1987, excellent value at £5.89, illustrates an irony. To Mr Lane´s undisguised irritation, as Tesco goes upmarket, so, too, Fetzer has decided to go upmarket – by ditching Tesco.

One of Mr Lane’s disappointments has been Germany. Not the quality, but the response to it. “We had probably the most comprehensive range of Prädikat in the business, but couldn’t persuade consumers or writers to acknowledge it.” Among its 49 German wines are some of the best value wines in the entire range. From the refreshing fruitiness of the Steinweiler Kloster Leibfrauenberg Kabinett, £3.49, to the honeyed richess of 1989 Graacher Himmelreich Auslese, £8.49, from Friedrich Wihelm Gymnasium.

The other plank in the Tesco strategy has been the development of a wide range of champagnes. “We said to ourselves, that’s a market we´ re only dabbling in. But we have a big audience – seven-and-a-half to eight million shoppers came through the store every week. A large proportion must be interested in buying champagne, and they’ve been buying it all from Oddbins.”

Instead of going down the Sainsbury’s route of concentrating firepower on an own-label champagne. Adrian Lane chose to introduce as wide a range of champagnes as possible. Tesco now has more than 50, from Krug Grande Cuvée to own label, from the Bollingers, Moëts and Pol Rogers to a number of unsung small growers, such as Herbert Beaufort and Forget-Brimont, both of whose champagnes, at £12.49 and £11.99 respectively, offer excellent value.

As the vinous conscience of the self-styled “greener grocer”, Adrian Lane does not see Tesco´s responsibilities entirely as sales opportunities. Printing units of alcohol on labels to keep customers informed of their alcohol intake has proved unpopular with some manufacturers. “Best Before” dates will soon cover the entire wine range. Mr Lane would like to see more organic wine on the shelves.

Markets have matured since the streetwise days of stalls and barrow boys. The so-called “conforming store” is now the profitable modern out-of-town superstore. Tesco is investing £3bn over three years to provide a nationwide network. But does it ditch the smaller store and risk alienating its existing customers?

“When you start changing you image, you risk losing your core business,” says Mr Lane. “On the other hand, one of the downsides of Tesco is that part of that old perception is nourished by those old stores.” Tesco´s nine-year climb to second place in the wine market suggest that the die is now cast. The image is fast catching up with the reality.