Smaller is beautiful too for Dan Murphy’s

Sue Mitchell
Jan 3, 2020

AFR

Dan Murphy’s, which carved out a 30 per cent share of the $16 billion packaged liquor industry with a category killer format, is testing smaller stores to reach into previously inaccessible markets.

Most of Dan Murphy’s stores are between 800 and 900 square metres (sq m) but the retailer is opening stores half that size stocked with a highly curated range based on customers’ online ratings.

The first 400sq m Dan Murphy’s, a converted BWS bottle shop, opened at Elanora Heights in Sydney’s northern beaches last month.

Dan Murphy’s, known for its category killer liquor barns, is opening small-format stores to expand into previously inaccessible markets. 

The Elanora Heights store stocks only 2700 stock keeping units (SKUs)– almost half the 5000 SKUs at a typical Dan Murphy’s big box store – but all the products have received an online rating of four or above by customers.

The ratings are displayed on electronic shelf-edge labels linked to Dan Murphy’s web browser and are updated in real time, giving customers daily feedback on the most popular and top-selling wines, beers and spirits.

The scaled-back Dan Murphy’s is one of three new formats being tested by Endeavour Drinks as part of a strategy to revitalise sales ahead of a merger with Woolworths’ 75 per cent owned ALH hotel and gaming operations and a likely stock exchange listing next year.

After decades of strong growth, Dan Murphy’s sales growth has slowed in recent years as consumers have opted for quality over quantity, while earnings have come under pressure as the retailer invests heavily in digital and delivery.

Endeavour Drinks’ earnings before interest and tax fell 9.7 per cent in 2019 to $474 million as sales rose 3.2 per cent to $8.7 billion. Dan Murphy’s accounts for about 50 per cent of sales and BWS the balance.

Endeavour Drinks managing director Steve Donohue said the 67-year old Dan Murphy’s brand, which was acquired by Woolworths in 1998, was developing new formats in response to customer demand for convenience.

“We’ve spent a lot of time taking that feedback from customers and thinking about how we can relate it back to the Dan Murphy’s experience,” he said.

Endeavour Drinks managing director Steve Donohue in the new Dan Murphy’s store in Hawthorn. Eamon Gallagher

“Whilst Dan has great coverage and resonance with customers for online and for on-demand delivery, we’ve taken the opportunity to go back to our physical stores and see what we could do to make them easier for customers and meet different occasions.”

Endeavour is tweaking Dan Murphy’s traditional big-box format, making stores easier to navigate, with clearly labelled precincts for fine wines, sparkling wines, spirits, ales and beer, and easier for customers to pick up online orders.

The first store under this new format opened in Hawthorn in Melbourne in December.

Dan Murphy’s is also developing a drive-through format which enables customers to order from their cars or pick up online orders without leaving their vehicles. The first drive-through opened in Innaloo in Perth.

Mr Donohue said the liquor chain was adjusting to changing customer demand while staying true to its roots, retaining its lowest price guarantee.

“Proactively beating competitors’ prices has been a real cornerstone of the business and one of the key elements that sets us apart from others in the market, but price is never enough,” he said.

“Price is great but the experience in the store and having the right range is as critical as price these days. That’s why we have curated the range in the four-star store in Elanora Heights.

“We’ve made [the range] more concise based on what customers tell us they love, what their favourites are,” he said. “Customers love the fact we are selling to them things they’ve told us they love through our digital platform.

“If it’s successful, it will give us an opportunity to get into spaces and places we wouldn’t otherwise be able to take Dan [Murphy’s].”

Endeavour is not sure at this stage how many small format Dan Murphy stores to open, but hopes to offer drive-through options at as many sites as possible.

Mr Donohue dismissed suggestions Dan Murphy’s was exploring new formats and expanding into problematic markets such as the Northern Territory because its big box format had reached saturation.

The liquor chain has come under fire over plans to open a Dan Murphy’s liquor barn close to three vulnerable Indigenous communities in Darwin by substituting an existing licence for a much smaller BWS store in another part of the city.

The Liquor Commission denied Woolworths’ application for a licence substitution in September 2019, noting the “potential for a significant increase in harm due to the use of liquor”.

Woolworths appealed to the Northern Territory Civil and Administrative Tribunal. However, in a set-back two days before Christmas, Woolworths’ application to the tribunal to review the Liquor Commission’s decision was dismissed.

The tribunal ruled that “Dan Murphy’s substitution application was not permitted by the Liquor Act 1978 and should not have been entertained by the Liquor Commission”.

“In the last couple of months we opened nine Dan Murphy’s stores and none of those have been in the Northern Territory,” Mr Donohue said.

“There are many opportunities for us to continue to open Dan Murphy’s stores and we continue to be ultra-focused on our responsibilities when it comes to the service of alcohol.”