Bottle shops angry over Smirnoff price packaging stipulation

Esther Han
January 21, 2015
The Age
Bottle shop owners have blasted liquor multinational Diageo for attempting to “dictate” their profit margins by printing a set price on the packaging of a new Smirnoff range.
Diageo late last month launched Smirnoff-branded wine-based coolers in packs of four with “$14.99” printed on the front.
Industry observers say it is the first time that such a pricing move has been made in Australia’s alcohol industry.
Corey Leeson from Independent Liquor Retailers, which represents more than 400 bottle shops, said Diageo was placing further pressure on already-squeezed profit margins and setting a dangerous precedent for other drink makers.
“It’s very poor on behalf of Diageo to dictate shelf prices to our members, inhibiting them from making what they potentially can on a product,” he said.
“So it becomes hard for a member to put a price any higher than that. People can say, ‘well it says $15, why are you charging $16?’ The set price margin inhibits our members.”
Porters Liquor’s general manager Giuseppe Minissale said it was the first time he had seen pre-price labelled alcohol products.
“In the long term, if this becomes the norm then they would be setting the margin expectations per [stock keeping unit] and the bigger customers would get a better margin at that price,” he told trade publication The Shout.
The “limited edition” wine-based coolers come in three flavours – ‘electric citrus’, ‘berry fusion’, and ‘passion twist’ – and are only being sold at independent retailers, not Wesfarmers and Woolworths-owned chains such as Dan Murphy and Liquorland.
A Diageo spokeswoman said consumer needs were at the core of the pricing decision. Depending on feedback, the British-based company might consider extending the price marking system to other products.
“Experience from other markets has shown that price-marked packs are increasingly popular with consumers seeking reassurance they are getting value for money,” she said.
“The decision of final price sits with our customers and any price we suggest is recommended only.”
Rohan Miller, a senior marketing lecturer at Sydney University and alcohol industry consultant, said the liquor giant was attempting to reclaim the Smirnoff brand that had been “cheapened” by retailers’ heavy discounting practices.
He believes Diageo identified a premium price point and employed a pricing strategy to ensure the product stayed there.
“For consumers, price is the greatest predictor of quality. So they’re trying to position their product as a premium-priced one, negating the impact of retailers advertising cheaper prices,” he said.
“Discounting can cheapen your brand and reduce brand equity. Eventually you can lose the value of your brand.”
In September, Coca-Cola released a range of colourful 250-millilitre cans marked with “$2 – maximum retail price” in a bid to communicate an accessible price point to consumers and to give a key point of difference in the market.
At the time, Jeff Rogut from the Australasian Association of Convenience Stores chief executive said small retailers might baulk at the sharper price points as it could crimp their margins.
The Australian Competition and Consumer Commission said it was legal for suppliers to provide a “recommended” and “maximum” retail price, though it is illegal to pressure a retailer to charge a certain price.