The Whole Story

National Liquor News - June 2004

If there’s one thing Australia’s liquor wholesalers agree on, it is that their business is enormously competitive. And according to the chairman of Associated Australian Liquor Wholesalers, John Raymond, the worst is yet to come. “All wholesalers have had to reduce their margin or their finance fee, depending on the way they operate,” he said. “It is very, very competitive.” AALW was set up in 2002 to provide what it perceived as necessary competition. With Australian Liquor Marketers dominating the market - its turnover ranking it amongst Australia’s top 100 companies - smaller wholesalers felt there was a need for a group to “bargain with manufacturers so we have an alternative [for doing] national business.” ALM, which moves around eight million cartons a year, more than all of the country’s other wholesalers put together, is not immune from the competitive nature of today’s market.

It’s a market which has changed dramatically in the face of aggressive marketing and price cutting by Australia’s two major supermarket chains, Woolworths and Coles, which are rapidly expanding their share of the liquor industry. Independent wholesalers are being forced to accept margins of as little as one to three percent. Earlier this year, ALM chief executive officer, Mike Wesslink, was reported as saying that while major opportunities still existed for all players in the industry, “it has never been more important that we continue to seek new ways, through scale and investment, to provide an efficient route to market for all alcoholic beverages”.

John Raymond says that while the number of wholesalers hasn’t changed much over the past decade or so, there have certainly been changes in the way they operate, with everyone having to reduce their margin or fees in order to survive. How do wholesalers meet this challenge? “It’s about capturing the imagination of the customer,” he said. He believes the industry is not doing enough. “What has happened in the last few years has been confusion in trading terms. One wholesaler might say they don’t charge freight, another might say they don’t charge a finance fee. Some have margins, some have finance fees. “One might give seven days credit, another might give 42 days credit. When it comes to [a retailer, hotelier or restaurant] doing a comparison, you have to know all the facts. “ There’s a very old and crude expression: ‘Where there’s confusion, there’s profit’. If you reduce the trading terms of a customer from 42 days to 14 days, you should be reflecting at least half of one per cent cheaper in your margins.”

Mr Raymond said the Independent Liquor Group, a “not-for-profit” co-operative of which he is managing director, explained this “very clearly” to its 600 members who include retailers, hoteliers, restaurants and clubs. The NSW-based ILG is a member of AALW, along with representatives from Victoria, South Australia, Tasmania and the Northern Territory. While competition from the supermarket chains has kept all wholesalers on their toes, Mr Raymond said those who were professional about their business would survive. “There are retailers and there are retailers. Those that do accept today’s politics (of regulation) and trading arrangements for what they are, will make it happen still.”

Most industry players – both wholesalers and retailers - would agree that they have to become more technology-savvy to make the best use of their profit margins. One company working to reduce Australia’s estimated $1 billion supply chain costs is Quatro Four Retail, whose web-based system has been embraced by about 4200 retailers since it was founded in Australia in early 2000. Managing director Peter Henriques said around 100 liquor retailers were using the system, albeit for non-liquor purchases. However, it could easily apply to liquor purchases and there was no reason why it could not extend to the wholesale liquor industry as well. “We don’t like to cold-call a liquor supplier,” said Mr Henriques, who prefers to get a retailer on side who will introduce Quatro to a supplier and endorse its benefits.

The company is currently “working with one liquor chain who like what they see”. Shell, BP and Coca-Cola Amatil are just a few of the companies using the Internet trading network which links retailers, wholesalers, manufacturers and service providers in the convenience retail industry (hence the name Quatro Four Retail). The system is aimed at making the supply chain more efficient and at reducing costs by facilitating faster movement of orders, communication and promotions, and by improving levels of stock control for suppliers and retailers. Retailers can retain an electronic history of orders, and suppliers can alert retailers to promotions and upcoming events. The store’s data is aggregated with other stores’ data so that market information can be provided to suppliers.

In January 2003, Quatro began subscribing to EANnet, an electronic catalogue and data synchronisation service offered by EAN Australia, a non-profit organisation that locally administers the global EAN.UCC system of numbering, bar coding and electronic messaging. Nearly 900,000 companies in 128 countries use the EAN system, representing over five billion scanning transactions a day. EAN Australia is working with local industries to implement Electronic Product Code (EPC) technology, which provides a unique serial number for each item in the supply chain. Currently, bar codes only identify a group of products. All cans of a 375ml cola brand, for example, have the same bar code. With the EPC technology, every single can of cola would have a one-of-a-kind identifier. The two technologies can co-exist, providing complementary benefits. EAN says the more detailed and accurate information provided by the EPC technology will improve movement of goods, inventory management and replenishment practices, reducing lost sales due to out-of-stocks and possibly also foiling the counterfeiting and theft of goods.

