Bottleshop prices

Australia's liquor market is dominated by Coles and Woolies, demolishing competition and squeezing out the smaller players.
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01 .Introduction


Woolworths and Coles dominate Australia's liquor industry, making it virtually impossible for smaller, independent retailers to compete. Woolworths, the country’s largest bottle shop owner, operates BWS, Dan Murphy’s and Woolworths Liquor. Coles operates Liquorland, Vintage Cellars and 1st Choice Liquor. The buying power of these two giants has undoubtedly driven down prices for consumers, but their sustained below-cost selling is crippling the competition.

“Sometimes we advertise below-cost prices to compete,” admits Andrew Reitzer, Chief Executive of Metcash, which owns Australia’s largest liquor wholesaler and supplies 17,000 licensed outlets. “The two major chains are opening ‘big box’ outlets that murder the competition on price.”

CHOICE looks at the impacts of this aggressive discounting and what it may ultimately mean for consumers. 

Report summary

In this report we:

  • Take a snapshot of prices for popular beer, wine and spirits, to determine where you can find the cheapest deals, In one of the most dramatic examples, VB cost 40% more in Woolworths Liquor than in Dan Murphy’s – even though both are owned by Woolworths. Woolworths Liquor outlets are usually situated adjacent to their supermarkets, so the cost of convenience can be an expensive one 
  • Look at at the state of competition in the industry, and the growing dominance of two supermarkets
  • Ask Dr Craig Emerson, Minister for Competition Policy and Consumer Affairs, whether regulator action is needed to stop anti-competitive practices
  • Find out what independent retailers, winemakers and grape growers think about supermarket dominance
  • Look at how Australia's unprecedented wine glut has led to massive growth in cheap cleanskin wines 

Tune into the CHOICE Radio podcast to hear more about Alan Dooley's investigation into supermarkets' growing dominance of the bottleshop industry.

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Cheap prices and fewer independent stores are the result of supermarkets’ aggressive push into the bottle shop market. Wesfarmers (Coles) and Woolworths have a 45% market share, having bought up pubs, hotels, licences, competitors and chains. Both operate three distinct brands targeting different customer segments. Liquorland and Woolworths Liquor are often near supermarkets; BWS and Vintage Cellars are also usually medium-sized shops positioned for convenience, while Dan Murphy’s and 1st Choice Liquor are the “big box” or “warehouse superbarn” outlets.

The industry research group IBISWorld says this expansion is largely at the expense of independent retailers. “The liquor industry may, by the end of 2014-15, be totally absorbed by the supermarkets industry.”


Knocking out the competition

Supermarkets can offer cheap prices by marketing “loss leaders” – products they sell below wholesale cost – and by benefiting from wholesale discounts and rebates that aren’t available to smaller competitors. “We might pay $22 wholesale for a bottle of scotch and see it retailing at Dan Murphy’s for $20,” says Franc Gionta, who runs Amotos, a family-owned bottle shop in Leichhardt, NSW. “I don’t know how they fund it – wholesalers tell me we get the same trade price. The majors must be covering the difference themselves.” Phillip Connolly, who owns two outlets in Sydney, tells a similar story. “We recently bought Crown Lager direct from Carlton Brewery for a wholesale price of $51 per carton, and put it on sale in the shops for $55. At the same time, Dan Murphy’s had Crown on special at $75 for two cartons.”

When below-cost selling occurs in a fairly concentrated market, the typical fear is that once the competition is reduced or squeezed out, major players will recoup lost revenue through higher prices. So if loss leaders are being sold, shouldn’t the regulators take action?

“If a business is engaged in predatory pricing – that is, below-cost pricing designed to damage or drive competitors from the market – then the Australian Competition and Consumer Commission (ACCC) can act under our competition laws,” says Dr Craig Emerson, Minister for Competition Policy and Consumer Affairs. “A court dealing with a predatory pricing case does not have to be satisfied that the accused business can recover its losses after it sees its rival out of the market. At the same time, however, we need to be careful about stopping businesses offering consumers lower prices. Sometimes complaints are made in the name of protecting existing businesses from competition.”

The ACCC told CHOICE it will take seriously any information showing that below-cost pricing is being used to damage other competitors. “Where there is information to suggest this is occurring, the ACCC will investigate,” a spokesperson says.

