"They’re butchers.”
When it comes to one view of Woolworths, there is no mincing of words, no half-hearted suggestion that the biggest wine retailer in Australia is anything other than a constant thorn in the side of its smaller, independent competitors.
“Wine to Woolworths is just a commodity,” says Jeff Mickan, a man who has watched the growth of Woolworths from the counter at Templestowe Cellars in Melbourne these past 25 years. “It’s not agriculture to them. They don’t care. There’s no emphasis on the great stories going on behind the wines. They butcher the price and dump the wines.” On paper, the words seem harsh, angry. They’re not delivered that way at all, strangely. Mickan has long since dealt with the anger, the frustration. It is what it is: business.
Sitting in the back of the shop he manages for Chinese owners, on a slow Monday, Mickan recalls the years before the big two supermarkets, Woolworths and Coles, got into wine and beer and the rest.
That is, before the deregulation of Australia’s liquor laws allowed them to sell alcohol. His patch was green, good profits were to be made and while the ‘D’ word – discounting – was heard, it wasn’t a pervasive, long-term business strategy for most wine retailers in Melbourne, one of the biggest cities in Australia and Mickan’s home.
With one exception.
When everything changed
Dan Murphy, the fiery grandson of an Irish labourer-turned-Melbourne-wine-seller, created chaos among producers and competitors alike with his slash-and-burn mantra: Nobody Beats Dan Murphy’s.
In 1991, aged 73, Murphy was convicted of A$2m ($1.22m) for tax fraud involving evasion of sales tax. He served just six months of a 30-month jail sentence, due to failing health, then went back to work and started shopping around for a buyer for his chain of five shops. The then-annual turnover was A$100m ($71m).
Competitors scoffed at his asking price of A$55m but, ever the dealmaker, he wooed and, in 1998, eventually won over a surprise buyer: the supermarket powerhouse Woolworths, known throughout Australia simply as Woolies. “In retrospect the buying price was a bargain,” mused wine writer Chris Shanahan on his blog in 2005. “Woolies acquired not just five stores in Melbourne,” he wrote, “but a proven and potent business model that had been honed and polished for decades. Rare for a predatory big company, Woolworths resisted any temptation to engulf Dan Murphy with its own culture.”
Woolworths became Dan Murphy with gusto, sounding loud, acting brash and beating every competitor on price. By getting big fast and cementing an already considerable buying power, it was able to make good on the boast Nobody Beats Dan Murphy’s. By the time Dan Murphy died in 2001, there were five Melbourne stores. By 2005, there were 43.
Today, Woolworths Liquor Group (WLG) owns more than 1,000 bottle shops and outlets nationwide, of which 196 are under the Dan Murphy’s banner, which enjoys annual sales of A$7.4bn. Woolworths positioned Dan’s as the flagship by introducing a lower-tiered liquor chain, BWS (Beer Wine Spirits). It secured its place as the number one online wine retailer through the purchase of Cellarmasters and then progressed into winemaking and distribution. Liquor is but one part of the A$43.5bn Woolworths empire, which also includes food, merchandise and petrol. Limited largely to Australia and New Zealand, it is rated in the Top 20 biggest retailers on the globe.
It’s about numbers
“They’re not tough. They’re fair.” Ben Portet’s family wine company has been selling its Yarra Valley wines through Dan Murphy stores since his father, Dominique, first set foot in the Valley in 2000. He makes it clear that while his brother Tom is head of wine supply at Langton’s Fine Wines (a leading wine auction house owned by Woolworths), his family worked with Dan Murphy’s long before that. “We deal with them directly, we don’t go through our distributor and that way we have more control,” he says. “Last year we negotiated an increase in price. We explained about the market and we negotiated a price that was fair.”
Top-selling Dominique Portet Fontaine rosé is always in big demand but it remains on allocation to Dan Murphy’s, even though the retailer will always take more. Dan’s sells it for the same price that visitors pay at the Portet cellar door: A$22.00 a bottle.
“Dan Murphy’s will negotiate, sure, but we are good negotiators, too,” stresses Ben Portet.
In conducting negotiations with the giant, knowing your numbers is critical. When Dan Murphy’s right-hand man, Tony Leon, left Dan’s after 23 years, only to turn up in charge of the opposition at Coles Liquor, he took a parting shot at winemakers. “A lot of wine companies get confused between smelling the wine and selling the wine and making a profit. I separate this in my business,” he said.
