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The International Wine Industry
Big Box Liquor and the New Zealand Market
Thursday, 23th February, 2006  - David Farmer

Big box liquor stores (Dan Murphy and 1st Choice) are altering how we buy in Australia and it would seem they are about to have the same impact in New Zealand. The business pages of the New Zealand papers have recently published a number of prominent stories about liquor retailing with the focus being on the likely opening of these large, free standing stores.

At this stage we can only guess about this impact as none yet exist. It seems that Woolworths (Australia). buying a big chain of grocery stores in New Zealand, the Progressive Group (which includes Woolworths New Zealand) may have been the catalyst as they own of course the big box ‘killer’ chain in Australia, Dan Murphy’s.

New Zealand are much further ahead in deregulating how liquor is sold than Australia and supermarkets were able to sell wine in 1990 and beer in 1999 and these are sold along an aisle just like grocery products. They still cannot sell spirits as these are restricted to free standing liquor stores.

A.C.Nielsen figures show that supermarkets reported $455 million in wine sales and $252 million of beer sales with traditional liquor shops having sales of $193 million and $140 million respectively for the year ended November, 2005. Traditional free standing liquor shops also sell some $200 million of spirits. Thus the retail trade is about $1.25 billion. With the opening by the supermarket chains of free standing liquor stores they will be able to take a share of the spirit business.

A few months ago the discount retailer The Warehouse confirmed that it was going ahead with a trial of a beer and wine store within one of its Red Sheds in Tauranga, as part of a joint venture, The Warehouse Cellars, and they may well roll out into half the company's 85 stores.

Also recently the Foodstuffs chief executive Tony Carter said the supermarket operator intended to open a chain of stand-alone liquor stores beginning in April. Foodstuffs own the New World, Pak'N Save and Four Square grocery chains. Add to this the comments of Roger Corbett, the head of Australian supermarket giant Woolworths that they would look at taking Dan Murphy’s to New Zealand and an interesting tussle is unfolding.

Interestingly, despite the supermarkets now selling around 50% of take home wine and beer the number of free standing liquor stores has grown slightly over the last few years from 663 in 2002 to 764 in 2005. The major players are the Liquor Centre Group; a franchise of 130 stores; Super Liquor a franchise of 102 stores; Liquorland a franchised subsidiary of DB Breweries with 80 stores; The Mill Liquorsave a privately managed group of 41 stores and Liquor King which is managed and owned by Lion Nathan with 40 stores.

At this stage there would not seem to be room for everyone. Some ‘back of the envelope calculations’ suggest that the two big supermarket chains in Australia plus independent large hoteliers and a few others see a market for, lets say, 210 free standing big box style outlets. With a retail market of about $11 billion this suggests one big box for each $52 million of liquor sales. Converting this to New Zealand suggests for a market of NZ $1.25 billion there is room for 22 big boxes.

Makes you wonder where they will all fit in New Zealand if The Warehouse alone thinks 40 or so is possible. And it also makes you wonder if all the proposed roll outs in Australia will indeed take place. This is by no means the simple business model that it may look.

The presentation of liquor as sold in New Zealand supermarkets is very attractive and to the casual eye looks cheap to stock and maintain and they may not loose much business even if a big box beckons down the road. At the very least the big box would have to be substantially cheaper to draw traffic. To us the sums suggesting success do not seem as obvious as when Dan Murphy opened his first big box in Melbourne 30 years ago.

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