The liquid assets of the booze barons

By SIMON HENDERY

It is 3pm on Friday afternoon and a steady stream of customers is passing through the checkouts of Glen Innes' busiest liquor store. The cartons of discount beer and ready-to-drink spirit mixes are stacked to the ceiling at Fenchurch Liquor.

The atmosphere in the bright, if rather basic, family-owned business is one of organised clutter.

Behind one of two tills, part-owner Praf Patel keeps up a charming, easy patter.

Despite Glen Innes's downmarket reputation, the clientele spans the spectrum of ages, races and income levels.

Patel asks for identification from a young Maori woman buying a case each of beer and a cola and bourbon alco-pop.

"Nice picture," he smiles, glancing at her driver's licence.

A Pakeha man taking an 1125ml bottle of rum and a 2-litre Coke gets the same treatment: "You haven't aged at all."

A well-heeled woman in her 60s asks Patel if he stocks a particular award-winning gewurztraminer. No, most of that type of wine will be offered to the restaurant trade first, he explains.

Never mind, the woman shrugs. She will just take four bottles of gin, then, at $25 each. Patel takes her $100 and an assistant carries the bottles to the woman's car.

There are a number of ways to make money out of booze and the Patel family, 30-year residents of Glen Innes, have mastered one model - the low-margin, high-volume coalface end of liquor retailing, "the stack 'em high, sell 'em cheap approach", says one industry insider.

The Patels arrived in Auckland in 1973, as refugees escaping Ugandan dictator Idi Amin's regime, and the head of the family went into business running the dairy on the corner of Taniwha and Fenchurch Sts.

When the liquor industry was deregulated in the early 1990s, he opened Fenchurch Liquor next door. And it is the liquor store that has grown, expanding into the neighbouring building. The business is now run by the three Patel brothers, Morris, Vas and Praf.

A few years ago, Fenchurch's volume strategy meant it was one of Lion Breweries' biggest customers. As supermarkets moved into liquor retailing, Fenchurch has slipped down the list, but still probably rates among Lion's top 20 clients.

It is hard work competing on price against the supermarkets, who have embraced liquor sales since liberalisation of the law in the 90s allowed them to stock beer and wine.

Wine is now the number one-selling supermarket grocery category and beer is in the top 10 and climbing. This is good news for supermarket operators, because while beer and wine are often discounted as "loss leaders" to attract shoppers into the store, they can also sell at a much higher mark-up than most products in the supermarket, meaning more money in the grocer's pocket.

But you don't need to be in the bargain end of the business to make money out of booze.

In central Auckland, Jeff Poole, founder of the Fine Wine Delivery Company, has a database of past shoppers who have bought a bottle, or bottles, of wines such as Penfolds Grange at about $400 each.

When next year's limited allocation of the vintage arrives he will email those on the list and watch the orders flood in.

But it is further up the supply chain - in the stratospheric realms of the "booze barons" - where the serious money can be made.

Doug Myers realised almost half a billion dollars when he sold his stake in the former family business, Lion Nathan, to Japanese brewer Kirin in 1999.

Other overseas interests have recognised the potential of our alcohol companies and snaffled them up.

Lion's heavyweight rival in the local beer market, DB Breweries, is majority owned by Heineken-controlled Asia Pacific Breweries. DB has been streamlined and re-focused under APB's control and is an efficient profit machine for the Singapore-based company. Multinational enthusiasm for a stake in our liquor industry has helped some to bank larger fortunes than they can have dreamed of.

So it was for Peter Masfen - a beneficiary of a long and high-stakes tussle for control of our largest winemaker, Montana.

Like Myers with Lion, Masfen had a family history with Montana. Having become company chairman, he was sitting on a 20 per cent stake in the company when Lion Nathan and United Kingdom-based global liquor giant Allied Domecq got into a takeover war for the business three years ago.

When he sold in 2001 after Allied won the battle, the fierce competition had pushed the value of his stake up by millions of dollars.

Down but not out, Lion's determination to get a foothold in the high-profile New Zealand wine scene led to it writing out a huge cheque to another winemaker last year.

The company bought the Marlborough-based Wither Hills wine business from Brent Marris and his family for $52 million.

The price of the deal surprised some in the industry, but typified the boom the wine business is enjoying.

One who hasn't succumbed to the temptation of pots of overseas money is George Fistonich, founder of the country's third largest wine business, Villa Maria. He has rejected past offers to buy the company.

Meanwhile, another entrepreneur with a wine background has been showing that liquor can produce quick and spectacular returns by developing the popular ready-to-drink market.

Michael Erceg is rated the country's eighth richest individual by the National Business Review's rich list, with wealth estimated at $300 million.

Erceg's company, Independent Liquor, is in beer, wines and spirits on both sides of the Tasman, but its major strength has been its ability to successfully ride the alco-pop wave as drinkers, particularly the younger demographic, have turned away from beer.

Meanwhile, back at the shopfront coalface in Glen Innes, Vas Patel says retailing liquor will never make anyone super-rich and the hours are gruelling.

If making money was the only objective, the family would have gone into another business, he says.

Of Fenchurch's decision early on to get into the high-volume/low-margin end of the business, he says: "I don't know if it was a good thing, but at the end of the day we get good customers who talk nicely about us."

While reports of armed robberies of liquor stores are all too common, the Fenchurch shop has never been held up -"touch wood" - and he attributes that to the respect the family has built up during its long history in the community.

The store sponsors more than 30 local sports teams, he says.

While retailers like the Patels slog their way through the lucrative Christmas and New Year period, the liquor barons above them are no doubt hatching plans and marketing schemes for the coming year.

For most of us, the booze business is all about spending a few dollars on the trip to the bottle store or the walk down the supermarket wine aisle. But for some, the chiming of clinking glasses is drowned by the sound of cash tinkling into the tills.