Even the biggest winemakers have failed to make this distinction. In 2001, for example, wine company Southcorp decided upon a foray into discounting. It was approved by chief executive, Keith Lambert, who eventually lost his job over the ill-fated flirtation. Lambert wanted big-volume sales through the supermarkets and delivered his four big brands – Lindeman's, Penfolds, Wynns and Rosemount – directly to Dan Murphy’s door. Dan’s sold the wines at prices well below the rest of the retail trade. Not surprisingly, Southcorp alienated independent retailers and restaurateurs and thereby fell deeper and deeper into the discounter’s arms. Within one year, supermarket sales that had accounted for 29% of Southcorp's business rose to 42%. Shortly after, Lambert's head rolled. Leon says not only was Lambert “arrogant”, he didn't know his numbers.
Private label
Lovers Not Toreadors is one Ribera Del Duero Tempranillo you will never see on wine shelves in Spain. The label, styled after a traditional bullfight poster, would have most Spanish winemakers in fits of laughter or tears: toreador in tight, sequined pants, red cape poised in front of a scary, big black bull. “Lovers Not Toreadors has been a phenomenal success!” says Andrew Caillard MW, wine consultant to the entire Woolworths Liquor Group. Caillard is responsible for bringing well-known Spanish winemaker José Moro, of Bodegas Emilio Moro, into the Dan Murphy’s fold with its exclusive A$17.00 Lovers Not Toreadors. There have been other exclusive success stories too, such as Schloss Vollrads from Germany, Carpineto from Italy and Rioja’s Marqués de Murrieta.
“It [an exclusive brand] is about driving people into categories. Creating brands that will inspire consumers to look at buying and then travelling up the range,” says Caillard, who describes his role in the sourcing of exclusive imports as that of advisor and influencer. “I’m not a buyer, I bring forward opportunities.” And the opportunities are there for healthy profits. “Part of the private label thing is also being able to protect margin, but exclusivity will do the same thing as well,” he notes.
The first exclusive Dan Murphy’s imports were wines that remain solid sellers today, like Joseph Perrier Champagne and Alsatian no-nonsense winemaker, Dopff au Molin. Caillard says times were different back then. Today, every buying decision has to be based on business analysis and consumer insight research. Is there a business case for it? Within WLG it is referred to as The Gateway Process. “You can only bring in a certain amount,” explains Caillard. “Everything that works within Woolworths – everything – is dictated by the plans of the retailers themselves and their shelf space.”
Dan Murphy’s exclusivity deals can apply to wines made by well-known producers like Chapel Hill or wines once considered commonplace, like the Riddoch Coonawarra brand that was sold to Woolworths some years back.
In the UK, such wines are known as BOBs or buyers own brands. In Australia, they’re called private labels and many wine producers have come to loathe them. Through them, retailers like Woolworths can become both a producer’s biggest customer and competitor.
Private brands, winemakers argue, masquerade as independent labels. “Private label wines are not like usual home-branded supermarket products,” said winemaker Sarah Collingwood in a 2013 newspaper interview, after she founded the website whomakesmywine.com.au, devoted to uncovering all the private wine labels used by both Woolworths and Coles. She found that, between them, they shared some 240 private labels and some skill had been employed to make the labels sophisticated and appealing. “They are branded specifically to not look like private labels,” argued Ms Collingwood.
At any one time, 20% of wines at Woolworths are private labels. They are now an important part of business, as are rebates: Rebates are a means by which powerful retailers such as Woolworths have been able to use their weight to elicit better deals. The wine producer who is most willing to pass profits back to the supermarket gets the best shelf space.
Australian journalist, Malcolm Knox, author of Supermarket Monsters, suggests that in 2012 to 2013, both Woolworths and Coles increased their margins through rebates, “transferring about A$1bn to their bottom line.” There is also evidence that many Australian winemakers have struggled to pass on genuine cost increases to retailers, that are not then taken away by increased rebates and discounts. “Our confidential analysis of a small number of producers shows that from 2007 to 2012, retailers captured a significant portion of these winemakers’ profit margin,” observed the Winemakers’ Federation of Australia (WFA) 2013 report into the profitability of the Australian wine industry. It continued, “the analysis also indicates the majority of this margin was not transferred to customers.”
The report noted, too, that retailers “strongly believe” their customers have benefited from overall lower wine prices. The 2013 report proved the catalyst for a code of conduct negotiated by WFA, on behalf of the Australian wine industry and the Woolworths Liquor Group. Called ‘Good Wine Buyer and Supplier Principles: A Code of Fairness and Transparency’, the code is voluntary and requires the Woolworths Liquor Group and suppliers to act “honestly, deal fairly and be transparent” in their deal making. The Code was signed in August last year. However, the wine buyer/supplier code does not cover retail pricing.
