Chained to the Chains?

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Chained to the Chains?

There isn’t a day go by in the liquor world without an independent retailer asking a supplier to support a promotion, fork out for advertising in the local rag or give a better discount ‘to hit a price point.’ Such is the working of this wine trade.

The chains have brought in a very different way of doing business, the ultra efficient head office, computer generated orders, planograms and distribution centres and guess what, it’s working great.

Lets have a quick look at the inner workings of Dan Murphy’s: all ranging and promotions are negotiated at the head office in Melbourne, the individual store  managers do not negotiate with any suppliers, order stock, set prices or even decide on ranging; their sole job ensure the store operates to its full potential – staff efficiency, good service, restocking and promotional compliance. Head office expects around 30% margin on most wines but will to drop that margin to around 20% or less for specials. The software behind their ordering tracks not only their own instore price and sales volumes but also the advertised specials of all major competitors in each state, giving them unparalleled information about the average sale price of any promoted wine. This software automatically generates orders for each store which are emailed or faxed to wineries and distributors each Monday morning and must be filled that week, as they do not accept back orders. Large volume wines are ranged in their distribution centres so orders are sent there, while smaller lines are sent directly to each store.

To promote in Dan Murphy’s firstly you need to have a product with sufficient demand in the market, they’re not interested in wines no one has heard of outside of the wine region. For X amount of dollars and Y discount will get you a professionally run national or state based promotion, for a set period and at a set price. For a few more dollars you can even specify where in store your product is displayed, eg on gondolas, end of isle shelving etc. Their strong software will predict with reasonable accuracy how much stock each store will need to start with, and a good thing about Dan’s is that they do back up a promotion with sufficient stock.

The pricing of big box retail is the constant discussion of independent retailers, and for good reason. They beat any advertised price by loading into their back of house software the price of all wines in competitor adverts each week; the system automatically generates the required shelf tickets and till price changes so first thing the next morning all competitor advertised prices are beaten on the shelves at all stores. They have weekly or fortnightly ‘category killer’ prices on selected big brands which are as sharp as a price can be and don’t make them much, if any, margin but do bring customers through the door. They are now increasingly advertising their own home brand products with seemingly dirt cheap pricing, though they would still be making a handsome margin; a few weeks back one of their adverts included no less than 6 home brand products – 3 New Zealand sauvignon blancs, a vodka, scotch and an imported beer! Just like they have with grocery, they are gradually luring consumers to their cheaper alternatives.

For small wineries, the big box retail chains do offer an excellent path to increase sales and exposure; they generally won’t majorly discount a wine unless someone else is already doing so, their promotions can offer excellent return on investment and their stores don’t require any ongoing visits. There is a risk that some independents might shun small wineries who are ranged in big box, and there is the worry that wineries do lose control of price, but given that nationally two out of every three bottles of wine purchased is done so from a Dan Murphy’s or 1st Choice, ranging in them makes great business sense.


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