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Mar 24

Free beer market? Not sure I want what the Aussies have

Last year Costco sponsored an Initiative in Washington State to eliminate the three tier system. That was rejected by voters. Perhaps its failure to pass was largely due to scare campaigns about teenage drinking and loss of city and public industry revenue? Time will tell as Costco and other big box retailers are still pushing for the privatization of alcohol.

My biggest concern relating to I-1100 was the removal of the three tier system. Though somewhat archaic in today’s business world, as a small beer retailer, I just wasn’t ready to let go of the system without some type of safety net in place.

The Australian beer market is currently working through issues that aren’t allowed to fully exist in the USA due to the three-tier system. And I say fully exist as there are some things that fall into the gray area here in our country and in individual states. Following are two quotes from a recent article published about what’s going on in Australia by the Sydney Morning Herald:

The prices that independent retailers pay for a carton of VB ranges from $37 to $43, which is far more than the $33 that the supermarket chains are believed to pay with the huge volume “off invoice” discounts, and has led to a crazy situation where independents go to Dan Murphy’s rather than the brewery to buy their beer.

And

…Foster’s has an investment account with all its customers, including Woolworths, which is renegotiated annually, and includes agreements including margins, product positioning and promotional deals.

Under Pollaers the terms of the agreement in these investment accounts shifted to performance-based terms — such as more display to better position the brands — and away from the more typical price or volume drivers such as bundling promotions with home label or buy-two-get-one-free deals.

Note: Advertising “free” or any word meaning that, such as “complementary” or “two for one”, in association with alcohol is illegal in Washington State.

The article continues—

Foster’s no doubt hoped this new performance-based investment account would rein in the relentless discounting that has been going on for the past three years, particularly given the negative feedback from analysts about the heavy discounting in Crown Lager and Corona.

The decision to finally take a stand and pull key brands from the supermarket chains last month to stop them discounting below cost has opened up a hornets’ nest.

Basically, if you’re new to the story, let me catch you up a bit:

  • Fosters Group is a big beer producer & distributor in Australia; they represent loads of brands including Victoria Bitter, Carlton, Corona, Stella, 1664, etc.
  • Fosters has multi-million dollar accounts with big box retailers throughout Australia, which account for around 50% of their business in that country
  • In Australia, it’s legal for beer to be sold at various rates to retailers, based on volume and contract deals (illegal here)
  • In Australia, it’s legal for loss-leaders to include beer — that means stores can sell alcohol at a loss just to get people in the door (illegal here)
  • In Australia, it’s legal for retailers to buy from other retailers to resell (illegal here)
  • Australian beer makers don’t like seeing their product sold at a loss simply to draw-in more customers at big box chains

All of this makes me shake my head a bit as I continue to read and digest the information. And it makes me think about our liquor laws here in the State of Washington and in the USA, and how they work to even the playing field across small and big retailers — as well as areas that appear as gray. Things like—

Our state’s law tell us that it is illegal for a retail business to sell beer/wine at a loss unless we are not going to carry the SKU for a year. This always makes me wonder when I see big box retailers sell beer/wine at closeout below cost, and later the SKU number changes on a label. Since it’s technically a new SKU, can the big box retailer bring it back in less than a year?

Is it really okay for a distributor to place certain beer/wine brands on sale and then “hold them” — only selling those items to certain big box accounts during specified time periods, while out-of-stocking smaller stores?

Though beer/wine distributors are supposed to be offering a fair playing field, when they setup contracts with large retail chains to provide product why is it then okay to short the small guy who’s been supporting the product, just to make sure the big guy gets his?

And why do some breweries/wineries allow their distributors to short the specialty shops who’ve been loyal for years in preference of “getting in” with the big chain stores?

If I-1100 had passed in Washington, causing the three tier system to be eliminated, would we eventually head toward similar beer wars seen in Australia?

These are all things that have been rattling around in my head.

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