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.