Wine industry braces for cleanskin expansion as supermarket chains push price to $3 a bottle

Published 28 March 2014 10:55, Updated 31 March 2014 09:50

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Wine industry braces for cleanskin expansion as supermarket chains push price to $3 a bottle

Coles-owned First Choice liquor stores will be selling the $3.04 cleanskins. Photo: Craig Abraham

The “three buck chuck’’ has arrived for wine drinkers. The 2014 version is being heavily promoted by supermarket and liquor giant Coles through its First Choice Liquor superstores in the continuing battle against Woolworths’ dominant Dan Murphy’s chain.

Coles is selling cleanskins, the industry term for unlabelled wines, for just $3.04 per bottle, after slashing their prices by 20 per cent in a discounting spree. There are varieties of both red and white wines that merely say on the generic label that they are from south-eastern Australia.

It’s the modern-day version of “Two Buck Chuck’’, the industry scourge that first started more than a decade ago in the United States and then spread to the rest of the world, including Australia, in the mid-2000s, where bottled wine was selling for just $2 per bottle amid a sea of grape oversupply.

The nickname of “Two Buck Chuck” first emerged in 2003 in the United States, with the name stemming from the pioneer of the low prices, a company called Charles Shaw Wines, which was selling its wares for $US1.99 a bottle. Australia had similar low-priced products selling for $2 in various forms from 2006 to 2008, when a local grape oversupply was at its worst.

Coles extends discounting to cleanskins

Add some inflation, the passage of time and the vigorous push by Coles to try to make some headway in its uphill battle against Woolworths, and this year’s version is just over $3 per bottle.

First Choice Liquor is promoting the cleanskins nationally for the next few days, until April 1, in an aggressive discounting spree in which it has slashed the price by 20 per cent.

A Coles spokeswoman said on Thursday: “First Choice Liquor is focused on delivering great value for our loyal customers.”

She said the discount represented about 80¢ off the regular shelf price and the offer on cleanskins was available across most of Australia, except in the Northern Territory and Tasmania.

Drinkers who buy a single bottle will have to pay $3.20 each, with the discounted $3.04 price applying when a customer buys half a dozen.

While Coles has made substantial progress in overhauling its supermarkets business in the battle against Woolworths, and has been growing grocery sales at a faster rate than its rival for the past four years, it is battling to gain traction in liquor retailing.

A report in early March by Citi an­alyst Craig Woolford estimated that Coles had earned only $75 million before interest and tax on liquor sales of $2.8 billion last year, which equated to a margin of 2.7 per cent. This compared with Woolworths’ earnings of $450 million on liquor sales of $6.7 billion in 2013, which delivered a margin of 6.7 per cent.

Woolworths and Coles don’t publicly report separate earnings figures from their liquor businesses. Woolworths’ share of the packaged liquor market is estimated to have grown from 29 per cent to 48 per cent since 2007 in Australia, with the Dan Murphy’s big-box chains and BWS stores showing solid growth. Coles’s market share in liquor is estimated to have increased from 18 per cent to 20 per cent over the same time.

Coles has been restructuring its liquor operations under the management of Andrew Charlton. a former economics adviser to former Prime Minister Kevin Rudd. It has relaunched First Choice and the Vintage Cellars brand and closed some unviable stores.

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