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Foster's cuts beer supply
Foster's cut supplies to Coles and Woolworths after learning they planned to extend their price war to beer, Ian Verrender reports.
Beer has become the new battleground in the supermarket price war after Australia's biggest brewer, Foster's, pulled key beer brands from Coles and Woolworths upon learning of a plan to sell them for $28 a slab - well below cost.
The Age has learned that Foster's, in a late-night operation this month, stopped the delivery of tens of thousands of slabs of VB, Carlton Draught and Pure Blonde to Coles' First Choice liquor stores and Woolworths' Dan Murphy's chain.
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Illustration: Ron Tandberg
An order went out around the country for Linfox delivery trucks loaded with beer to be emptied until further notice.
The decision came in response to intelligence received that Coles had prepared a brochure advertising brands including VB for $28 a slab.
A slab of 24 VB stubbies usually wholesales to the big supermarket chains for about $33 and retails for $38. Smaller retailers say they are being charged between $37 and $41 - with some even higher - for the same slab.
''We personally sell a slab of VB for $40.95, making a profit margin of around $1.95 and that's not taking into account the cost of refrigeration, etc,'' said Justin Grant, who said he was an independent liquor retailer with more than 30 years in the industry.
A slab of 24 VB stubbies usually wholesales to the big supermarket chains for about $33 and retails for $38. Smaller retailers say they are being charged between $37 and $41 - with some even higher - for the same slab.
''We personally sell a slab of VB for $40.95, making a profit margin of around $1.95 and that's not taking into account the cost of refrigeration, etc,'' said Justin Grant, who said he was an independent liquor retailer with more than 30 years in the industry.
Inner city prices can be even higher. One independent outlet on Spencer Street in Melbourne's CBD was selling a slab of VB for $48.99, while a nearby IGA rival was offering them at $52.81.
A Foster's spokesman said supply was withheld to protect its brands against ''loss-leading'' - the practice of deliberately selling a product at a loss in the hope of attracting customers who will also buy other products that are not discounted. ''We take loss-leading of our brands very seriously," the Foster's spokesman said.
For at least three days this month, some liquor stores put up signs explaining why they were out of VB. One sign said: "We're out of stock because Foster's, the supplier of VB, says we are selling it too cheap."
Coles and Woolworths, which control 50 per cent of Australia's liquor distribution, have never before been taken on in this way by a supplier.
The milk industry, which is the subject of a continuing price war between the supermarket chains, has been unable to stop the discounting because it involves brands that are not well known and suppliers lacking the same market clout as Foster's.
There are also legal issues associated with withdrawing supply, including restraint of trade. Foster's relied on an aspect of competition law that permits companies to withhold supply when their products are being used as loss-leaders.
Apart from the objections of Foster's, the move by the big retailers to try to extend the milk war into the multibillion-dollar beer industry could also raise social issues about whether an age-restricted and potentially harmful product such as alcohol should be used as a loss-leader. Foster's and its main rival, Lion Nathan, have spent large amounts of money and time trying to promote the notion of responsible drinking.
By trying to sell alcohol at lower prices than bottled water, the supermarkets risk drawing the negative attention of government and regulators concerned about rises in drunken violence, one industry expert warned.
In Britain, brewers persuaded legislators to pass a law preventing the sale of alcoholic beverages at below cost price.
The aborted beer war between Coles and Woolworths was not the first such attempt at heavy discounting in Australia. In February, online discounter getwinesdirect.com.au tried selling Crown Lager for below wholesale price.
Woolworths is the biggest player in liquor retailing, with more than 1200 stores, including the Dan Murphy's chain.
Asked about recent events involving discounting of Foster's products, a Woolworths spokeswoman said: ''Beer is an extremely competitive product regardless of whether it is sold at independent or larger chains.''
A Coles spokesman said: ''We have been trying to offer the most competitive beer offer for our customers whenever we can.''
On the Foster's intervention, the Coles spokesman said: ''There was some disruption to the supply, but that has not been material to the business and we have continued to meet consumer demand for beer.''
