Beer margins 'finally on the agenda'

Independent liquor retailers have welcomed what they say is long overdue acknowledgment from one of their national competitors that profit margins on mainstream beer are unsustainable.

In a recent report by Fairfax, Coles confirmed it had moved to reduce "unsustainable price discounting" on beer – a stance further underlined by the company in its half-yearly results last week.

The article quoted from a recent report by Merrill Lynch retail analyst David Errington, who said the gross margin for a retailer on a case of Victoria Bitter sold off-promotion was under five per cent, "well below the cost of doing business on our estimates of 15 per cent".

Independent retailers contacted by TheShout said that while 15 per cent of turnover is a reasonable benchmark for an average store's operating costs, some outlets have overheads as high as 18 per cent.

Following the February 1 price rise, they report their margins on a case of 24 x 375 ml stubbies as 4.5 per cent for Victoria Bitter, 5.2 per cent on XXXX Gold and 6 per cent on Tooheys New.

"Any beer we sell, we're going backwards," said one banner group boss.

"That's why independents want higher margin categories like wine, cider and ready-to-drink to continue to grow."

Another banner group head said it is little wonder why private label beer continues to grow when it attracts margins two to three times higher than branded mainstream beer.

"Private label and parallel beer is subsidising branded product for margin and also has enough to invest above the line," he said.

Another retailer said that in fairness, margins on mainstream beer need to be amortised across the brewers' entire portfolios of products, which include higher margin premium and craft beers and more profitable formats, such as six-packs.

But this has less relevance for liquor stores in highly competitive areas where a typical beer purchase rarely deviates from a case of Victoria Bitter or Tooheys New.

A Lion spokeswoman said: "As a matter of practice we don't comment on pricing matters."

Carlton & United Breweries did not respond to a request for comment.

Source: The Shout, 18 February 2013