Some Scary Developments - for those of us who value Diversity and Quality

Have you ever wondered why restaurant wine lists seem to have so much more diversity and quality than most retail shops, and why it is so hard to get the wines you have drunk from those lists.

Well, the Winemakers' Federation of Australia has come up with some findings that may help explain why. It estimates that Coles and Woolworths have now managed to capture 77% of domestic wine sales, and this is expected to increase even further with these two duopolists  having plans to open another 270 stores between them over the next two years. They have aggressively gone about this by expanding the number of Dan Murphy’s, Woolworths liquor, BWS, Liquorland and First Choice outlets as well as their online stores in Cellarmasters, Winemarket and the Dan Murphys online presence. As a result, we are losing diversity and competition as the duopoly increases its share of the market, often buying out independent merchants, as evidenced by Coles’ recent purchases of Randall’s in Melbourne and the Ultimo Wine Centre in Sydney.

As the supermarket duopoly has grown, it has increasingly exploited its market power to reduce shelf space for branded products and push their own private label wines. Just as we’ve seen our favourite grocery brands disappear from Woolworths’ and Coles’ shelves in recent years, to be replaced by more and more products under their own labels, we are also seeing the same thing happening with wine and beer. Back in 2010, 20% of Coles and Woolworths’ grocery sales were private label – a trend that shows no sign of slowing. The next growth market for these brands? Wine, beer and spirits. But instead of using their own brands (like Tesco do in the UK), they are doing it in a much more subtle way.

Their strategy has evolved from the early days of selling $5-7 cleanskins with simple black and white labels to selling similar wine under much flashier professionally-designed labels. They are able to do this for much more money because most of their customers have no idea that they’re still buying cleanskins. They see labels such as Cow Bombie or Langhorne Creek Estate and think the wine in the bottle is coming from an actual winery, where in fact it is nothing more than a fancy label on some cheaply procured bulk wine.

And it’s not just wines, it’s also beers like Dry Dock and Platinum Blonde, and spirits like Mishka Vodka and Napoleon 1875 brandy.

These big retailers’ private labels are crowding out quality Australian wines. Consumers see them as brands but in fact they are just a label, which has none of the values traditional family wine companies bring to the market, in terms of leadership, innovation and research and development. A parliamentary committee has now called for an investigation into whether supermarkets Coles and Woolworths are lining their shelves with private-label wines, squeezing out traditional winemakers. If this trend continues in its present course then the development of our wine industry will be seriously curtailed in the future. It will just turn wine into a commodity, which would be very sad indeed.

Of equal concern is that the big chains are now beginning to chase more market share and bigger profit margins by entering the wine making business themselves, something that is not that difficult to do given the amount of excess wine and bargain priced wineries for sale.

With its recent $340m acquisition of Cellarmasters, Woolworths now not only owns Australia’s largest online wine retailer but has also taken control of Dorrien, a wine producer with bottling, packaging, storage, filtration and testing facilities. Dorrien Estate is a huge winery that crushes some 12,000 tonnes of grapes every year.

So far, an estimated 8% of all wine and 2% of all beer sold in Australia is produced by the two big supermarket chains, and this is set to increase significantly.

The final and most disturbing threat to discerning consumers (who value a diversified and quality range of drinking options) is the way big chains are making life extremely difficult for small quality producers by either refusing to stock their product; or by stocking it, then destroying their market and reputation by discounting their wine to the point where it’s not only cheaper than they can afford to sell it at their own cellar, but cheap enough to destroy any notion of value they may have struggled to build over the life of their business.

The following table is courtesy of Choice and explains the timeline behind the domination of Coles and Woolworths.

How Coles and Woolworths cornered the liquor market
1998: Woolworths has 38 freestanding liquor stores, including five Dan Murphy’s stores it has acquired in Victoria.
1999: Coles opens the first Quaffers Wine Superstore.
2001: Woolworths opens its First Estate outlet for fine wines. It acquires 43 Liberty Liquor stores, bringing its total number of stores to 130. It has approximately 15% of the liquor market.
2002: Coles buys the NSW arm of the Theo’s Liquor chain, adding 49 liquor stores and four hotels to its stable.
2004: Woolworths acquires ALH Group for $1.3bn, netting 130 pubs and 400 liquor shops.
2005: Woolworths has 938 liquor outlets, including 192 freestanding ones. Coles begins its push into large-format liquor stores, opening two 1st Choice Liquor Superstores, with 47 new liquor stores opening in total. Coles owns 31 hotels nationally.
2006: Coles acquires Hedley Group, including 36 hotels and 103 bottle shops. Coles has an estimated 20% of the off-premises market, Woolworths has 23%.
2008- 2009: Woolworths buys a 25% stake in Gage Roads Brewery, and the Langton’s online wine auction business. Woolworths opens two new liquor distribution centres and 77 new liquor stores.
2011: Woolworths expands Dan Murphy’s to 140 stores, with plans to have 200 open in the next three to five years. Woolworths buys Cellarmasters, Australia’s largest online wine retailer, for $340m. It is now also the owner of the Dorrien Estate wine production centre. Market share of Woolworths grows from 15% to more than 35%. 70 new private label beers, wines and spirits are introduced onto shelves. Total number of Woolworths liquor stores is 1250; Coles has a total of 785 liquor stores and 93 hotels.

So whilst there is a place for Coles and Woolworths, it’s also necessary for the small independent retailers to survive and thrive in order to provide an outlet for a diverse range of good quality wines and beers. And to do this they need your support.
Otherwise life may become a little bit more boring :((

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