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Liquor sector trends and statistics for 2007


This post sets out some current statistics on market shares and trends in the Australian liquor sector and the broader Australian retailing sector.

Statistics help in market definition for clients affected by trade practices law, trade mark law, copyright law and other laws. With statistics we make better legal decisions and sharpen our commercial awareness.

In historical terms liquor consumption continues to decline in Australia. But some  other trends are surprising.

TREND 1: Competition and concentration are rising - domestic retailing

  • Competition in liquor retailing is now more intense. IBISWorld comments that since the early 1980s progressive deregulation Australia-wide, making liquor available from a wider variety of outlets "... has meant more and more bottle shops are competing with licensed grocers, supermarkets, and hotels and pubs selling packaged liquor - with competition becoming more intense." Yes, deregulation has led to more liquor outlets. But that IBISWorld press release quote should be read in conjunction with data on concentration in ownership of liquor outlets, in particular bottle shops and "barns" now largely in the hands of Woolworths and Coles. For example, Coles owns Vintage Cellars, 1st Choice Liquor Superstore, Liquorland, Liquorland Direct Wine Club, Theo's and Coles Online.

TREND 2: Beverage tastes are broadening - domestic consumption

  • According to IBISWorld data , "Around 2.3% of household expenditure goes towards alcoholic beverages, with 8.3% of us drinking every day, compared to 39.5% every week."
  • While famous as beer drinkers, Australians tastes have become eclectic. IBISWorld notes that the Australian per capita consumption of wine reached 28.1 litres in 2005, with Pinor Noir and Shiraz as the most popular varietals in bottled wine but with white wine remaining the top choice overall. Listed below are alcoholic beverage growth areas in recent years, with packaged premium beer and pre-mixed drinks experiencing double digit growth:
    • premium beer (eg Peroni, Pilsner Urquell, James Boag Premium, Cascade Premium, Stella Artois, Corona, Becks),
    • diet beer AKA low-carb beer (eg Pure Blonde, Bondi Blonde, Miller Lite),
    • vodka and vodka pre-mixed drinks (eg Vodka Cruiser), and
    • bourbon pre-mixed drinks (eg Jack Daniels & Cola and Jim Bean & Cola).

TREND 3: Concentration is growing - domesting retailing and wholesaling

  • Woolworths and Coles - a tale of two liquor retailing conglomerates:  Let's return to the topic of market concentration. By about the beginning of 2005 about 50% of the liquor retailing sector in Australia was owned by either Woolworths or Coles. This followed their run of acquisitions in prior years.
  • Fosters Group Ltd sales grow: fter noting broad long term branding and trade mark trends and developments with which I was very familiar, I sought in the article to illustrate their relevance by reference to corporate strategy, takeovers and changes affecting Southcorp Ltd and Fosters Group Ltd as both owners of wine brands and wine exporters and distributors. Since that February 2005 article, Fosters has taken over Southcorp thus increasing the Fosters Group Ltd share of wine distribution and export. The top 20 list of wine exporters includes Beelgara Estate, a Dilanchian client which produces the Sun Dried brand pictured above.

TREND 4: Concentration is growing - Australian wine distribution and export

  • wine_exports_2006Rise and rise of Australian wine exports: Speaking of exports, the following graphic is reproduced from "Australian Wine Sales, 2005-06" an August 2006 fact sheet produced by the Australian Wine and Brandy Corporation. Its Winefacts Statistics webpage is a useful place to access various Australian wine industry research and statistics.

 

TREND 5: Metcash is growing fastest

 

  • As an update on retailing market shares generally (inclusive of the liquor sector), Robert Gottliebsen in the 16 December 2006 issue of The Australian wrote that "Metcash has about 18.9 per cent of Australian supermarket sales compared with Woolworths, 44 per cent, and Coles, 32-33 per cent. ... Metcash has 1300 stores, mainly trading under the IGA banner. It is adding 50 to 60 a year and by 2010 expects to have around 1700 stores. All of them are owned and operated by independents, although a number of IGA's retailers own 50 or more stores." Gottliebsen was left with the impression that Metcash is growing its market share.
  • Useful historical data on market power and market share issues in the retail sector in Australia is contained in Fair Market or Market Failure? This is an August 1999 report by the Joint Select Committee on the Retailing Sector. Its report follows its terms of reference to "... report on the degree of industry concentration within the retailing sector in Australia, with particular reference to the impact of that industry concentration on the ability of small independent retailers to compete fairly in the retail sector...".

TREND 6: Retailer EBITDA has increased

  • Briefly, price inflation in the sale price of retail chains is evident as a major trend of recent years. Prices of say five times EBITDA (earnings before interest, tax, depreciation and amortisation) back in 2001 have risen to eight or nine times and even higher. This is the observation made by Roy McKelvie, Managing Director of Gresham, the firm that bought the Witchery fashion chain for A$130 million in 2006 from the family of Solomon Lew: Source, "Private equity chases retail cash cows", The Australian Financial Review, 5 January 2006, p. 38.

Market definition in Australian trade practices law

My Woolworths $7 million liquor hangover blog post prompted the above research into current liquor sector statistics. The statistics are relevant to our firm's work in:

  • assisting wine industry players in litigation, dispute resolution and trade mark registration work;
  • developing commercial awareness of markets relevant to our numerous retailing sector clients;
  • noting purchasing habits and other trends affecting client businesses with retail property leases;
  • advising clients on restrictive trade practices law affecting contracts and takeovers; and
  • keeping track generally for clients affected by consumer and market trends.

As noted, statistics assist in advising clients on restrictive trade practices law. This includes advising on questions related to market definition.

As regards market definition in Australian trade practices law, in ACCC v Liquorland (Australia) Pty Ltd [2006] FCA 826 Justice Allsop in paragraphs 436-449 discussed the approach he took in making his decision in that case. He said: "Market definition is to be approached by beginning with the problem at hand and asking what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes."

Following that introductory observation, Justice Allsop at paragraph 440 cited with approval the guidance for market definition provided by Professor Brunt. Despite its length it is worth reading paragraph 440 here in full:

"In this process of identifying the correct analytical tool or instrumental concept of market definition by which to assess Woolworths' conduct and purposes in this case, there is significant assistance in recalling the seminal expression of view of the [Trade Practices] Tribunal (of which Professor Brunt was a member) in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 (“QCMA”) at 190 (a passage approved by the High Court in Boral at [133] per Gleeson CJ and Callinan J, in this respect agreed with by Gaudron J, Gummow J and Hayne J): 

'We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution--substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.

It is the possibilities of such substitution which set the limits upon a firm's ability to "give less and charge more". Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to "give less and charge more" would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?' "


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