Supermarket Clout In The Liquor Industry

Brad Wehr from WA’s Margaret River region is watching the supermarket duopoly and its impact on smaller businesses, and the public. He’s forwarded us an SMH article by Adele Ferguson. She says

“For supermarket chains, market clout, fat margins and vertical integration of the supply chain are the Holy Grail.”

Although an imminent sale has been hosed down, for some time now Woolies has been in discussions to buy all or part of Independent Liquor, which sells beer, wine, spirits and lots of ‘alcopops’ to independent liquor suppliers, including liquor outlets, hotels and clubs.

Such a purchase would clearly increase Woolworths’ power over the industry. Adele makes her point:

“In the past few years retail chains around the world have done a good job of screwing wine, beer and spirits groups. In Australia, Coles and Woolworths have been no exception. They have screwed them on the price they pay for the various alcohol products, the credit terms they receive, the shelf space they give them, and their foray into private label is hanging like the Sword of Damocles over the producers’ heads.

Consolidation of the alcohol industry has been going on for a few years but not at the same pace as the supermarket chains. This has created a power imbalance between the two, made worse by fragmenting consumer tastes in alcohol (people are drinking alcohol in many different forms), an oversupply of wine and the emergence of private label brands and boutique beer.

In little more than a decade, Coles, which is now owned by Wesfarmers, and Woolworths have spread their tentacles – and power – across the retail spectrum. They run a near-duopoly in the $80 billion grocery industry with market share of 70 per cent. They are among the biggest players in petrol retailing, with a combined share of 44 per cent. They hold at least 45 per cent of the liquor, clubs and hotels industry and 60.5 per cent of department stores through Big W, Kmart and Target. In hardware, Bunnings already controls 14 per cent of the highly fragmented industry and 56.5 per cent of hardware retailing, and Woolworths is the biggest owner of poker machines in the country, owning 12,000 through its Australian Leisure and Hospitality subsidiary.

If Woolworths moves into wholesale liquor it would deepen its vertical integration strategy across the supply chain and enhance its clout over the big beer giants. As one observer said: “It would take away shelf space for all the brands. It would put downward pressure on all price points and reduce production volume, which means less recovery of production fixed costs.”

For Woolworths, a tie-up with Independent Liquor would not only give it internal capabilities to make its own beer, wine and spirits, but it would also give it access to about 900 independent retail customers.”

Some Stumbling Blocks

Woolworths’ commitment to responsible drinking looms as a stumbling block as it has a series of principles about what it will not sell when it comes to alcohol…largely how Independent Liquor built its empire (!)

This amount of power is huge….let’s hope our official watchdogs are also watching.