Woolworths and Coles, Masters of Wine?

They own Dan Murphys, BWS, Wine Market, Langton's, Vintage Cellars, 1^st Choice Liquor and now Cellarmasters - is it too late?

We can only wonder whose side the ACCC is on. It let Westpac take over St George a few years ago, which reduced competition in the banking sector. Last April, the ACCC allowed Woolworths to buy Cellarmaster, which increased the duopoly position of Woolworths and Coles. ‘The big end of town and their well paid advisors,' writes frank Zumbo in The Punch, 'will be quick to welcome the ACCC decision because these people do well out of mergers.’ We mug punters, on the other hand, can go to hell.

image courtesey of Choice

We’ve seen our favourite brands disappear from Woolworths’ and Coles’ shelves in recent years, to be replaced by more and more products under their own labels. The same is happening with wine. Many of those $10 labels you see at Vintage Cellars and Dan Murphys are designer labels stuck on anonymous bulk wines: Crittenden and Co., Baily & Baily, Robinsons, Rau, Pensilva Estate, Parson’s Paddock, James Busby, Penola Estate and many more. It’s not just wines, it’s beers like Maxx Blonde, Dry Dock and Platinum Blonde, and spirits like Mishka vodka and Napoleon 1875 brandy. A very full list of all private labels is here http://whomakesmywine.com.au/thelist.html

Private labels are a growing market, say the big guys, but the truth is more likely found in the attraction of fatter margins. It’s no secret that we have a surplus of some 100 million cases of table wine, and Woolworths and Coles are doing their bit to shift it, no doubt squeezing the life blood out of desperate suppliers in the process. And pushing branded wines off the shelves. We know the story, we’ve seen it with groceries. The difference is that the labels don't mention Woollies or Coles.

Sly grog

They used to sell cleanskins, those $5-7 wines with black &white labels, but now they’re selling similar wines under much flasher labels for much more money because most punters have no idea that they’re buying cleanskins. Overseas, the big supermarkets are promoting their private labels under their own names. They’re using these labels to offer better value and to build loyalty, and to build their own brands.

Tesco in the UK has built a range of private labels with Tesco branding, and is building on that success with a higher quality range. Customers buy these wines because they trust the Tesco brand. That’s not what’s happening down under. Perhaps Woolworths and Coles are worried that the punters don’t trust them. Maybe that’s because their brands are down there in the public opinion stakes with those of the big banks - monopolies pushing out the little guys and screwing customers and suppliers alike.

Vintage Cellars has its modest Chalkboard range, wines that are clearly labelled as selected by the VC people for quality and value. However, the bundled deals they offer involve their private labels, not Chalkboard wines. Kemenys take a slightly different approach and buy currently available branded wines for their extensive Hidden Label range - we’ve uncovered a number of them here http://briard.typepad.com/get_the_picture/2012/08/kemenys-hidden-labels-uncovered.html .

Hollow Logs

Stephen Strachan, CEO of the Winemakers’ Federation of Australia, told Max Allen at The Australian: ‘We have a situation now where our customers [the supermarkets] are also our competitors. We believe that private labels simply take market share from our members’ existing labels, undermine the established brands and make it harder for us to clear the oversupply of wine afflicting the industry.’

Ross Brown of Brown Bros recently told The Age the same thing: that the big retailers’ private labels were crowding out quality Australian wines. He made the point that people thought these labels were brands. ‘I call them hollow logs,’ he said, ‘because they masquerade as brands but in fact they are just a label, which has none of the values traditional family wine companies bring to the market ...’

He also made the point that these private labels showed no innovation or leadership. They simply copied the styles serious winemakers had developed over the years. ‘It’s not going to develop a wine industry that’s very serious in the future,’ Brown said, ‘and will just turn wine into a commodity.’ That about sums it up.

A Big Crush

The big boys aren’t standing still, however: they’re going into the wine making business, no doubt chasing even fatter margins. All they have to do is buy cheap grapes, which is not a problem given the current surplus, and buy a winery. How convenient that Cellarmasters already owned a huge winery: Dorrien Estate, which crushes some 12,000 tonnes every year for Cellarmasters, the New Zealand Wine Society and third-party distributors such as David Jones.

Philip White calls Dorrien Estate, ‘one of the Barossa’s bigger wine refineries,' and says it 'is expanding into Beckwith Park, the old Southcorp winery at Nuriootpa. At Dorrien, Woolworths already crushes about as much as Penfolds do at Nuri; the humungous volume of bulk wine that also passes through these Woolworths joints for finishing after being crushed somewhere else is nobody’s business but their own. Consider it big.’

