When dealing with the Liquorlands and Dan Murphys of this world, winemakers can be stuck between a rock and a hard place. The big retailers Coles and Woolworths maintain a strict pricing regime that squeezes suppliers from multiple angles. Zacharias Szumer investigates the liquor oligopoly.

Heading into the Easter long weekend, alcohol retail giant Dan Murphy’s has been reminding Australians of its “unbeatable offers”. “Found it cheaper? We’ll beat it,” reads one of the ads in the company’s trademark white and green colours.

However, industry sources say that suppliers effectively bear the cost of such lowest-price guarantees, which are forcing competitors to hide better-value deals. Meanwhile, some suppliers can be hard-pressed to pass on increased costs to the big retailers.

Who bears the cost of discounts?

According to one wine market source, online outlets like WineStar, Grays or Vinomofo will regularly get calls from winemakers or wholesalers asking them to put up the price of a certain product.

Callers will often frame their request in euphemistic, businesslike terms, the source says. For example: “Your margin expectations are a little bit low on this product”.

Sometimes, the suppliers simply ask the online wine seller to take down an offer.

Why? Because these online outlets are offering lower prices than the big retailers, such as Dan Murphy’s, Liquorland, BWS or First Choice – and thus the big retailers may be pushed to match or beat their price if they have a lowest price guarantee.

Nothing wrong with that, right? That’s competition in action.

The issue, according to the source, is that big retailers often have agreements with wholesalers and suppliers that stipulate that if they have to lower their prices to match a competitor, it’s the supplier who funds the difference.

This means that if the online outlet simply has lower overheads and can sell a product for less, the supplier has to ensure that the big retailers can sell it at that price, too – even if they can’t afford to.

Online outlets have been “forced to take off some product from their websites because it competes against some others,” the source said.

Apparently, the proliferation of online outlets offering “black market” or “mystery wine” deals is a direct result of this practice. These deals circumvent the issue by hiding brand names unless customers directly inquire about them.

A spokesperson for the Endeavour Group, which owns Dan Murphy’s and BWS, told MWM that in most cases the retailer paid for price-beat guarantees.

“We bear the cost of individual price beats at Dan Murphy’s except in a small number of instances where we have a prior agreement with a larger supplier. Small suppliers do not bear the cost.”

A spokesperson from Coles Group, which owns Liquorland, Vintage Cellars and First Choice, said that suppliers didn’t bear the cost of their price-match policies.

“As part of the First Choice Liquor Market price match policy, we have a commitment to match the price of an identical stocked liquor item at a competitor in the same state, on the same day and in-store. We fund this price match policy, not our suppliers.”

Easier to push prices down than up

While the big retailers may be happy to lean into their suppliers’ margins to push prices down, it can be another story when suppliers want to put their prices up.

In dealing with the big retail chains, small and medium-sized wine producers don’t have “anywhere near enough negotiating power to say things like ‘we need to put prices up,” says a senior Hunter Valley winemaker, who also asked to remain anonymous.

According to the winemaker, if a supplier asks one of the big retailers for a price increase, they will be asked to submit a detailed spreadsheet explaining exactly why the price rise is necessary.

Whether it’s the rising price of fuel, labour, transport or glass bottles – it all must be meticulously submitted for approval. Sometimes, “the big retailers just come back and say ‘No, we reject your price increase’”.

And even if the reason is found to be legitimate, big retailers will often warn suppliers that any price increase may lower sales to the point that they’ll have to stop stocking the product.

“They tell you if your product is at risk, and they give you an opportunity to do something about it,” he said, adding that this may mean spending additional money on promotion.

“We evaluate every request for a price increase carefully taking into account the highly discretionary nature of liquor spending and the need to offer the best possible prices to support sales and our customers in the high cost of living environment,” the Endeavour Group spokesperson told MWM.

“Price increases and decreases do not influence ranging decisions,” the Coles Liquor spokesperson said.

Skill up or dump the Big Two

“It’s very, very hard when you’ve got somebody not only saying ‘we will not be undersold’ but also ‘we will tell you if and when you can raise prices’,” says wine industry consultant Peter McAtamney.

McAtamney said he’s now telling his clients to avoid the big retailers altogether.

“If you’re a small player, you probably shouldn’t be thinking about doing business with these guys anyway … and that’s the way that I’m coaching all of my clients … to not have to rely upon the supermarkets.”

“When I originally said this, I had people walk out of the room, but it’s entirely possible today.”

However, if you’re a medium-sized wine producer, meaning you probably need the big retailers to sell off all your stock, “you will need to be highly skilled commercially,” McAtamney says.

Given the big retailers’ high level of business intelligence, a supplier really needs “sophisticated people” to deal with them, he said.

Uniquely Australian?

As mentioned above, Dan Murphy’s and BWS are both owned by the Endeavour Group (in which Woolies has a stake), while Liquorland, Vintage Cellars and First Choice are owned by the Coles Group.

Woolworths spun off Endeavour in 2021 but is still a major shareholder and “has significant influence over the Endeavour Group,” according to a recent Endeavour annual report.

Via a series of service agreements, Woolies helps Endeavour with logistics, loyalty programs and digital infrastructure for payments and data analysis.

Both Endeavour and Coles are now also competing directly with winemakers, producing and selling a wide range of ‘private label’ wines that appear to be independent brands until you read the fine print.

“They actually own wineries that are direct competitors to their suppliers,” McAtamney said. and added:

There’s no other wine industry on Earth where that happens.

“So, it’s a bit unique, and I frankly don’t quite know how to feel about it.”

A Senate inquiry into anti-competitive conduct in the wine industry’s retail sector was kicked off in 2016; however, parliament was dissolved before the inquiry produced a report.

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This post was originally published on Michael West.