Cheaper liquor as chains keep growing

Supermarkets sold $252 million worth of beer in the year to November compared with sales of about $140 million by liquor stores. Herald file picture

Cheaper liquor is likely to be the first sign of a rush by deep-pocketed retailers into the take-home drinks market in the coming year.

The next could be closures among traditional liquor retailers who failed to prepare for the onslaught.

"There are going to be casualties, without a doubt," said John Sutherland, chief executive of the franchised Super Liquor chain.

"One of the interesting facts about liquor retailing is the myth that there is lots of profit in liquor and that is just not the case.

"Having more players come into the marketplace is definitely going to put pressure on the existing traditional outlets. Everyone will be impacted."

One thing is clear: the fight for the $1 billion-plus take-home liquor market is only just beginning.

Last month, discount retailer The Warehouse confirmed plans to set up an independent beer and wine store within one of its Red Sheds in Tauranga, and analysts expect its joint venture - The Warehouse Cellars - to open in up to half the company's 85 stores.

Also last month, Foodstuffs chief executive Tony Carter acknowledged the supermarket operator intended to open a chain of stand-alone liquor stores beginning in April. Foodstuffs owns the New World, Pak'N Save and Four Square grocery chains.

The head of Australian supermarket giant Woolworths, Roger Corbett, whose company has just bought New Zealand's other main supermarket operator Progressive Enterprises, has also said he sees opportunities in liquor. Corbett is expected to transplant the successful liquor barn chain Dan Murphy's to New Zealand.

These stand-alone stores will mark the first foray by supermarket operators into spirits retailing, a market which has previously been the domain of bottle shops.

Grocery chains have been licensed to sell wine since 1990 and beer since 1999 and have already captured huge stakes in both liquor categories.

ACNielsen figures show supermarket sales of wine and beer are about twice that sold in traditional liquor shops. For the year to November, supermarkets reported $455 million in wine sales; bottle shops had $193 million. Beer sales were $252 million in supermarkets compared with $140 million at liquor stores.

The supermarkets hope their new liquor outlets will allow them to grab a share of the spirits market as well, which is worth more than $200 million a year.

Against the newcomers stand a wide array of existing liquor retailers; from franchised chains with more than 100 stores to single-store independents to the last of the old-school licensing trusts.

Carter says the entry of so many new retailers next year will undoubtedly alter the market.

"I think the market will be a different shape by the time we get there - and certainly after we get there," he said.

He acknowledged Foodstuffs' entry might force others out. "It's fair to say whenever some large competitors open in any market there is consolidation across all levels.

"I think we will be a consolidator. Clearly, we have aspirations to be a significant player in this market."

Some say there is likely to be an initial period of a few months when prices will dip as entrants seek to muscle share away from established players. But prices will then recover: there's little room for already tight margins to contract.

"I think there'll be a shitfight going on for a few months, then things will settle down and we'll all try and make profits," said one retailer.

Chris Simkin, managing director of The Mill Liquorsave, said there was no doubt that new entrants would drive down prices at a time when there was not much wriggle room and prices were tight.

In October, The Mill swallowed fellow independent Birds Liquorsave to increase its store numbers to 41, saying it would need scale to defend and develop market share if it faced fresh competition from the likes of The Warehouse Cellars.

Richard Umbers, Progressive's managing director, believes it is too soon to say what will happen to prices. But his firm will front up.

"We're always trying to deliver a strong competitive offer to the consumer and price is an important part of that. I'm not afraid of low pricing."

Buying power will undoubtedly play a part in sorting out the winners and losers.

Woolworths' Corbett has been active in consolidating Australia's A$11 billion ($11.9 billion) retail liquor market, with Woolworths' share rising to about 30 per cent last year after the A$1.3 billion takeover of Australian Leisure and Hospitality.

This year, he topped up his buying power with the purchase of the 33-pub Taverner Hotel Group.

Woolworths is clearly the best armed but it is fortunate for others that buying power is unlikely to be the only determinant of success.

Carter said: "We wouldn't be entering if we thought Woolworths had a significant advantage over us."

The consumer offering, service and an array of other factors such as loyalty programmes or perks such as free delivery will also be crucial.

Managing director Lal Senaratne said the Liquor Centre Group, the largest franchised chain by stores in the country, set itself apart by service.

Senaratne said the Liquor Centre had survived the already intense competition because it positioned itself as a convenience chain with staff that had strong product knowledge, even though it did not boast the lowest prices.

Franchise holders must meet minimum standards or risk being closed, and about six lose their franchises each year through non-compliance.

The upheaval is not expected to entice people to drink more.

Brian Blake, managing director of DB Breweries, which owns the franchised Liquorland chain, said more retailers would not translate into more alcohol being sold.

"I don't think the market's going to grow. So that means those volumes are going to be spread over a larger number of outlets," said Blake. "There must be casualties on the way."

But Lion Nathan's New Zealand managing director, Peter Kean, said the numbers showed there was still room for more players in liquor retailing.

"There is a goodly amount of product sold in off-premise [or take-home] versus the number of licences. So you could say there is still quite a future for many players [in the take-home market]," said Kean.

Lion Nathan manages and owns the 40-store Liquor King chain.

When supermarkets were licensed to sell beer, the industry braced itself for many more closures than actually occurred.

In fact, the number of non-supermarket bottle shops has grown. There were 663 non-supermarket liquor stores in 2002. Statistics NZ says there are 764 now.

Others wonder whether the retail shakeup provides an opportunity for the brewers to leave the market.

Blake said the 80-store Liquorland chain was not run as a big revenue generator for the brewer.

"We run the franchise at break-even. So it's not seen as a revenue opportunity for DB.

"It's more about having a chain that is aligned to us."

Blake said DB was not looking to offload the chain because it kept the brewer in touch with the retail market.

However, Kean said his company was constantly assessing its operations.


Liquor figures
* Take-home liquor market is worth more than $1 billion.
* Supermarkets sold $455 million in wine and $252 million in beer so far this year.
* Traditional liquor stores sold $193 million in wine and $140 million in beer and about $200 million in spirits.
* About 3100 people are employed in the retail liquor industry, excluding supermarkets.

Retailer statistics
* Liquor Centre Group: franchise, 130 stores.
* Super Liquor: franchise, 102 stores.
* Liquorland: franchised subsidiary of DB Breweries, 80 stores.
* The Mill Liquorsave: managed privately, 41 stores.
* Liquor King: managed and owned by Lion Nathan, 40 stores.