Beer wars: big retail v Foster's - The Age

An order went out around the country for Linfox delivery trucks loaded with beer to be emptied until further notice.

The decision came in response to intelligence received that Coles had prepared a brochure advertising brands including VB for $28 a slab.

A slab of 24 VB stubbies usually wholesales to the big supermarket chains for about $33 and retails for $38. Smaller retailers say they are being charged between $37 and $41 - with some even higher - for the same slab.

''We personally sell a slab of VB for $40.95, making a profit margin of around $1.95 and that's not taking into account the cost of refrigeration, etc,'' said Justin Grant, who said he was an independent liquor retailer with more than 30 years in the industry.

A slab of 24 VB stubbies usually wholesales to the big supermarket chains for about $33 and retails for $38. Smaller retailers say they are being charged between $37 and $41 - with some even higher - for the same slab.

''We personally sell a slab of VB for $40.95, making a profit margin of around $1.95 and that's not taking into account the cost of refrigeration, etc,'' said Justin Grant, who said he was an independent liquor retailer with more than 30 years in the industry.

Inner city prices can be even higher. One independent outlet on Spencer Street in Melbourne's CBD was selling a slab of VB for $48.99, while a nearby IGA rival was offering them at $52.81.

A Foster's spokesman said supply was withheld to protect its brands against ''loss-leading'' - the practice of deliberately selling a product at a loss in the hope of attracting customers who will also buy other products that are not discounted. ''We take loss-leading of our brands very seriously," the Foster's spokesman said.

For at least three days this month, some liquor stores put up signs explaining why they were out of VB. One sign said: "We're out of stock because Foster's, the supplier of VB, says we are selling it too cheap."

Coles and Woolworths, which control 50 per cent of Australia's liquor distribution, have never before been taken on in this way by a supplier.

The milk industry, which is the subject of a continuing price war between the supermarket chains, has been unable to stop the discounting because it involves brands that are not well known and suppliers lacking the same market clout as Foster's.

There are also legal issues associated with withdrawing supply, including restraint of trade. Foster's relied on an aspect of competition law that permits companies to withhold supply when their products are being used as loss-leaders.

Apart from the objections of Foster's, the move by the big retailers to try to extend the milk war into the multibillion-dollar beer industry could also raise social issues about whether an age-restricted and potentially harmful product such as alcohol should be used as a loss-leader. Foster's and its main rival, Lion Nathan, have spent large amounts of money and time trying to promote the notion of responsible drinking.

By trying to sell alcohol at lower prices than bottled water, the supermarkets risk drawing the negative attention of government and regulators concerned about rises in drunken violence, one industry expert warned.

In Britain, brewers persuaded legislators to pass a law preventing the sale of alcoholic beverages at below cost price.

The aborted beer war between Coles and Woolworths was not the first such attempt at heavy discounting in Australia. In February, online discounter getwinesdirect.com.au tried selling Crown Lager for below wholesale price.

Woolworths is the biggest player in liquor retailing, with more than 1200 stores, including the Dan Murphy's chain.

Asked about recent events involving discounting of Foster's products, a Woolworths spokeswoman said: ''Beer is an extremely competitive product regardless of whether it is sold at independent or larger chains.''

A Coles spokesman said: ''We have been trying to offer the most competitive beer offer for our customers whenever we can.''

On the Foster's intervention, the Coles spokesman said: ''There was some disruption to the supply, but that has not been material to the business and we have continued to meet consumer demand for beer.''

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From milk wars to wine wars at Coles

FOSTER'S wine chief recently raided Coles liquor outlets, buying as much Penfolds 389 as he could as part of its campaign to protect his brands from retailer discounts.

The raid was successful with Foster's staff buying 60 per cent of the Coles allocation at the advertised price of $37 a bottle, which compared to the wholesale price of $44 a bottle.

The move follows several shutdowns by Fosters beer division dating back to February 1, when the beer giant stopped supplying independent outlet Getwinesdirect.com.au.

Under the Trade Practices Act, when a product is sold at below cost the producer has the right to withhold supply for a few days if it believes the retailer is using the product as a loss leader.

Foster's has done this several times to protect its brands.

It has also targeted Coles and Woolies and other independents who have sold below a certain price.

Woolworths rejected any suggestion it was in a beer war with Coles or selling beer at below-cost prices.

"To suggest this is a beer war, that this is similar to other things that have been going on at the moment (milk discounting), is plainly wrong, because this is the normal specials that happen week-in, week-out," a Woolies spokesman told AAP.

"There is no permanent bringing the price down."

VB slabs should retail for between $36 and $38 a case and Foster's has a line in the sand at $32 a case and when it sees the product marketed below that level it hits the retailer with a so-called section 98 notice withholding supply.

The Foster's response shows how branded-goods producers will react aggressively when they think their brand equity is being damaged and in this case they acted to stop top quality wine and beer being marketed as discount labels.

Consumers are, of course, the winners when retailers compete on price, but the retailers take a risk when they attempt to discount branded products.

That explains why Coles has focused on home brand milk.

Bin 389 is known in the trade as baby grange and headlines the annual March 1 bin release by Penfolds. The company declined to say how much is released each year other than that demand always exceeds supply.

The bin release is always a big marketing day in which the competing retail chains try to outdo each other.

Foster's Treasury Group marketing chief Mick Flaherty got his staff on the road when he saw the Coles advertisements marketing his baby grange at 16 per cent below cost.

When the raid was completed he confronted Coles liquor boss Tony Leon with the news.

When Leon sought to buyback the wine Flaherty refused and instead supplied the product to independents.

The Treasury raid highlights the risk when the branded goods are highly sought after and Leon’s loss was his rivals gain because they could supply customers with the highly sought after wine as punters wait for the Grange release in April.

As Leon sorts out his issues with Foster's Treasury Group, wine consumers are a mile in front and the competition laws have been shown to work well, supporting brand equity while at the same time encouraging price competition.