Anti-competitive deals

The ACCC has had good cause for concern around the misuse of market power in liquor retailing, as both Coles and Woolworths have previously been found guilty of illegal conduct. While not related to predatory pricing, in 2005 and 2006, the ACCC completed successful legal proceedings against Coles (Liquorland) and Woolworths for anti-competitive liquor deals. Both had opposed competitors’ applications for new liquor licenses, but agreed to withdraw their objections if the independents signed restrictive agreements. Conditions in the agreements prevented independents from selling packaged takeaway liquor (as opposed to drinks to be consumed on the premises), licence applicants from opening new shops and drive-throughs, competitors from increasing shop sizes, and competitors from advertising and promoting takeaway liquor to consumers. Liquorland was fined $4.75 million.

The Federal Court found Woolworths had contravened competition law in four agreements that had “the purpose of substantially lessening competition in local packaged takeaway markets”. In two examples, exclusionary provisions aimed to prevent independent businesses from supplying liquor to actual and potential Woolworths customers. The judgment found the agreements intended to stop independent competitors entering local retail markets, to protect Woolworths’ business. The retailer was fined $7 million.

For a snapshot of the state of competition in the market, we checked the prices of some popular beer, wine and spirits (see the tables, below). We visited 11 stores on Sydney’s North Shore, including the Coles and Woolworths-owned outlets, as well as one IGA Plus Liquor store and four independents. We also asked the Liquor Merchants Association of Australia for beer and spirit wholesale prices, and found that retail prices below those trade prices are common for beer, particularly in the large stores (there was almost no below-cost selling of spirits). However, the wholesale price guide isn’t necessarily indicative of the true cost, because all retailers negotiate their own prices with their suppliers, and some get discounts and rebates of up to 5-20%.

  • CHOICE found that retail prices for beer were commonly below trade wholesale prices, particularly at the “big box” superstores.
  • Even when liquor outlets are owned by the same supermarket chain, you can expect to pay more if the outlet is close by the supermarket. For example, we found VB cost 40% more in Woolworths Liquor than in Dan Murphy's – even though both are owned by Woolies.
  • For the five popular beers compared, Dan Murphy’s had the cheapest average prices, followed by IGA. Independent stores were dearest, although a few were selling Victoria Bitter at below the listed wholesale price. The foreign beers were sold below the listed wholesale cost at almost all the shops surveyed. “Parallel importing of beer is very common in the industry, particularly by smaller independents, as it means they can circumvent the major breweries and further reduce prices for consumers,” says Woolworths. 
  • For the five spirits compared, Dan Murphy’s was cheapest, followed by 1st Choice Liquor, while Liquorland and Woolworths Liquor outlets were among the dearest. In fact, grocery shoppers at major supermarkets who drop into the adjacent bottle shop often pay dearly for this convenience. For the beer and spirits compared, Coles’ Liquorland was 14% dearer than its 1st Choice outlet, while Woolworths Liquor was 15% dearer than Dan Murphy’s (in one example, VB cost 35% more in Woolworths Liquor than in Dan Murphy’s).
  • If you’re prepared to buy in larger quantities (for example, two cases of beer or six bottles of wine), bigger discounts are often available.



Wine glut and the rise of cleanskins

The wine industry has been dramatically affected primarily by an oversupply, but also by a strong Australian dollar that is hurting export sales. Coles and Woolworths have a booming market in their own label and unbranded wines – “cleanskins”. By bottling up wine for retailers to sell unbranded, winemakers can clear excess stock without damaging their brand integrity. And consumers have embraced cleanskins, which for many people have replaced branded cask wine at the budget end of the market and offered savings over more expensive labelled bottles.

But some believe cheap cleanskins and own brand wines are hurting the industry. “The two major supermarkets are now in an increasingly strong market position to dictate to suppliers,” says Mark McKenzie, Executive Director of Wine Grape Growers’ Australia. “The dominance of supermarket-owned wine brands made under contract is squeezing wine producers’ profits. And while consumers are enjoying low prices now, there will be a huge cost to the variety of Australian wines available.”

