WOOLWORTHS AND ITS WORTH TO WINOS

The murky world of Woolworths' stranglehold on Australian wine may be part of the reason the Australian Competition and Consumer Commission is showing renewed interest in the Woolworths-Coles supermarket duopoly ... photo Philip White

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Woolworths Coles And Oz Wine
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by PHILIP WHITE

Woolworths.  The biggest Australian supermarket chain is obviously a gold chip investment stock for the working families, and a good employer for the members of the humungous Shop, Distributive and Allied Employees Association -- the “Shoppies” union -- from which such Labor luminaries as Senator Don “The Godfather” Farrell, Premier Mike Rann executioner Peter Malinouskas, and the much-discussed Bernard Finnegan MLC rose to power.

Woolies hit the heads last week with a first-half net profit after tax of $1,155 million, a leap of 19.4 per cent over the same period last year.

"Our role as retailer is positioned midway between the customer and the producer and it's a balance we play everyday,” said CEO Grant O’Brien.  “We have got to make sure we are delivering better value to the customers so they are getting value and increasingly globally comparable value.

"At the same time we have got to make sure we have got a sustainable supply chain and manufacturing base and that's the wire that we tread but the customer is the reason why this business exists and that's who we favour in those negotiations."

Woolies has a great deal to do with the Australian wine business.  It owns liquor chains like BWS and Dan Murphy’s, lucrative enterprises  which supply cheap alcohol to those same working families.

More houses for more of the working families so beloved by Labor need more supermarkets which employ more Shoppies to supply more members for Australia's biggest trades union which gives Labor lots of money and more recruits to be shot into parliamentary power by the faceless bosses -- like those who swung their axe on Prime Minister Kevin Rudd and South Australian Premier Mike Rann -- and supply those working families with more cheap booze at the expense of hardworking highly professional small scale family grapegrowers and winemakers ... photo Kate Elmes

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Many who shop in these stores have no idea they’re part of Woolies.

Even fewer realize that the wine they buy there is made, not by some ivy-shrouded bluestoned  artisan, but by Woolworths’ own wineries.  “Wine made by Woolworths” is hardly something you see on back labels.  They should be forced by law to fess up.

Let’s start at the bottom end of that “sustainable supply chain”.

Woolworths owns Cellarmasters, one of the biggest wine refineries in the Barossa. It recently expanded into another vast wine factory in the old Penfolds site at Nuriootpa, extending its capacity on a grand scale.

While it does not stretch its risk to the tenuous business of vineyard ownership, Cellarmasters certainly knows how to turn the poor fortune of grape farmers caught in an over-supplied market into good returns for its working family stockholders.

It got almost close to grapegrowing when it recently bid for Barossa Valley Estates, the local growers' co-operative formerly known as Kaiser Stuhl.  This outfit owned a glamorous 4000 tonne winery and a 41 ha vineyard at Seppeltsfield. In January it went down to the tune of around $17 million, leaving its grower/members hanging out for full payment for their 2012 fruit.  Woolies’ bid was refused by the receiver.

Woolworths buys grapes at minimal prices to fill the hundreds of brands that masquerade as artisan works to fill that hectare of Dan’s floor between the loss-leaders at the front and the highly-profitable favoured private brands at the back, like Grosset, Rockford and Penfolds.

Last week, to improve its profit even further, it “let go” Bacchus only knows how many  "fine wine specialists" it had employed to explain and sell these back wall beauties.  This leaves the floors staffed by junior members of the Shoppies whose job it it is to concentrate on selling its under $15 “own brands” to those working families, and nobody to properly explain, say, Pinot noir to them, should they dare ask.

Only the stores in high-income postcodes have retained their fine wine specialists.

This must serve mainly to guarantee a shittier life for our professional premium grapegrowrs, and lowering of the average appreciation of the finer things in life amongst the Shoppies, ensuring our next layer of Labor cabinet ministers, Premiers, and maybe even Prime Ministers, will be of a more bogan cut.  Forget cultured libertarian wonders like Don Dunstan: this is obviously what Labor thinks Australia needs: more politicians who drink bladder pack plonk from bottles, wear polyester and too much product in their hair until they shave it all off, and speak fluently the tortured Ocker whine of a Prime Minister with no obvious refinement, culture, or love of humanity, language or music in her  embattled, determined,  voice.  One wonders whether she'll let Don Farrell shave her head before the election.

When I last wrote about the Woolworths’ stranglehold on the swelling  army of struggling growers, I took flak and sanctimony from various artisan winemakers in the Barossa, who insisted that Cellarmasters made possible and guaranteed their own small nuts-and-berries brands by renting them space in the big winery.  These little guys typically cannot afford to build wineries of their own, so happily use the Woolies facility, thus providing their generous  landlord the perfect opportunity to keep an eye on their new ideas, the sources of their grapes, their varieties, methods, branding and trends.

