An article in the Australian, of September 21st quoted some figures from Metcash the large grocery and liquor wholesalers. Metcash estimate the retail liquor trade to be worth $10 billion. With 400 new shops joining their independent network they now supply liquor to 1785 outlets. This will boost sales to $760 million and give them 8% of the retail trade.

What this report did highlight is the gap that has opened up between Woolworths liquor and rival Coles. Woolworths have 1302 outlets with sales of about $2.5 billion while Coles have 669 outlets for sales of about $1.7 billion. The combined total is approximately 44% of the retail trade.

What the report did not say is how rapidly this is changing. The battle between Woolworths and Coles was discussed back in June (What Does the Tussle Between Woolworths and Coles-Myer in Liquor Mean For Wine Consumers?) and the size of this sales gap should alarm suppliers. With the recent Woolworths purchase of the Taverner Hotel Group's 33 pubs in October, the gap is now a chasm. Woolworths have already projected sales for 2005-2006 of $3.5 billion so you can now make that $3.6 billion.

Recent news about the performance of the Coles liquor group is nothing short of alarming. We have been told that wine sales in South Australia are down 20% on the previous year. We also believe that the trading performance of the Theos group acquired in 2003 is disastrous. Can ever a business, said to have cost around $170-$180 million, been destroyed so quickly. At a guess we would be surprised if the Coles liquor group improves on last years figures for 2005-2006. Thus it is not hard to see this group that was so dominant in the 1990’s being half the size of Woolworths liquor in a few years, and possibly by 2007.

Problems like this happen when the talent at the top is trying to fix many, many other areas of retail. A few years ago Coles assumed that liquor was going so well that it was at least one area they did not have to worry about. How quickly that altered.

The light went on for Woolworths in 1999 when they purchased the Dan Murphy chain. For the now bargain price of about $37 million they grabbed a business model that is simple, has strong branding and went with an advertising slogan, ‘Nobody beat Dan Murphy’, that is potent and believable, and one that Coles have never been able to match and destroy, and on reflection never took seriously.

And now they will pay. Coles say they are happy to grow organically but large companies do not have a good track record of growing by their own ability. While the threat of Dan Murphy got ever larger they dithered. This year they began the roll out their big box strategy, 1st Choice, though you cannot help but think that it came too late. What makes them believe they can wrest control from Dan Murphy’s? Dan’s has such a head of steam that they seem unbeatable and Coles have yet to realise that their form of advertising is so simple it may not be possible to better. How will they beat the pledge, ‘Nobody beats Dan Murphy’? And have they recalled that this style of advertising was perfected over decades and indeed it took Melbournians many years to agree that indeed it was the place to shop. This legacy will not be easy to compete against.

Having four shops in place five years after Woolworths purchased Dan Murphy is not a good start. Also Coles should not make the assumption that there is room for two big box styles of outlets in Australia. With Woolworths talking at least 100 Dan Murphy’s it may well be that the market has no room for the projected 75, 1st Choice stores. They must not assume just because they open stores that customers will appear. This will be an interesting tussle to watch as every big box opened effects not only small independents but the shops owned by the two majors as well.

As for the effect on consumers it is hard to gauge. The next few years as the two big groups tussle will mean bargains aplenty but as one chain becomes absolutely dominant the dynamic will change. It was hard to find a wine bargain when shopping recently at the local friendly Woolworths liquor on the N.S.W. south coast, and it was wall to wall Berringer-Blass- Southcorp, so start to fear the worst. Fosters have recently given out figures that estimate supermarkets with attached liquor will have 30% of retail sales by 2010 (20% now) and the ‘big boxes’ will grow to 17% (10% now). We estimate that the two majors will have 53% market share at the end of June 2006 and extrapolating the Fosters figures suggests that will grow to 70% by 2010.

Assuming that consumers still get a great deal who will loose? It has to be the small to medium wine suppliers and a Coles liquor group at half the size of Woolworths, will not be able to help them. It is much better if the retail side is divided into two groups of about equal size as if the buyer of one group is too tough you still have a chance with the other. Alas it seems to us that this option has already been lost.

The full ramifications of this changing retail dynamic are not easy to define but it will not be good for the wine trade though it may be O.K. for consumers. The best remedy now is to hope for the complete deregulation of liquor licences in all states so they are freely available which would allow a vigorous force like Aldi to expand into liquor and provide fresh competition plus many small independents would open.