More consolidation in the alcohol retail sector

Australia’s leading retailer Woolworths again faces the scrutiny of Australia’s competition custodians after it revealed in late February 2011 an AUD 340 million deal to buy the dominant direct wine merchant Cellarmasters.

The anti-trust watchdog has confirmed it will review the acquisition amid concerns that it threatens to undermine competition in the liquor marketplace and heap further pressure on independent vineyards.

Cellarmasters is one of the country’s largest direct marketing wine sellers and providers of contract bottling and wine services. Its direct marketing business offers premium, fine and value wines, which Woolies said would add “a new and complementary customer channel” to its liquor unit, given the multiple ways consumers now buy wine, it was reported.

The sale has already sent shock waves through the Australian wine industry which fears an even narrower route to market.

Woolworths operates more than 1249 retail liquor outlets spread across more than 133 Dan Murphy stores, 284 pubs and clubs. Its market share of the drinks retailing sector is estimated to be 30 percent.

Rival Coles owns 766 stores through the Liquorland, Vintage Cellars and 1st Choice chains and has a market share of 21 percent.

Cellarmasters commenced business in 1982 and in 1997 was bought by Foster’s for AUD 160 million. A decade later a cash-strapped Foster’s Group sold it to the private equity outfit Archer Capital for AUD 200 million.

Woolworths is betting on “no regulatory intervention” and plans to close the purchase of Cellarmasters by May 2011.