Woolworths’ grasp of wine business intelligence extends even further.  Not only is it a major sponsor of regional wine shows, which provide it with intelligence of peer group appreciation of the wines of whichever region it chooses to sponsor, but it is the biggest contract wine bottler in Australia.  It fills bottles for the vast number of winemakers who cannot afford their own bottling lines.  Part of the deal is the bottler’s obligation to take samples of each wine before and after bottling in the case of mistakes happening and the chance of consequent litigation.

Woolworths sees many winemakers’ wines in bottle before the actual winemaker does.

This machinery gives Woolworths the vital statistics of thousands of wines they otherwise have nothing to do with, other than perhaps discounting them through BWS or Dan Murphy’s.  They also attach labels during bottling, so they can see through this “sustainable supply chain and manufacturing base” just how each wine, and its label, performs on the retail floor.

That’s the sort of intelligence that’d make the Mossad proud.

The big W is popular amongst many struggling littlies for its generosity with credit: it seems almost to operate as a bank, and, like a bank, is very true to its working family shareholders in responsibly executing foreclosure or joint venture/vendor finance deals on those winemakers who fall too deeply in. This provides even more bargain fruit for its own brands, many of which become JV labels to reinforce the image of a Dan’s full of family-grown, family-made wines.
 

Woolworths has its big fork in the guts of most of the Australian wine industry, helping it pay big dividends to those working familes with the money to invest and the loyalty to shop in its supermarkets which supply them with an ever-burgeoning supply of cheap wine of a provenance which never bothers them. Much ... photo Philip White

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So Woolworths is a very clever wine manufacturer, tying highly-profitable knots in the wholesale and retail levels of the business.

But it doesn’t stop there.  Since its purchase of Langtons, Australia’s pre-eminent fine wine auctioneer, Woolworths also has a stranglehold on the tertiary wine market, using the prices of wines auctioned to rank them in its very own quality appellation.

Any middle-ranking manager with a sensible business respect of the shareholders would be negligent if they didn’t consider the possibility of ensuring their shelves were well-stocked with current and past  vintages of the brands that made the highest prices at auction.  This is where the best retail profits grow almost automatically: in the favoured independent brands on that more expensive back wall.

Anyone, even Dan Murphy’s, can pay whatever they like to secure fine wines at auction.  Winemakers, for example, can push their own prices higher by outbidding others, thus ensuring their brand goes further up the valued Langton’s appellation.

 

Since it bought Langtons, the biggest Australian wine auctioneer, Woolworths now owns the Langtons Classification, the most powerful price-driven quality wine appellation mechanism in the country ... photo Philip White

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"Our role as retailer is positioned midway between the customer and the producer,” CEO Grant O’Brien said, announcing this last well-earned profit.  “It's a balance we play everyday: we have got to make sure we are delivering better value to the customers so they are getting value and increasingly globally comparable value.”

What fascinates this writer is the notion that on many levels, Woolworths is not just the producer, but also its own customer.

Somewhere in here we see the inquisitive nose of Rod Sims, the chairman of the Australian Competition and Consumer Commission. 

Sims recently appeared before a Senate estimates committee where he reported that he was investigating the possibility that Woolworths, and its smaller rival Coles, were engaging in improper practices to force down prices from suppliers.

 

While this has not been specifically aligned to the duopoly’s liquor businesses, the ACCC threatens to use its compulsory information powers to collect evidence of claims of “improper dealing” after some fifty suppliers complained, in camera, of such practices.

Accusations abound, many suggesting that suppliers who don’t toe the ever-hardening line suddenly lose their shelf space, or see their in-store promotions vanish at the worst possible time.

So until somebody’s found guilty, if indeed they ever are, go buy your lucrative shares, you working families: then go buy your liquor from those you’ve invested in. 

You might pray, at the same time, that what the duopoly has done to the dairy industry is not repeated in the wine biz.  Fresh milk from cows looked after by vast communities of hard-working, highly professional dairy-farming families seems not to have been such a sustainable supply chain.  I can only measure this by the great stretches of Queensland and New South Wales where fresh milk is very hard to procure: it’s been replaced by the dreaded UHT since the duopoly started its milk discount war and drove hundreds of dairy farmers to the wall.

Gird your loins, you pimpled Shoppies, and innocently flog your employers’ own under $15 brands until you get shoved into a Labor Cabinet somewhere, or until wine grapes follow the milking cows. 

Winemakers, watch this shelf space. And do watch your arse.