How liquor is sold has changed over the last ten years. Woolworths and Coles control the customers and thus dictate to the liquor trade. Our large wine, beer and spirit groups have steadily lost power and have made their situation far worse by giving the two giants preferential trading terms. They did this perhaps because they thought they would be looked after, perhaps they had no choice as the big two chipped away year after year to gain an advantage. Now to show how pleased they are both groups are rapidly building their own exclusive range of products.

This of course is a world-wide phenomenon particularly with groceries. The beer margins of Fosters are around 50% and you can be sure this annoys both of the chains. As for wine companies, they are now just factories making well packaged wines that compete with the supermarkets exclusive brands. They can make a profit but for Fosters and Constellation it can never provide a return on what they paid for their businesses. Great chunks of money have been lost yet the growing strength of Woolworths and Coles and the consequences has been plain to see for over fifteen years. What made our large wine companies ever think this was a good development and they could all co-exist?

The current wine oversupply has made it easier for both chains and a range of 'cleanskins' and house brands has destroyed most of the large company low priced brands.

As reported in the Sydney Morning Herald, 1st March, 2010; "And the Woolworths chief [Mr Luscombe]..........said winemakers should have known the grape glut would help spur growth in private-label wines, adding it was not wise to blame shopkeepers for the competitive squeeze. ''Don't point the finger at the retailer,'' he said. ''You need to search your own backyard to understand why you made the decisions.''

It is not possible to regulate supply and demand but let's look at the consequences of excess production in a region such as Marlborough, New Zealand. Until three years ago it was rare to see that popular beverage, Marlborough sauvignon blanc under $10.00 a bottle. Indeed supply was tight which made it a very profitable business to be in. As more and more vines were planted the inevitable happened. The needle of supply and demand swung. I am regularly told and read similar views, that when demand catches up the discounted wines will disappear and prices will rise.

Alas those days are gone as Woolworths and Coles and even bigger overseas supermarket chains have other ideas. It is called penetrating deeply down the supply chain, meaning for wine that the last person they will shake hands with will be the grape grower. They do not want to own vineyards so they will let the grower make a reasonable living. They have had a taste now and will decide how much of the profit they return to the customer. In their eyes a wine brand is not worth much-why, because they control the customer.

Consider the unlikely situation where one company owns most of the wine region. Then supermarkets would have to stock the brand and take the producer's terms? The best of the soil at Coonawarra, the famous cigar shaped terra-rossa, is 90% owned by Fosters. While it is true that what is Coonawarra wine is clouded by a boundary much larger than the cigar so the term is greatly devalued, I note that Wynns Coonawarra Shiraz has not increased in price in 15 years and is cheaper if you wait for the special. Recently I saw Wynns Red Stripe Cabernet and the Wynns Shiraz in the Bayfields Sydney catalogue selling at $9.99. So much for owning the region.

Bloomberg reported, 22nd May, 2010 that Wal Mart, "the world's largest retailer, is seeking to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods."

The deep penetration continues as big retailers take profit away from suppliers, keep some for them and pass on some to customers.