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What The Market Says
The Liquor Wars - Matt Skinner Appears
Monday, 19th November, 2012  - David Farmer

Matt Skinner

The year 2000 must seem like another time for Coles liquor as back then they were the king. Now they are a distant second to Woolworths; but not a tough, vibrant second with a strong customer appeal. Rather a group with few ideas for growth and seemingly becalmed, a spectator not an aggressive competitor.

How this happened was documented in the ongoing series 'The Liquor Wars' which began with The Liquor Wars Woolworths vs Coles 2011 Part 1. To recap, the years 2000-2005 for Coles liquor disappeared in wrong moves while from 2005-2007 they were a by-stander to a much bigger problem, what to do with the poorly performing supermarkets. After Wesfarmers purchased Coles, the long, difficult, process of reviving all facets of this giant group commenced. During this time the Woolworths liquor division stormed ahead.

For Coles liquor 2008 to 2012 saw some new shops opened while a few closed but no big initiatives unfolded. Meanwhile Woolworths opened dozens of stores and purchased many hotels. It is likely that Woolworths liquor revenue is now around $6.5 billion while Coles is at $2.8 billion.

Late in 2011 the Coles large liquor stores branded as 1st Choice [old logo] launched a marketing campaign based on the idea of a war on liquor prices. This was covered at Liquor Price War Declared.

It fizzed quickly but showed they were stirring. With the supermarkets returning to health it was only a matter of time before liquor would be pushed to show more urgency. But what exactly can be done?

With the success of Masterchef and minor cooking celebrities featuring in the marketing of the supermarkets its natural the view would develop to try something similar with liquor. Of the three liquor categories, wine, beer and spirits only wine may benefit. Thus an agreeable young wine bloke, Matt Skinner, has become the face or ambassador of the 'first choice' [new logo] stores.

"So with the aid of Matt and a range of new tools, 'first choice' plans to help every Australian wine shopper get more out of their 'first choice' liquor experience," says Coles.

But what is Matt actually going to do and how can he make more customers go into 'first choice' stores?

Well, " 'first choice' is to help consumers discover hidden treasures, old favourites, great bargains and a whole raft of new wave wine styles, as well as lifting the profile of the 85-store chain", says the PR for Matt.

I was around when 1st Choice was launched in 2005 and it was a dud idea then so why am I sceptical about this move?

A Reminder of Basic Retailing

Let's remind ourselves of the retailing basics. If you decide to open a liquor store, you must ask, what will be special that will make customers buy? It may be because the store location is convenient plus ample parking makes it easy to shop. To these important factors can be added others such as a product range which is appealing to the local buyers and lastly you can play with the real trump card which is pricing.

The idea behind 'first choice' is vastly more complicated than running a local store because it was set up to go head to head with one of the most formidable retail chains in the country - Dan Murphy. To move the sales needle at 'first choice' entails taking sales from Dan's and to do this is not a job for boys.

When 1st Choice was launched all of the development thought revolved around getting the correct brand image. The idea was that customers would fall in love with a concept that promoted itself as; your 1st Choice for Beers or your 1st Choice for Ciders. The concept developers actually thought a name which was not a brand would do the job.

If only retail was that simple. Customers do not think that way. They want to know why they should move from where they currently shop.

There are three steps needed to make a chain of liquor shops work and develop a brand. Please note that in trying to generalise any complex topic simplification results. Thus I am well aware of exceptions.

Step One. By far the most important is deciding what is to be sold and why this can be done better than anyone else. Alas in Australia differentiation on product range is difficult. In a basic business such as liquor a chain needs ultra cheap pricing. To this may be added a degree of specialisation and unique products. In suburbs of high average income it may be possible to charge higher prices and sell higher priced products. I think here of course of Vintage Cellars.

Step Two. It helps if you can explain at the start what the stores are about, and I call this the proposition. The proposition may also develop with time. The marketing, ranging, fit-out and how the chain carries out its business reinforces the proposition. As an example in 2009 I helped create a chain which had the proposition that customers would always find a great number of wines on special with many under $10. Thus all advertised wine was, wherever possible, to be below $14 a bottle. Constant repetition of a simple idea was to create the impression that you could always find an affordable bottle and that all the wines offered were cheap. Goodness knows we had little else to offer and note the proposition was not that we were the cheapest, as against the two chains this is impossible, but that wines were affordable. The propostion is a huge topic though later I will explain how it developed at Dan Murphy.

Step Three. If the chain succeeds you have Step One correct. When customers begin to understand why they shop with you it means they understand the proposition. Only when these two steps are working will the shop name and logo become a brand. When the brand is established you can then play with ranging, prices and margin, in other words you can move your customers.

When 1st Choice was launched it was thought the name was so clever that they could skip to Step Three. Their proposition today is promoting the idea that they are as cheap as Dan Murphy but this is not working.

