The 2011 cold war: no beers in supermarkets, Fosters stays strong
By now, you’re probably aware of the cold war between Fosters and major supermarkets Coles and Woolworths. Fosters got a tipoff, perhaps they even intercepted a cable, that the major supermarkets would be heavily discounting Fosters brands of beer slabs to well below cost price.
It was meant to be a marketing sting, get shoppers in to the mall for the mad beer price and hope they fill up their trolley with other profit making items. It’s called loss leading, and it’s far from a new development. Coles have brought it back in a big way recently, though, with their ‘down and staying down’ campaign, where the retail price of many staple food items have been discounted to get shoppers in the door.
Fosters weren’t too pleased with its prize brands like Victoria Bitter (VB) being slashed in price, however, so they stopped the delivery trucks. No more beer to supermarkets for now, they said, you’re devaluing our brands.
The standoff has made big news in the last two days, but executive director of The Australian Centre for Retail Studies Colin McLeod says he’s not shocked at all by Foster’s move.
“I’m surprised people are surprised,” McLeod tells Marketing magazine. “The idea that supermarkets use loss leaders has been around for decades, they’re trying to make a profit from a portfolio of goods, not every item. We’ve seen it with bread and milk, now we’re seeing it with alcohol.”
McLeod says the difference this time is that the supermarkets have used big brands for loss leading instead of their own private label.
“Previously, supermarkets have targeted consumer staples for the loss and now we’re seeing it aimed at big brands, that’s the different thing about the approach,” McLeod explains. “This time we’re seeing national brands being very heavily discounted. I can understand why Fosters are annoyed, they’re a brand management company, I can see why they’re going out of their way to protect their brand.”
McLeod compares the situation to a famous standoff between Kmart and Coca Cola in the United States.
“In the US, 10 or 15 years ago, there was a case of Kmart selling private label cola,” McLeod says. “Coca Cola said ‘you’re not going to get people into your store because they want Coke and then sell your product’. Kmart said ‘that’s fine, we won’t sell Coke’. There was a standoff, and Coke realised they couldn’t forgo the bulk distribution through Kmart, so the supply reopened.”
In theory, Fosters faces the same threat from Coles and Woolworths in Australia.
“The value of a brand is the future cashflows,” McLeod explains. “If that’s under threat from substantial discounting, it’s not going to be worth what it used to be. That means the risk is decline in revenue and also discontinued purchase, if the supermarkets are happy not to stock the product. Maybe the supermarkets will say they can source good quality wines because of the strength of the Australian dollar.”
With the major supermarkets controlling over 50% of Australian alcohol stock, it’s hard to imagine a bottleshop fridge without iconic Australian brands like VB, Cascade and Carlton Draught. Thankfully, McLeod thinks this is unlikely to eventuate.
“I expect a bit of brinkmanship, a bit of a Mexican standoff,” he says, “then they’ll sort it out.”