“The chronic oversupply is all our own doing – we’re not blaming the retailers for that,” says Stephen Strachan rom the Winemakers’ Federation of Australia. “But retailers are using the surplus to introduce their own brands to the market, which ultimately comes at a cost to established brands. For an established brand-owner it is soul-destroying to see your brand unnecessarily discounted in the marketplace, undoing all of the hard work you have done over the last five or even 10 years.”

The supermarkets deny such claims. “Cleanskins intrinsically exist due to the chronic oversupply in the Australian wine industry, and blaming retailers for the wine glut is drawing a rather long bow,” says a Coles spokesperson. “The reality is that cleanskins are an avenue for producers to sell their excess wine, with less long-term impact to their brands. While we offer a sizable range of cleanskins, they are only a small part of our overall wine range. We continue to support Australian wine producers, large and small.”

Making hay while the sun shines

Trevor Spring of Brisbane has witnessed Dan Murphy’s and 1st Choice outlets growing rapidly and under-cutting the smaller chains and independents. He thinks that as the big two cut prices to build upon and dominate their market share, consumers benefit, but there’s a tipping point after which their dominance is so great that smaller retailers have little impact on competition.

“As a consumer, I’m making hay while the sun shines,” says Trevor. “I prefer Dan Murphy’s over 1st Choice, even though its nearest outlet is a little further away, as I think they have a slight edge on prices. I tend to make bulk purchases to benefit from half dozen or dozen discounts and do so about once a month, but more frequently in summer when social contact tends to be higher, especially around the Christmas/New Year period.”

Trevor thinks there’s still a place for smaller shops despite intense competition. “Convenience often favours smaller outlets. If consumers wish to buy only a bottle of wine, then the shop’s proximity will impact on their purchasing decisions.”

Specials not in every outlet

Kings Cross resident Garry Richards told us about his experience with his local Coles. “We are told that Coles and Woolworths are creating a one grocery price policy across their stores to reduce postcode disadvantage,” Garry says. “The Coles store in Kings Cross, almost under the famous Coca Cola sign, is the familiar combination of Liquorland outside the Coles store. When we enter the supermarket we are greeted with the booklet of specials, with the last two inside pages devoted to Liquorland specials. However in fine print at the bottom the booklet says 'Specials not available through, Liquorland Direct or Liquorland Express World Square, George Street and Kings Cross Stores.' Kings Cross has a wide socio-economic cross section of people, including the very poor, many in public housing, with a very high number of residents being renters in the average range of income. The pricing policy disadvantages many ordinary people who rent in the area.”

Garry says that even the Coles check-out staff didn’t know that the specials do not apply to the Liquorland immediately next to the last check-out. “I find it annoying because my shopping is significantly influenced by specials. The liquor specials that catch my attention are not available to me and I am inconvenienced by having to do that shopping elsewhere.”

They said it

"Big box liquor stores aren't new. We'll leave the predictions to others, but we find that wherever we enter a market, competition increases and consumers benefit from low prices." Jim Cooper, Coles.

“We can get $20 of value into an $8-$11 bottle at Dan Murphy’s. That’s a 50% price reduction.” Steve Greentree, Woolworths.

“It’s not uncommon for businesses to raise concerns over the retail price offered by larger competitors compared to the wholesale price available to those smaller businesses. Sometimes this may reveal different supply terms arising from factors such as volume or promotional arrangements. At other times it may just reveal strong competition.” ACCC spokesperson.

“We know Dan Murphy’s is owned by Woolies, but you can’t beat the prices! Bella Yellowglen champagne can cost up to $22 at some liquor outlets, but you can regularly get it for as little as $9.50 a bottle in a carton of six at Dan Murphy’s. I hate the giants, but you have to admit they have their advantages.” CHOICE member Michelle Turner.

“We can get good bargains at Vintage Cellars, but some smaller brands and types of wines can be lost. I also buy through Wine Selectors – a delivered mixed dozen – for delivery, value and variety.” CHOICE member Asher Doyle.

“Consumers have been in a happy hunting ground for wine prices for well over a decade. But they’d take a different view of cheap wine prices if they knew the impact on wine grape growers. It’s common for wine grape growers to go out of business in the current environment. There’s a short term gain for the consumer but in the long -term we’re undermining the Australian wine industry. It’s killing the golden goose.” Mark McKenzie, Executive Director, Wine Grape Growers’ Australia.

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