Creating the Dan Murphy Empire

Dan Murphy's is a retail liquor colossus unlike anything ever created. To better understand what Coles is up against lets look back over the Dan Murphy creation.

Dan Murphy opened The Cellar in Prahran in 1952 and joined the Sydney based Wine Society in becoming an early user of direct marketing with the Vintage Club bulletin which dates to 1955. Through the 1950s and 1960s a group of Melbourne wine merchants had a great influence on the development of the growing interest in table wine. Dan Murphy was perhaps the most influential and Murphy wrote several very good wine guide primers.

Dan Murphy became a well established 'brand' built around the proposition of the wine merchant. As the market began to mature and change particularly with the onset of widespread discounting, Dan Murphy was able to carry forward this perception of a wine merchant. It was from this base that Murphy tried to leverage in the conventional manner by opening more stores though was not successful. A significant shift in thinking led by the 1980s to marketing less as the wine merchant, with a perception of high prices, and more to being a merchant discounter. Quite quickly Murphy had the bold and original idea of declaring that not only was he cheap but he was cheaper than anyone else, and if he wasn't he would in any case match any competitors prices. Thus the proposition shifted again to that of a super store that sold all liquor very cheaply but importantly the wine merchant appeal lingered which made it easier to sell the concept of cheap but good; and importantly this image is still intact and is being built on by Woolworths.

Thus Dan Murphy created a daring, clever and finally a brilliant masterstroke in being able to say 'Nobody Beats Dan Murphy' which became a deadly advertising tag line. Remember though it took decades for this proposition to become believable in the public mind.

I will leave to another time to discuss the woeful attempts of Coles Liquor to combat this and the appalling way in which leading suppliers pandered to this nonsense. Now of course it is too late for both and they can rue the day for a very long time - and they will. I note in passing that by conceeding to Dans our large wine companies made a shift which was later to almost destroy them.

It was the opportunity this presented which led Woolworths to buy Dan Murphy in 1998. A five store chain in Melbourne was leveraged by the tactical brilliance of Woolworths into a formidable powerhouse.

We can see from this example that what attracted customers to Dan Murphy was price, encouraged by the wonderfully simple proposition of Nobody Beats Dan Murphy. While it is true Dan Murphy had great brand recognition before the change to a super discounter, in my view it was the development of a proposition and a few other simple tag lines that created a vastly stronger brand.

I have been an avid watcher of Dan Murphy for decades and at times have mused that it hardly mattered whether products were shown in the advertisements as once the proposition was believed the customers had made their choice. That is the case today, though its pay-off time now and margins at Dans are much higher; and it must be added no one buys as well so no one can be cheaper.

Work Ahead for 'first choice'

At this stage 'first choice' stands for very little. It is not a brand and it does not have a proposition. There is little reason to shop with them although they are cheap.

One of the delicious aspects of the battle of the big boxes is that the General Manager of Coles Liquor is Tony Leon. Leon joined Dan Murphy's in 1984-1985 and after the Woolworths purchase stayed on as General Manager. He left in June 2008 for what was expected to be an extended break from liquor retailing only to pop-up at Coles in September, 2008.

His initial moves at Coles were to crack heads, reduce the head-office numbers and improve the buying terms giving yet more heartburn to producers. The significant change at 1st Choice was to lower prices to match Dan Murphy. Not only that but he introduced a Dan Murphy style pledge to match all competitors prices and later 'find it cheaper - we'll beat it'.

Perhaps to the surprise of the Coles team having a bold price pledge made little difference and many shops continued with sales declines. This though did not come as a surprise to me as Dan's has lifted the bar very high and while a price guarantee was needed this was not enough to move the sales needle.

Enter Matt in 2012 with the proposition in the first advertisements of 'Matts your man'. I heard the wine ambassador on radio in the Barossa answering a question about what wine you should take to a BBQ and I doubt I have listened too such inane drivel. Two weeks later Matt is telling us what wine glasses to use. For the racing carnival Matt is seen wandering in the crowds giving wine advice and during the Melbourne Cup telling us how many wines he tastes to find those for Matts Choice. Does anyone really think this soft and easy marketing will influence a single customer to buy wine?

There will soon be anguish and a push for more 'social media' and I note already Q R codes allow you to get reviews on Matt's selections. Who has time for this as it's hardly like you are parting with $1000 for a bottle when the views of Jancis Robinson or Robert Parker might be handy?

No the new 'first choice' will have to do a lot better than this and those who are paid the big bucks will have to shape up.

And to do this they will have to answer some questions:

Why will a softly-softly marketing programme using an ambassador of wine shift the sales needle?

What drives customers to move is price but since you cannot be cheaper what are your moves?

If going down and dirty is out, what strong offers do you have to attract customers?

And lastly what is the proposition that will make 'first choice' a brand; Matt saying 'first choice' for wine? I think not.

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