One wholesale liquor company with a sophisticated approach to tracking sales information is the National Independent Liquor Wholesalers Association (NILWA), which uses its own purpose-written software for the task. Managing director Sandra Przibilla says all 14 shareholder members are family-owned liquor wholesalers and distributors located throughout Australia, except Western Australia and the Northern Territory. The association operates as a support organisation in administration, marketing and purchasing, a role it has undertaken since 1997. It was set up in response to a raft of legislative changes in the preceding few years that, according to Ms Przibilla, turned the wholesale liquor industry on its ear, reducing margins to an unmanageable level. Margins had not worsened since then, but market conditions had. “The cost of being in business is higher now.” Margins had not improved either, but businesses had made better use of their margins over the past three years with better-trained sales people and improved technology.

Ms Przibilla said NILWA was watching the retail liquor industry carefully. “We face a very large challenge from the two grocers (Woolworths and Coles). Their rebate or discount rates are still high. Customers can go to them and purchase cheaper than they can from us.” NILWA had been forced to switch its focus from margins and price, to pushing the “service delivery and distribution information side to our customers”. “The challenge we are continually faced with is selling our value to our suppliers and trading partners,” Ms Przibilla said. “A lot of suppliers think they don’t need to know about market information, that they’d rather just get the discounted product. They soon realise that they don’t even know if the product has been sold for take-home consumption or consumption on-premise.” NILWA has a sophisticated IT system allowing it to retrieve sales information from retailers on a daily basis. Last August, it launched its own electronic network, the HUB, allowing it to communicate more effectively internally and to offer improved service and information to customers and suppliers.

Analysis of sales information will help NILWA and its trading partners better understand the market and launch effective sales and marketing programs, such as the sales training program it is introducing this month (June). All of its 87 sales staff, including managers and reps, will participate in the program which will continue through until March 2005. It will explore strategies for maximising the time spent with customers, improving selling techniques, and increasing “our face to face value to each customer by expanding the knowledge base of every sales individual employed by NILWA businesses”. Ms Przibilla said that by training its staff and ensuring they remained well-skilled, NILWA could continue to develop good relationships with its suppliers and trading partners. “We look to deliver projects that we believe will deliver value to our shareholders and customers, therefore making us more relevant and pushing price further down the list in terms of priority.”

Family-owned Kemeny’s is Australia’s largest independent liquor retailer and therefore well-equipped to take care of its own sales tracking. It is also in the fortunate position of being able to bypass wholesalers and deal directly with suppliers. “We can buy better from the suppliers than we can from the wholesalers,” said general manager Lance Hogan. “We can get the same sort of deals the supermarkets get.” The only time Kemeny’s buys from a wholesaler is if it wants to buy from a company that puts all its product through a wholesaler. Of those, there’d be “less than a handful”, he said. With retailers increasingly being swallowed up by the supermarket chains, “wholesalers will become less and less relevant”, according to Mr Hogan.

Smart business people are exploring different strategies to ensure their survival. Jill McGovern - who with her husband Terry operates a small Canberra business, The Wine Shed – says it has been difficult with Woolworths entering the market in such a powerful way. She believes the industry will “rationalise a hell of a lot more yet”. The McGoverns buy weekly from ALM, the only wholesaler with a warehouse in Canberra, but deal with at least 25 smaller wholesalers from time to time. Jill says small retailers and small wine companies are likely to become marginalised. “We have chosen to patronise smaller companies. At that level we can compete because of the wider diversity of product range and their availability in smaller volume lots. “It’s a lot of work and it requires a lot of wine knowledge but we’ve made a conscious decision to look for that niche market. We want products that are interesting and value for money.”

Many retailers are joining banner groups to compete with the chains, such as IGL’s Pubsmart and the Corkers, Dollar Savers and Our Shout Liquor groups operated by Novocastrian Wholesale Liquor. In this way, they can pressure wholesalers and suppliers to give them a better deal. Canberra group Local Liquor has taken the fight with Woolworths and Coles to a very disciplined level, creating a huge impact on the local market. General manager Allen de Costa worked in the wholesale liquor industry for 16 years before realising that there was a need for a “proper group to advertise and market” liquor on behalf of Canberra’s smaller supermarkets. He left ALM in 2001 to set up the group, which now has 63 members, most of them IGA supermarkets in Canberra, but also some stores in Sydney, regional NSW and the South Coast. The group has a “co-operative philosophy” with the retailer members being the shareholders.

“The aim is not for profit. It’s really just for advertising and marketing, and to get the right price for retailers.” Ninety-nine percent of its stock is obtained through ALM. “We negotiate directly with the manufacturers for discounts which then get loaded into the ALM system.” Mr de Costa says the benefits of dealing with a wholesaler are that “you get one delivery, one invoice, one payment and you only have to buy minimal stock; you don’t have to buy a pallet when you might not want a pallet”. The deregulated Canberra market is an interesting case study because even the smallest supermarket or convenience store sells liquor. “There are 23 or 24 Woolworths stores in Canberra and they’ve all got liquor. Where we (Local Liquor) sit in the ACT we probably have 80 per cent of the independent market share.” The group conducts an intensive advertising campaign with 130 television commercials and 200 radio commercials every fortnight, as well as regular advertising in the press. The result? “We’ve certainly got some market back from the chains, without a doubt.”

© Christine Salins

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