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Published 28 February 2013 12:01, Updated 01 March 2013 08:08
Barossan bounty: Woolworths is circling collapsed winer Barossa Estate, in a bid to add another tier of market control from the vine to supermarket shelf. Photo: South Australian Tourism Commission
Woolworths’ push to buy up wine estates is about strengthening its own in-house brands stocked on supermarket shelves and could hurt small boutique wineries, growers and wine producers say.
They are calling the Australian Competition and Consumer Commission to investigate the issue as part of the regulator’s planned crackdown on the supermarket giants, arguing that countries like the United States limit the ability of retailers to control every aspect of wine production.
Woolworths is attempting to buy Barossa Valley Estates, which was placed in receivership in January, the Australian Financial Review reported on Thursday. But the retailer already controls its own private label brands. Its purchase of the Cellarmasters Group two years ago saw an increase in its private label range.
The peak wine body representing industry players, Winemakers’ Federation of Australia, has expressed concerns about the impact the move could have on competition. “We would expect the ACCC to consider closely any acquisition in the market that could impact on competition and market power,” chief executive Paul Evans says.
The Wine Grape Growers Association (WGGA) is also concerned and its executive director Lawrie Stanford has warned that if retailers keep buying up estates in order to control their own brands, wine growers may end up facing the same destiny as milk producers.
Milk farmers have repeatedly argued that the cost of producing the milk is more than what the dominant supermarket chains pay for it in their war to cut milk prices. Stanford says the same thing could happen with wine, with producers already struggling. “A large footprint of Australian retailers in wine sales means they can drive down prices,” he says.
Stanford points to other problems. “As retailers become increasingly integrated into production, they get inside wine producers’ financials and diminish the ability of wine producers to negotiate their price in the market place and that’s on top of already diminished market power that wine producers have, because of the gorilla market status,” he says.
Andrew Cheesman, chief executive of the government body that markets the sector, Wine Australia, says: “Increasing retail ownership of production assets signals retailers’ increasing focus on growing the private label/buyers’ own brand category. This presents a major challenge because as a consequence it is becoming increasingly difficult for producers to access shelf space in this channel at some price points.”
Woolworths and Coles already own a large chunk of the liquor market through their BWS, Vintage Cellars and Dan Murphy’s, Liquorland, and First Choice brands. They are estimated to control about 65 to 70 per cent of the domestic retail wine market and about 1350 outlets.
“This enables them to capture brand profit as well,” Robert Oatley Vineyards chief executive Anthony Roberts says.
“This is about having owning their own premium wine capabilities from vine through to the consumer. It will give them greater winery capacity and good access to Barossa Shiraz amongst other things.They then control the whole vertically integrated business ... and it gives them greater control over their own branded wine taking shelf space.”
Roberts says the only choice smaller boutique wineries like theirs have is to carve out a market niche and limit the amount of product they stock through the big supermarket chains. “It does make it harder for [smaller boutique] brand owners if their shelf space is being taken over by brands owned by the supermarkets,” he says. “When they [supermarkets] control brand profit they have the ability to adjust their margins and keep shelf prices down.
“But it’s still possible to work with restaurants and independent retailers. We only have about 4 per cent of our business with the big retailers. You need to be able to create solutions for customers and not have a reliance on Coles and Woolworths.”
Industry veteran Brian Croser says the move by Woolworths is “ironic” but won’t necessarily wipe out boutique producers, who can still sell through restaurants. “I think they [Woolworths] will learn a lot about the industry and that’s not necessarily bad,” he says. “It will be interesting to see whether they behave in the interests of the industry rather than themselves.”
But WGGA’s Stanford says Woolworths is buying wine for their own brand purpose rather than the benefit of the wine industry. He says that undermines ability of industry to promote premium wine produced by boutique wineries.
“The concern we have is the role retailers may have in undermining the ambitions of industry to present themselves as premium winemakers,” he says. “The independent retailers offer outlets for small boutique wine producers. They are important part of our industry.”
The head of the Master Grocers Australia/Liquor Retailers Australia Jos de Bruin, says the independent supermarket industry is at risk of being “annihilated by the unabated growth of Coles and Woolworths”. He says retailers already have “full vertical control over the wine channel”.
“It [Woolworths] already has wineries,” he says. “It owns the bottle makers, it even owns the company that makes the screws on caps,” he says. “I think the last thing any of us would like to see is the impairment to robust competition.”
He says Woolworths’ push to own wine estates could also stifle innovation in the wine industry. “In liquor, whether it’s beer, spirts or wine, when companies spend a lot of money on research and development to enter a new segment, it’s not long before Coles and Woolworths decide to exploit it with their own private label. ... That really does demotivate companies from wishing to innovate.”
He says it may also limit distribution channels for smaller boutique wineries who currently rely on independent retailers.
Roberts says no laws prevent the retailers from buying up estates. “In the United States this degree of vertical integration is not possible,” he says. “The only alternative is to regulate, otherwise good luck to them [Coles and Woolworths].”