COSTCO and ALDI crash into big box wine retail

I’ve seen the future of wine retailing, and it fills me with horror

‘Costco’s lead wine buyer Annette Alvarez-Peters doesn’t understand why wine is any different than toilet paper,’ an article on US website Eater National begins. The source of this statement is an interview on CNBC with Costco’s chief wine buyer Annette Alvarez-Peters, who is asked if wine is different from other products. She answers:

‘Is it more special than clothing, is it more special than televisions? I don’t think so.’

Interviewer: ‘Certainly it’s different than toilet paper? Or different than tin foil?’
Alvarez-Peters: ‘Why?’

You get the idea. Toilet paper gets an honourable mention because it’s Costco’s biggest selling product line. Alvarez-Peters gets a mention because she is in charge of Costco’s wine business, which last year notched up over one billion dollars. Costco’s model is interesting:

• It really is a big box warehouse set-up, operating like a wholesale outlet
• Costco doesn’t advertise, and doesn’t tell you where to find things
• To shop at Costco, you have to become a member.

Photo courtesy of CBNC

COSTCO arrives down under

I haven’t been to Costco in Auburn, Sydney’s sole store. Jenni Port writes in the Australian about the Melbourne store that ‘you had to be there, literally, to find out what was being offered in the wine “department”, a modest rectangle of space hemmed in between fresh flowers and cigarette sales, because Costco does not advertise. You also had to be a member, which costs $60.’

Jenni describes Costco’s Melbourne’s wine section as ‘a central aisle of upmarket wines packed in nice wooden box-ware while the cheaper stuff is stacked on industrial shelving to the side.’ The surprising part of Costco’s wine proposition is that it sells expensive branded wines like Dom Perignon, Louis Latour Puligny-Montrachet and even Grange, all at lower prices than Dan Murphy. Jenni quotes sources who say Costco uses cheap premium wines to attract a better class of people into the store who will spend more. ‘Getting people to spend up big,’ Jenni tells us, ‘is the beating philosophical heart of Costco because the company works on the skinniest margins imaginable.’ Fast bulk turnover is the normal driver here.

ALDI – Don’t expect a great experience

ALDI has also taken the plunge into liquor. Only some ALDI stores sell grog in NSW, so it was off to Brookvale near the northern beaches to see what the super-rich German retailers were offering. I’ve been to a couple of ALDI stores before, and have to tell you that they’re the kinds of shops I tend to avoid like cheap plonk. The stores look cheap, sell lots of tat and are hard to get around in. The punters put up with all of that in order to save a few cents.

Here too, the driver is fast bulk turnover, but ALDI’s proposition is different from Costco’s, as we’ll see. The liquor section in the ALDI at Brookvale is a square box with walls on three sides, about the size of a small spare room. Beer, spirits and wine share the limited space with people. As soon as someone joins you, it feels crowded. It’s a ghastly experience, so is it worth it? NO, in a word.

With wine, labels matter

There are clean-skin equivalent bottles from south-eastern Australia for $5 – 7, regional wines from $10, and more fancy ones for $13 to $20.  Call me old-fashioned but I prefer to buy brands I know and trust, so I’m not really tempted by all the Buyers Own Brands (BOB) here, wines with labels you’ve never seen before so you’ve no idea who made the wines. There are exceptions, such as a Baron Amarillo Rioja Reserva 2006 from Spain, which turns out to be a pretty nice drop for $10. Elegant and sophisticated, with a light Spanish accent, mature but not too developed.

The AIRDE.450 (sic) Clare Valley Riesling 2012 also provides pleasant drinking for $10, but these wines are no better than the wines on my BEST WINES UNDER $10 list. And they’re no better than Kemenys’ Devils Ridge, which tell you who made the wine. Or Kemenys’ Hidden Label wines that let you guess the maker in most cases. Kemenys’ approach makes more sense to my mind, and I can shop online, which I can’t with ALDI or Costco.

For Woolworths and Coles, the world is not enough

Woolworths and Coles don’t seem to have noticed the new competition, and continue to fight each other. They already have 60% of the market between them. Coles’ liquor sales are close to $3 billion through some 700 shops. Woolworths sells over $6 billion through about 1200 stores.Woolworths owns Dan Murphys, BWS, Wine Market, Langton’s and Cellarmasters. Coles owns Vintage Cellars, Liquorland and 1^st Choice.

photo courtesy of www.skinnyperth.com

It’s a cosy duopoly but don’t ask why the ACCC didn’t lift a finger as these two bought virtually every liquor chain in Australia, and drove most of the small guys out of business. In 2011, Woolworths bought Cellarmasters with its mailing list of 330,000, as well as its huge warehouse and winery in Nuriootpa. Where was the ACCC, our competition watchdog? Not lifting a finger.

The excuse? The proposed acquisition ‘was unlikely to substantially lessen competition in any relevant market.’ That’s like a policeman saying he didn’t interfere in an attack because the attacker didn’t kill or maim his victim. The ACCC is blissfully ignoring that every stab it ignores is yet another in a death by a thousand cuts. And these guys are supposed to be on our side?

1^st Choice becomes second choice

Late in 2011, Coles declared war on Woolworths. The Australian reported that Coles planned to ‘fund a massive expansion in the alcohol sector, helping to up the ante in its price war with rival Woolworths in the $14 billion liquor market.’ 1^st Choice was Coles’ weapon of choice for this war. The Vintage Cellars stores were too upmarket and never price-competitive with Dan Murphys, except for a 6-month period a few years back when VC offered a 30 per cent discount on 12-bottle cases.

A year ago at 1^st Choice, the shelf prices were about 20% lower than those at VC, and the maximum discount of 10% applied to six bottles. 1^st Choice was more than competitive with Dan Murphy. Then last October (2012), 1^st Choice cut the discount to 5%, and many of the prices lost their sharp edge over night. A month later, Vintage Cellars reduced its maximum discount of (for 12 bottles) to 10% (for a six pack), and bumped up its prices as well. Clearly the war was over; Coles had tossed in the towel and decided to sit in its corner sulking.

Other choices

Since then, bargains have been harder to find, especially in the run up to Christmas and New Year when the punters go nuts on grog anyway. Thankfully, there are other options left as long as you like shopping online: Kemenys is a thriving family business that grew out of a mixed grocery shop in Bondi. It may only turn over $200 million a year, but the prices are more than competitive with Dan Murphy’s. The range is more limited but well-chosen, and the website carries reviews from JH, HH and others about most of the wines on offer.

Winestar and Vintage Direct (Nicks) are a couple of Melbourne-based retailers who offer quality wines at competitive prices; MyCellars does the same in Adelaide with a smaller range. Again it’s really easy to buy online from these guys, and Winestar delivers the goods at no cost to 97% of the country. I prefer to buy wine online for these simple reasons:

• I can work out what I want and where to get it at the right price, from the comfort of my home
• I don’t have to fight for a parking spot at the grog shop
• I don’t have to cart the grog to my car and hoist it into the boot
• I don’t have to unload the car at the other end.

So do us all a favour: support the last of the independent wine merchants. Buy online. If you have an independent wine shop left in your neighbourhood, support it. You’ve seen what Woolworths and Coles have done to our food choices. You’ve seen how they destroyed the dairy industry – don’t let them do it to wine or we’ll end up in the same mess. And Costco and Aldi? Do you really want to buy your wine from people who don’t know the difference between wine and toilet paper?

Essential Reading: http://theskinnyperth.com/2012/10/22/the-great-supermarket-swindle-how-coles-and-woolworths-will-soon-own-your-life/

Kim

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