Woolworths, Coles and the Fake Wine Label game
Wines of Western Australia chief executive Larry Jorgensen has accused the big supermarket chains of distorting the market, Julie-Anne Sprague writes in The Financial Review. ‘The distortion is that an entire industry is decimated,’ says Jorgensen. ‘Many small businesses are precluded from a reasonable opportunity to trade, the public are [sic] misled as to the true source and nature of the products offered and legitimate traditional businesses and skills are lost.’
Cow Bombie is a famous surfing break near Gracetown in WA’s South West. Picture: Jamie Scott
In another article – Woolworths, Coles private label plonk angers wine industry – Sprague draws a picture of ‘a team of market researchers and brand developers designing dozens of bottles of wine.’ It’s not just designer labels they come up with – for wines called Cow Bombie or Bailey & Baily or Two Churches – they also use sales data from their many stores work out which wine styles are the most popular with punters, and lay down the specs for their suppliers.
Distorting the Market?
The distortion has less to do with designer labels than the close to 80% of the liquor market controlled by Woolworths and Coles. Woolworths owns 1400 stores branded Dan Murphy, BWS and Woolworths Liquor, while Coles lags way behind with Vintage Cellars, 1st Choice and Liquorland. The two giant retailers reached this duopoly position by gobbling up smaller chains of liquor stores for years while our ACCC was fast asleep or didn’t care.
These private labels don’t tend to identify who makes the wine behind them. Pinnacle Liquor in Surry Hills, the Woolworths office where these wines are designed, is often cited on Woolworths’ labels. Other times it will be Siegersdorf Road, Tanunda, the address of Woolworths’ own winery: Dorrien Estate. It belongs to Cellarmasters, which was acquired by Woolworths in 2011 with ACCC approval.
Private Labels are hardly a New Idea
Cellarmasters has been making wine under private labels for David Jones and other retailers, clubs and associations for many years. In the sixties, we had merchants like JK Walker, Harry Brown and Doug Seabrook selling wine under private labels such as Rhinecastle Bin 26A or H.G. Brown’s Bin 60 Shiraz. More in Unsung Heroes – Wine Men who changed the Way we Live.
As Brian Miller wrote: ‘Wine retailers have always had ‘own-labels’, a practice and tradition that preceded winery labels. Major retailers now own their own wineries and vineyards … As long as the labelling is legal, and not misleading (almost impossible to prove), there is little anyone can do about it … except whine.’
The merchants of old disclosed who made their wines – Egerton Dennis on the HG Brown label pictured – but the punters of the day trusted the Rhinecastle and Brown and Seabrook labels most of all. The same happens in the UK where major retailers such as M&S, F&M and Tesco sell house brands under their own names. It looks like British consumers trust their favourite retailers, but Aussies don’t trust Woolworths and Coles.
Do the Punters care?
I spend a fair bit of time in Dan Murphy’s, Vintage Cellars and 1stChoice stores, checking specials for my weekly Best Buys mailer, and I see loads of people wheeling out trolleys of sugary Marlborough savvy or syrupy McGuigan Black Label Merlot. Do they care who makes their wine? I doubt it, but that doesn’t mean the big retailers shouldn’t come clean.
The wine lovers who subscribe to my Best Buys Weekly mailer don’t care either, I suspect, because they’re more discerning and better educated. They’ve worked out the fake labels or hollow logs as some in the industry call them.
Would more transparency reduce the distortion in the market?
I doubt that too, because the distortion is caused by a duopoly that controls more than ¾ of liquor outlets. Sprague says they give more shelf space to their own labels because the profit margins are higher since they cut out the ‘middleman’. I’m not sure who the middleman is here since the Australian wine market doesn’t have a maker > distributor > retailer > consumer model.
Are the big retailers pushing their own brands? Of course they are. What would you do? Are smaller wineries suffering? Sure they are, but once again it’s because the duopoly puts the squeeze on them, as it does with farmers.
Another form of distortion caused by the complicated and outdated WET tax, which allows retailers to claim a rebate when buying wine in bulk direct from wineries. The WET tax is said to be under review but it’s clearly helped to make private labels more profitable for the two big retailers.
Where do the wineries stand?
Some wineries refuse to sell their labelled wines to the big retailers, others do and benefit from wide distribution but accept low margins. Other wineries are happy to sell their surplus grapes to the big guys, as this email from Mike Calneggia makes clear:
‘Hi Kim, we are the small family wine business (Calneggia Family Vineyards) that makes the Cow Bombie wines exclusively for Woolworths … We started making these wines in 2008 when our major grape buyer Evans and Tate went into receivership and the buyer, McWilliams wines weren’t prepared to pay us what we thought was a reasonable price for our fruit.
‘We instead made the decision to stop being grape growers, subject to the decision making of other wineries and instead we became wine producers. Woolworths have been very good to us and provided with contracted security of off take on a lot better terms than we were being offered by other wineries. We are now heading toward our 9th vintage of Cow Bombie production and the market support and the sales growth is proof that the consumers like the wine. Cow Bombie even won the best Shiraz trophy for the 2013 vintage at the Margaret River Wine Show.
I really struggle with the claims that private or exclusive labels produced for the supermarkets are somehow inferior to other large volume wines. In a lot of cases they are winning as many awards as the “traditional” brands. Maybe it is that the larger wineries really want the market to themselves and bashing private and exclusive smaller suppliers is one way of doing that.
The Calneggia family owns several vineyards at Margaret River and produces the Rosabrook, Bunkers, Bramble Lane and Brian Fletcher Signature wines.
You can find out Who made your Wine on this list which is now maintained by Huon Hooke.
Kim