Do You Recall Recommended Retail Prices?
Sunday, 8th April, 2007
- David Farmer
Retail price maintenance was made illegal decades ago though many in the liquor retail trade still refer to a ‘recommended retail price’ for wines and spirits. In general terms this means the notional retail price that results when a uniform mark-up is applied to products bought from the wholesaler who in turn on their invoice will quote a standard trade price.
Of course nobody but the very weak would pay this standard price so the role of the ‘recommended retail price’ is to draw the attention of the customer to the great savings they are getting. It is also illegal to quote what in most cases are fictional savings.
You will notice that magazine and newspaper articles often refer to the price that the wine will cost in a shop. In many cases this is the ‘recommended retail price’ being that notional price calculated from the basic wholesale price. In 90% of cases the product will be found much cheaper.
Recently we made observations about The Slow Death of a Great Brand - Penfolds and mentioned that there was a large difference between what different retailers paid for the wines and for what price they sold them.
This was highlighted by Tony Love in ‘Adelaide Now’ for March in his review of the recently released Penfolds Bin 128 wines.
"The 2004 Bin 128 ($27, 92 points) has perfumed crimson fruits like crushed mulberries, with a bright attack of flavour in the mouth, classic dusty Coonawarra tannins, and an upright spine through the palate for length and more-ishness.
"The 2005 Bin 128 ($27, 91 points) is snapping at its heels, showing more spice and obvious oak and is arguably more robust and strongwilled at this stage, though it may soften with age."
Nobody will pay these suggested prices when you can buy a six pack at Woolworths for example for under $17.00 each. The gap between this ‘recommended retail price’ of $27.00 and the price at basic discount shops is so large that it creates consumer confusion about the real worth of the wine which further destroys the image.
The Weekend Australian, December 16-17, 2006 contained an interview by Robert Gottliebsen with the CEO of Metcash, Andrew Reitzer, who supply groceries and liquor to thousands of independent shops. Here are some of his thoughts.
"Woolworths and Coles, with their two new formats, are now trying to get you to travel to a shop [Dan Murphy and 1st Choice] for alcoholic beverages as you do for groceries...
"To get the consumer to change they’re murdering the price and murdering brands. They’ll be successful...
"Meanwhile if there’s a bottle of wine with a brand that sold for $29.99 and they’re now selling that for $7.99 that’s the end of the brand. It’s a commodity. You can’t get it back up to $29.99 and sell the mystique and the taste and wonder of the wine."
It is hard not to draw the conclusion that quality must suffer slowly and gradually.
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