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Beer wars over as Coles pulls pin on discounts

Chilled ... the end of the beer wars means consumers will be paying more.

Chilled ... the end of the beer wars means consumers will be paying more. Photo: Glen Hunt

The beer wars are coming to an end and consumers can expect to pay higher prices as the big supermarket chains bring to an end the days of heavily-discounted beer as a loss-leader.

Australia's beer industry is facing some of its biggest challenges as consumer tastes continue to shift and supermarket giant Coles has said years of using beer to help build market share are at an end and as a result prices will rise.

The major retailers have also taken advantage of the high Australian dollar to import grey market beer from overseas.

A spokesman for Coles said: "We stopped unprofitable bulk and corporate sales and reduced unsustainable price discounting [especially on beer]." He said comparative store sales in high margin categories were growing well, especially wine.

In exclusive interviews with BusinessDay, to be published tomorrow, Lion Australia chief executive James Brindley and SAB Miller Asia Pacific chief executive Ari Mervis discuss the challenges and opportunities that exist for beer.

They say there is not about to be a change in beer prices, despite a decision by Coles to stop unsustainable price discounting on beer.

It follows a report by Merrill Lynch analyst David Errington who says the major liquor retailers have been losing money selling beer after allocating the relevant cost of doing business.

"On a case of VB sold (not on promotion), we estimate the gross margin for the retailers is under 5 per cent, which is well below the cost of doing business (on our estimates) of 15 per cent." Mr Errington argues that for the past five years the major liquor retailers' earnings have been "overly" supported by wine. He says 75 per cent of Coles and Woolworths EBIT is generated by wine, despite it making up 40 per cent of their sales revenue.

"The overreliance on wine earnings is being underpinned by the fact that the major retailers lose money selling beer despite making up 30 per cent of their sales."

Mr Brindley said it would be naive to think there hasn't been pressure put on all suppliers in recent history. He said during summer there had been growth in beer sales.

Mr Mervis said the days of CUB focusing on market share as a measure of success were also over. "CUB was focussed on market share as a measure of success so lots of deep discounts," he said.

But it isn't all doom and gloom for the industry, according to the beer duopoly Lion and CUB, which have seen signs of a rebound in beer consumption in the past three months.

Beer is still one of the most branded products around and while it has been declining on a consumption per capita basis for the past decade – falling in 2012 to its lowest per capita consumption levels in 65 years - big brands such as VB, Carlton Draught, XXXX Gold and Toohey's still command a lot of dollars.

To put it into perspective, Australia's beer duopoly generates margins of more than 30 per cent a year, which is far greater than the supermarkets, which operate on single digit margins.

Adele Ferguson speaks to the beer industry's key players over the challenges and opportunities that exist for the sector, while Eli Greenblat examines the recent surge in cider consumption. All in Saturday's BusinessDay.

206 comments so far

  • ALDI.

    Commenter
    John
    Location
    East Gippsland
    Date and time
    February 08, 2013, 1:06PM
    • Yay for Aldi

      And they're GM free (at least in Australia)

      Go figure.

      Commenter
      stevewil
      Date and time
      February 08, 2013, 2:04PM
    • If I shop at W&C (Woolworths and Coles) our Super Funds are getting the money.

      If I shop at Aldi then I’m sending more Australian money overseas (Germany in Aldi’s case).

      Isn’t it bad enough that we sold our brewers overseas? It’s about time W&C got in the brewing business. The brewers are making 30% EBIT and people complain about W&C keeping prices down!

      All this whinging about W&C started when soft commodity prices were skyrocketing around the world and W&C were left holding the blame. Ridiculous! Moronic shock jock media hounds cashed in on blatant stupidity.

      Support Australian owned businesses!

      Commenter
      Davo
      Location
      Oodnadatta
      Date and time
      February 08, 2013, 2:17PM
    • I believe Coles does have it's own beer brand, don't know about Woolies.

      Commenter
      Alfa_male
      Location
      Hawthorn
      Date and time
      February 08, 2013, 3:06PM
    • @stevewil GM is a green technology and you shouldn't be scared of it. GM crops offer increased yields while reducing the amount of chemical pesticides and herbicides needed. Increased yields also mean that less land is used to produce more food. Its a process that manipulates favourable traits already found in the same species (such as larger fruit or natural defences that the plant produces to ward of insects). With continued proper regulation and testing is a safe technology.

      Commenter
      LearnAboutGM
      Date and time
      February 08, 2013, 3:26PM
    • Woolworth is the largest shareholder in Gage Roads, carrying a number of the Gage Road brands as well as Woolworth's' "Sail & Anchor" brand.

      Commenter
      Ian
      Location
      Woodend
      Date and time
      February 08, 2013, 3:34PM
    • @Davo you know the main 'Aussie' Beer manufacturers are no longer Aussie owned right? So your argument is flawed.

      Commenter
      Cherry
      Date and time
      February 08, 2013, 4:07PM
    • Davo,
      You know as much about economics as Wayne Swan knows about aeronautical engineering.

      Commenter
      Trading
      Location
      Melbourne
      Date and time
      February 08, 2013, 4:23PM
    • @Davo - as if your house isn't full of Asian electronics.

      Whinging about money going overseas is pointless - we live in a globalised economy and we don't get to pick and choose who's allowed to buy and sell what anymore. For better or worse.

      And as far as "our" brewers being sold overseas, what do you mean "we"? I don't recall the breweries ever being a state owned enterprise. It's a private company - they can buy and sell what they like to who they like - even the whole company if they want.

      Funny how people who snivel about "our money going overseas" never have much to say about our exports going overseas - both sides of the same coin, after all. You can keep your money here in Australia if you like, but don't be too surprised if the people who buy Australian products overseas take the same view.

      Commenter
      Red Star Belgrave
      Location
      the booze aisle of a german supermarket.
      Date and time
      February 08, 2013, 4:41PM
    • @ Alfa_male & Ian

      I don’t know who brews Coles beer or the name of it but you can be sure it ain’t them. I understand Woolworths bought Hahn brewery several years ago. Is that part of Gage Roads? Isn’t Woolies beer called Pure Blonde or something?

      Anyway, with SAB Miller buying Fosters and Kirin buying Lion Nathan, Woolies must be one of the few Australian owned and brewed beers other than Coopers. Cascade was bought by Fosters.

      W&C have been carrying all the blame for screwing the dairy farmers over milk but they’re attacking Parmalat and Kirin. If anybody is screwing our farmers it’s the multinationals.

      All this loss leader BS started when Wesfarmers bought Coles. They then replaced all the Australian upper management with imports. These imports didn’t give a stuff about Australia with their bonuses linked to increased sales. They forced Woolworths at every stage to follow suit.

      The only change now is that Wesfarmers aren’t making the big money from coal to finance the losses anymore. Stuff Coles!

      Commenter
      Davo
      Location
      Oodnadatta
      Date and time
      February 08, 2013, 4:46PM

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