Liquor retailing dominated by supermarkets, sheltered from price wars, IBISWorld

Posted by AFN Staff Writers on 30th April 2014
Liquor retailing is growing, and sheltered from supermarket price wars

Much has been reported on the battle for consumers’ hearts, minds and money by Australia’s two biggest supermarket groups, and liquor retailing may yet play a key role for the two giants in their battle for market-share supremacy, according to market research organisation IBISWorld.

IBISWorld said it expected revenue from the liquor retailing segment to increase by an annualised 3.3 per cent over the five years through 2013-14, to a total of $17.7 billion.

Woolworths currently has the upper hand

According to IBISWorld, Woolworths currently holds the advantage over the Wesfarmers-owned Coles group in the liquor segment, with opportunities for growth.

Woolworths’ warehouse brand Dan Murphy’s and bottle shop brand BWS have both outperformed their Wesfarmers counterparts (1st Choice Liquor and Vintage Cellars/Liquorland). This was evident in the two Groups’ financial results: Woolworths enjoyed a significant lead in liquor retailing, with revenue totalling $6.8 billion versus Wesfarmers’ $3.2 billion for 2012-13.

Coles Myer launched 1st Choice Liquor in 2005, well after Woolworths’ 1998 acquisition of Dan Murphy’s. The branding and promotion of these stores since going head-to-head has consistently given Woolworths a significant advantage, according to IBISWorld.

Woolworths’ advantage is demonstrated in its store numbers. Woolworths boasted 1,355 liquor outlets nationwide as of June 2013, compared with Wesfarmers’ 810, and the gap is increasing. During 2012-13, Woolworths opened 54 liquor outlets, while Wesfarmers opened 45.

IBISWorld said Woolworths had effectively used its established brands and economies of scale to bring in greater income from liquor sales. An advantage in the liquor sector is significant, with liquor sales making up over 17 per cent of Woolworths’ $40.2 billion food and liquor segment revenue in 2012-13. By comparison, of Wesfarmers’ food and liquor segment revenue of $35.8 billion, only 9 per cent was attributable to liquor sales.

Liquor retailing stays out of supermarket price wars

IBISWorld said the fact that Woolworths and Wesfarmers had both kept their renowned price war out of the liquor segment, choosing instead to compete on promotions and exclusive brand rights, had also been a factor in encouraging the sector’s growth.

Current retail competitors like European supermarket group ALDI and IGA Liquor may offer a cheaper or more convenient alternative to Woolworths and Wesfarmers, but the majority of the market share has been held by one of the two supermarket giants.

Competition from independents will intensify

However competition from other retailers is set to intensify, according to IBISWorld. Independents, including IGA Liquor outlets, have stayed viable through membership with Independent Brands Australia, a coalition body that uses bulk purchases to keep costs down for members.

Competition will also come from international, low-price alternatives such as ALDI and Costco, as they further penetrate the liquor retailing market. These two newer players offer warehouse-style layout and value, which has proven successful for Dan Murphy’s and 1st Choice Liquor in the past.

Growth in liquor retailing, despite drop in alcohol consumption

Over the past five years, alcohol consumption per capita has declined by 5.6 per cent, but the alcohol retailing industry has enjoyed  steady increase in size in spite of this trend.

IBISWorld said that in order to avoid drink-driving and alcohol-fueled violence, consumers were increasingly purchasing liquor for at-home consumption rather than going to public venues. Growth in liquor retailing has also come from consumers’ growing level of knowledge and sophistication with wine, craft or premium beer, and cider. These higher margin products (compared with traditional beer brands) have driven significant growth in liquor retailing over the past five years.

Future growth

IBISWorld said it expects revenue growth from liquor retailing to grow at an annualised 3.1 per cent over the five years through to 2018-19. This growth will be largely fuelled by Woolworths and Wesfarmers as more independent bottle shops are forced out of the market, according to IBISWorld.

According to IBISWorld, Woolworths currently has the momentum to hold on to its considerable market share. This trend is expected to continue as long as Wesfarmers limits its focus to gaining ground only in the supermarket segment.