Those dastard retailers (oh really?)
For a few days in March 2011 Australia’s major brewer, Foster’s, stopped delivering its VB, Carlton Draught and Pure Blonde brands to Coles’ First Choice liquor stores and Woolworths’ Dan Murphy’s chain after learning that the two big retailers intended to sell them for AUD 28 per carton of 24 bottles. The usual wholesale price of a VB carton is AUD 33, and the usual retail price is AUD 38, it was reported.
As if this was not enough, Foster’s had to send out its troops a few weeks later to buy back heavily discounted wine from Coles’ liquor outlets. Australian media say that Coles was selling Penfolds 389 wine for AUD 37 a bottle or AUD 7 below the AUD 44 wholesale cost.
After years of heavy discounting, the spotlight is finally turning on the retailers and how they have turned the alcohol industry into a price bonanza.
True, competition on price alone is despicable. But so is a retail price of over AUD 28 for a carton of a standard beer. Australia’s consumers must be paying the highest prices anywhere for their beer – which is one of the reasons why Australia’s brewers enjoy the highest profit margins in the whole of the brewing industry. According to JP Morgan estimates, Australia’s beer market in total EBIT was worth as much as China’s in 2009, although China’s beer output was 423 million hl and Australia’s 17 million hl.
Needless to say that Australia’s brewers have been very protective of their margins. Since John Pollaers became Managing Director of Foster’s beer unit CUB last year, he has tried to change the retailers’ behaviour: from an obsession with discounting and bonus offers to a focus on building brands.
It was reported that the terms of the agreements with retailers have shifted to performance-based terms – such as more displays to better position the brands – and away from the more typical price or volume drivers such as bundling promotions with home label or buy-two-get-one-free deals.
Foster’s hoped this new performance-based investment account would rein in the relentless discounting.
Apparently to no avail. Mr Pollaers’ decision to draw the line with the big retailers was also about appeasing the independent retailers, who were getting aggrieved by the supermarkets’ discounting.
Independents have been complaining for a while that they are paying far more to Foster’s for their beer than the two big retailers. The prices that independent retailers pay for a carton of VB ranges from AUD 37 to AUD 43, which is far more than the AUD 33 that the supermarket chains are believed to pay. This has led to a crazy situation where independents go to other liquor chains rather than to Foster’s to buy their beer.
Share of liquor retailing
Coles | 20.5 percent |
Woolworths | 25.4 percent |
Others | 54.1 percent |
Source: Ibisworld.com.au
Share of beer production
Lion Nathan | 41.3 percent |
Foster’s Group | 48 percent |
Coopers Brewery | 3.6 percent |
Others | 7.1 percent |
Source: Ibisworld.com.au