Cellarmasters also owns Australia’s largest independent bottler, Vinpac International, which brings another 500,000 case warehouse, and an outfit called Nexday Logistics for rapid dispatch. Cellarmasters also brings a telephone list of 330,000 customers. All of this gives Woolworths a huge leg up, and shows beyond doubt that the ACCC is embedded with the big end of town. Bugger the consumer, and choice, and ...

David Farmer talks about Beckwith Park, a facility jettisoned by Fosters a few years ago, as a place that ‘slowly filled up with an array of local businesses renting office space, taking over sheds for wine making and leasing the stainless steel tanks for wine storage.’ Then he adds: ‘Into this happy family scene has wandered the giant Woolworths group ...’

‘These big chains can make life extremely difficult by refusing to stock your product,’ writes Philip White in The Land, ‘or by stocking it, then destroying your market and reputation by discounting it to the point where it’s not only cheaper than you can afford to sell it at your own cellar, but cheap enough to destroy any image of prestige you may have struggled to build over the life of your business.’

Giaconda and Kooyong – coming to a supermarket near you

So why on earth would premium boutique wine makers like Rick Kinzbrunner at Giaconda and Sandro Mosele at Kooyong want to make deals with the devil? Vintage Cellars and 1^st Choice sell GK Chardonnay for about $50, and Kooyong's Ballewindi Chardonnay and Pinot Noir for about $30. Alterum is another label developed for Vintage Cellars by Shaw and Smith – why on earth does Martin Shaw want to make wine for Coles? Or David Bicknell at Oakridge in the Yarra Valley?

Sandro Mosele of Kooyong Estate

I haven’t the faintest idea. Even Philip White concedes that the Chardonnays in question are very good wines, but why not put them under a second label as some of the French estates do when the fruit or the vintage isn’t quite up to grand cru standards? What happens when these guys decide to bottle wine under a second label of their own, will Coles stock these wines? Unlikely. It’ll be like Monty Python and the Holy Grail – ‘he’s already got one ...’

The End?

I wish I could end on a positive note, but the only threat to Woolworths' and Coles’ domination of the wine trade comes from Costco. There’s no joy in that – it’s monsters slain not by knights in shining armour but by yet another monster. Costco sells over a billion dollars’ worth of wine. The market will be split three ways instead of two – what’s the difference? Don’t ask me – I’m going to pour myself a glass of wine.

For those of you who like to know not just what happened but how it happened, here’s the timeline courtesy of Choice http://www.choice.com.au/reviews-and-tests/food-and-health/food-and-drink/supermarkets/supermarket-liquor-sales.aspx:

How Coles and Woolworths cornered the liquor market
1998:	Woolworths has 38 freestanding liquor stores, including five Dan Murphy’s stores it has acquired in Victoria.
1999:	Coles opens the first Quaffers Wine Superstore.
2001:	Woolworths opens its First Estate outlet for fine wines. It acquires 43 Liberty Liquor stores, bringing its total number of stores to 130. It has approximately 15% of the liquor market.
2002:	Coles buys the NSW arm of the Theo’s Liquor chain, adding 49 liquor stores and four hotels to its stable.
2004:	Woolworths acquires ALH Group for $1.3bn, netting 130 pubs and 400 liquor shops.
2005:	Woolworths has 938 liquor outlets, including 192 freestanding ones. Coles begins its push into large-format liquor stores, opening two 1st Choice Liquor Superstores, with 47 new liquor stores opening in total. Coles owns 31 hotels nationally.
2006:	Coles acquires Hedley Group, including 36 hotels and 103 bottle shops. Coles has an estimated 20% of the off-premises market, Woolworths has 23%.
2008- 2009:	Woolworths buys a 25% stake in Gage Roads Brewery, and the Langton’s online wine auction business. Woolworths opens two new liquor distribution centres and 77 new liquor stores.
2011:	Woolworths expands Dan Murphy’s to 140 stores, with plans to have 200 open in the next three to five years. Woolworths buys Cellarmasters, Australia’s largest online wine retailer, for $340m. It is now also the owner of the Dorrien Estate wine production centre. Market share of Woolworths grows from 15% to more than 35%. 70 new private label beers, wines and spirits are introduced onto shelves. Total number of Woolworths liquor stores is 1250; Coles has a total of 785 liquor stores and 93 hotels.