Chilled: the end of the beer wars means consumers will be paying more. Photo: Glen Hunt
The beer wars are coming to an end and consumers can expect to pay higher prices as the big supermarket chains bring to an end the days of heavily-discounted beer as a loss-leader.
Australia's beer industry is facing some of its biggest challenges as consumer tastes continue to shift and supermarket giant Coles has said years of using beer to help build market share are at an end and as a result prices will rise.
The major retailers have also taken advantage of the high Australian dollar to import grey market beer from overseas.
A spokesman for Coles said: "We stopped unprofitable bulk and corporate sales and reduced unsustainable price discounting [especially on beer]." He said comparative store sales in high margin categories were growing well, especially wine.
In exclusive interviews with BusinessDay, to be published tomorrow, Lion Australia chief executive James Brindley and SAB Miller Asia Pacific chief executive Ari Mervis discuss the challenges and opportunities that exist for beer.
They say there is not about to be a change in beer prices, despite a decision by Coles to stop unsustainable price discounting on beer.
It follows a report by Merrill Lynch analyst David Errington who says the major liquor retailers have been losing money selling beer after allocating the relevant cost of doing business.
"On a case of VB sold (not on promotion), we estimate the gross margin for the retailers is under 5 per cent, which is well below the cost of doing business (on our estimates) of 15 per cent." Mr Errington argues that for the past five years the major liquor retailers' earnings have been "overly" supported by wine. He says 75 per cent of Coles and Woolworths EBIT is generated by wine, despite it making up 40 per cent of their sales revenue.
"The overreliance on wine earnings is being underpinned by the fact that the major retailers lose money selling beer despite making up 30 per cent of their sales."
Mr Brindley said it would be naive to think there hasn't been pressure put on all suppliers in recent history. He said during summer there had been growth in beer sales.
Mr Mervis said the days of CUB focusing on market share as a measure of success were also over. "CUB was focussed on market share as a measure of success so lots of deep discounts," he said.
But it isn't all doom and gloom for the industry, according to the beer duopoly Lion and CUB, which have seen signs of a rebound in beer consumption in the past three months.
Beer is still one of the most branded products around and while it has been declining on a consumption per capita basis for the past decade – falling in 2012 to its lowest per capita consumption levels in 65 years - big brands such as VB, Carlton Draught, XXXX Gold and Toohey's still command a lot of dollars.
To put it into perspective, Australia's beer duopoly generates margins of more than 30 per cent a year, which is far greater than the supermarkets, which operate on single digit margins.