The code of conduct calls, in part, for a better understanding and “respect” of the needs of both supermarkets and wine producers – which are not always the same.
At last year’s Wine Outlook conference in Adelaide, Rose Scott, general manager merchandising at WLG, gave her audience an inside look at her job. Defending the group’s negotiating approach and apparent obsession with price, she said her customers would walk out if they could find wines cheaper elsewhere. “They will walk out of our stores if it’s not the right price,” she told the conference audience.
The attitude of the WLG, she emphasised, was focused on how much wine had been sold in the past 30 minutes in its wine stores. In contrast, wine producers, she said, are generally more interested in their weekly or monthly sales. “It’s just different time horizons and perspectives that we have,” she said.
Tasting process
In the final week of July, Dan Murphy’s released the latest wines in its Cellar Release program: Penfolds 2009 Bin 389, Wynns 2010 Coonawarra Cabernet Shiraz Merlot, and others. Each year, age-worthy wines are set aside for an extended time in a Melbourne warehouse, home to an extraordinary 4m bottles. “It has to be the largest cellar of screwcapped wines in the world,” says Peter Nixon, who heads the Dan Murphy’s tasting panel. Screwcaps rate highly on the panel’s desirability and age-worthiness list.
Nixon heads the company’s tasting panel of eight people, including four permanent core tasters, who meet weekly to look at 50 to 100 wines. The wines are not tasted blind. “We look at these wines through the lens of our customers,” says Nixon. “We review quality first and take into account packaging, sale-ability, price.”
Wines that already have space on restaurant lists are especially attractive. “It’s often where people get to first try a wine and so there is interest in it.” The chosen wines are not necessarily sold across the group. “It can be one store or it can be for one state,” he says. “No two stores are the same.”
Affable and modest, Nixon has been with Dan Murphy’s for seven years and has seen the WLG sales model change dramatically in his time. Right now, he is excited by the new Murphy’s Connections program, inspired by the endless shelf concept, which creates more sales opportunities through a virtual endless shelf. “Suppliers can offer a range just to online, so the products appear only online and have a dedicated logo,” explains Nixon. “If you look up danmurphys.com.au at the moment you’ll see that there are 20 Argentinian Malbecs online,” he explains. “Most of those are available only through Connections.”
It means Murphy’s can carry a much larger range than it can ever physically hope to have on the shelves in its 196 stores. It is part of the next great wine retailing frontier for the big Australian.
The Woolworths wine, beer and spirits empire
Australia
- The Woolworths Liquor Group generates A$4bn-plus from liquor sales.
- Owns the Dan Murphy’s liquor retail chain of 196 shops, with 8,000 different product lines across wines, beer and spirits. It controls more than 55% of Australia’s online liquor sales.
- Owns BWS (Beer Wines Spirits) liquor retail chain, 1,216 outlets. Stores are generally attached to Woolworths-owned ALH Group outlets.
- Owns Woolworths Liquor stores, attached to Woolworths supermarkets.
- Owns Cellarmasters online wine retail specialist, since its A$340m acquisition in 2011.
- Owns national carrier Nextday, used for online sales.
- Owns Pinnacle Drinks, which manages own and exclusive brands on behalf of the Group.
- Owns 328 hotels, clubs and pubs through the A$1.36bn acquisition of Australian Leisure and Hospitality (ALH) Group in 2004.
- Owns Vinpac International, Australia’s largest independent bottlers of wine.
- Owns Barossa Valley winery Dorrien Estate, which crushes 12,000 tonnes of fruit annually for Cellarmasters.
- Owns Barossa Valley winery Beckwith Park.
- Owns 25% of Gage Roads Brewing Co., Western Australia.
- Owns Langton’s online wine auction business.
New Zealand
- Owns the Countdown supermarket chain, which has the biggest number of supermarket outlets in the country: 171.
- Owns wine clubs New Zealand Wine Society, Wine iQ and Cellar Force (all part of the Cellarmasters Group).
- Owns Pinnacle Drinks.
- Owns Isabel Estate Vineyard, Marlborough.
China
- In 2014, the Woolworths Liquor Group acquired China-based wine and drinks distributor Summergate. The sale was a precursor to the launch of Langton’s in China.
Woolworths is Australia’s largest domestic retailer, with interests in food and wine retailing. It offers services in: home/travel/car/pet/life insurance, credit cards, mobile phones, petrol outlets (with Caltex), and online photo printing. It was listed on the Australian Stock Exchange in 1993. Together with competitor Coles, Woolworths controls 70% of liquor retail sales in Australia; Woolworthsʼ share is estimated at around 40%. FC
