Price war extends to booze

March 5, 2012
The Age

A year ago Coles and Woolworths began selling milk at $1 a litre. It then spilled over to the bread industry, the beer industry and more lately big branded soft drinks.

The widening price war has put the suppliers of these products at loggerheads with Woolworths and Coles, which have long been criticised for squeezing suppliers on margins and terms. Few have come forward for fear of upsetting their two most important customers.

A year ago, things changed when Foster’s stopped VB beer being sold for a couple of weeks in the supermarkets at below cost price. Bread maker Goodman Fielder also came out complaining of price cutting, while dairy farmers continue to bewail their evaporating margins as the milk war rages between the supermarket giants.

More lately Coca-Cola Amatil, producer of a globally powerful brand, has had to bear the brunt of some unusually tough trading terms.

For every high-profile name, there are scores of smaller suppliers hurting at least as much. Besides being battered on prices, they are increasingly being squeezed out by the rise of the supermarkets’ private labels.

In the past six months, Woolworths’ private label brands have ballooned to the point where they are now the second-largest supplier to their own liquor division by value.

Woolies generated $3.6 billion in liquor sales for the first half of 2011-12, putting it on track to a record $7 billion revenue figure for the full year, and underscoring the importance of alcohol sales to the wider company’s fortunes.

100 new drinks
According to industry newsletter, The Shout, Woolworths launched 100 new private label drinks brands in the last six months alone, including alcoholic ginger beer, flavoured ciders, rum and premium bourbon.

Private labels do two things: they compete against the big brands to put an anchor on the price the owners of Heinz baked beans and similarly popular brands can charge. And they provide the supermarkets with more control over their own supply chain and product range.

There is even a case (excusing the pun) that they make a better margin out of the private labels, depending on the price point.
What seems certain is that private labels will continue to flourish in supermarkets and they will continue to snatch sales from branded products.

The trend, though, also demonstrates another way that the dominant supermarket chains are increasing their already formidable power.

In the short term, the price wars look good for customers, and they are. That’s provided, of course, that they don’t have a long-term impact of reducing consumer choice in products as well as the quality as suppliers struggle to survive.
aferguson@theage.com.au

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