The liquor store industry has stuck to tradition, and independents are holding their own by grouping together – But as Rebecca Spicer found out, it’s one of the most competitive industries with plenty of pressure from complex regulation and the determination of retail giants to take the market.
Liquor stores were born when the first single-bottle licence was introduced around 40 years ago. Since then, the traditional bottle shop hasn’t changed much and to a large extent has avoided the product diversification inherent in other competitive industries. But much has changed in this industry in terms of buying patterns, regulation, and the sheer survival tactics of independents.
The liquor store industry is made up of two types of retailer: off-licence, which is the stand-alone, takeaway bottle shop model (such as Liquorstop, Cellarbrations and BWS); and on/off licence, with the ‘off’ part of this licence being the bottle shop attached to a hotel (such as Pubmart and Bottlemart).
According to Jayson Westbury, CEO of the Australian Liquor Stores Association, there are around 4,000 off-licence retail stores alone in Australia, and Coles and Woolworths represent about 40 percent of the owned licensed outlets.
Unlike other retail models, opening a liquor store isn’t as simple as renting some shop space, sourcing suppliers, and starting up a trade. Obtaining a licence is the first priority and this is where liquor retailing can become complex.
System Debate
Each state has a different system to determine how licences will be granted. “In NSW you have a social impact assessment process, in Queensland you have a public interest test—but the barrier is the fact that you’ve got to have a pub first—and in Victoria it’s completely deregulated,” says Westbury. “In South Australia and WA they still have the old needs test regime, slightly different in their guise but they’re currently under review. In the Northern Territory there is a very strict licensing regime, and in the ACT it’s always been deregulated.”
Westbury believes a uniform system would be better. “Whether you’re selling a bottle of VB in WA or in NSW, the process, and the Australian you’re selling to, is the same. It’s a very significant debate within our industry.”
NSW liquor licensing has been particularly affected by changing regulation of late. So much so that Westbury suggests anyone hoping to open a liquor store in NSW considers doing it in another state, or choosing a different style of retail altogether!
New NSW licensing laws, established in August last year, gave rise to the social impact assessment regime—replacing the needs test system. The old needs test was based on filling a need in the local market, whereas the new regime means potential liquor store owners need to prove that a new store will have no social impact on the area it’s located in—a difficult thing to prove, says Westbury, considering there’s no precedent.
This has significantly impacted on the industry, which Westbury says is evidenced by the fact that not one licence has been issued in NSW since the change was made. While he admits the industry understood there would be a period of adjustment, it does seem that the new system has made it harder to obtain a licence in NSW. “Getting into the liquor industry from scratch right now in NSW, is a very difficult proposition to consider. The fact is, no matter what happens with the law, it’s going to take a period of time before you get your licence, and you’ve got the situation, as a potential new operator, of chicken and egg—you’ve got to have your premises with your DA approved before you can get your licence.”
This would seem to give an advantage to the likes of Coles and Woolworths with more capital behind them, to sit on un-used premises until their licence is approved. “The upshot is, if the licensing laws end up in such a relaxed way that it becomes easy to open a liquor store, the chains will obviously grow their market share.”
Bob Bourne, chairman of the Independent Liquor Group Co-operative and owner of both off-licence and on/off licence liquor stores, adamantly disagrees with the new system. “What’s happening is, the big players are coming in. We believe that, at the end of the day, in one town there will be Coles at one end, Woolworths at the other, and everyone else will be gone. Then they’ll manipulate the price to keep independents out—there’s a war going on out there!”
He says that on top of acquiring a licence, there’s still “truckloads” of legislation for liquor stores to abide by. For example, a licensee must sit a licensee’s course (in NSW at least) before they can obtain a liquor licence. There are also a lot of signs that must be displayed at the register and/or at the store’s entrance, and all staff have to be 18 or over and have a Responsible Service Appreciation (RSA). These high overheads would normally put pressure on your average retailer but Bourne believes it’s to their advantage. “What I’ve seen over the years has been a huge enhancement in server responsibility and capabilities.”
Trends & Tradition
Over the years, liquor stores have stayed fairly true to selling what they know best: alcohol, and maybe the odd packet of cigarettes, crisps and nuts, despite no regulation limiting what they can and can’t sell. “Liquor stores have stayed pretty true to their primary purpose because most liquor stores are small and you can’t fit much else in there,” says Westbury. “You’ve got to have a coolroom, you’ve got to have hot space, storage space, and all the rest of it. So, traditional bottle shops haven’t gone down the road of full diversification.”
Westbury describes the industry as convenience-based, and believes supermarkets are trying to alter this. There has been talk of them occupying the up-market, mid-market, and low end of the industry, but Westbury thinks the chains have invented those levels. “With the introduction of [Woolworths’] Dan Murphys model, and the [Coles] First Choice model, they’ve kind of created that destination store category. Five years ago that term wasn’t used in the liquor industry.
“Liquor retailing is so different to that of being, say, a shoe retailer, or buying a jewellery shop. It’s become far more competitive; it’s a focus for the chains. People say you shouldn’t compete with the chains on price, and that’s what we say to our members: try to compete on service and range and other things. But at the end of the day, there is always a level of competition in respect of price.”
Bourne believes independents have an advantage there. “I can change the products and promotional activity day by day, but they (chains) have to go through head office and ask if they can change their prices. Independents can be quite nimble, and so there are advantages.”
In terms of holding their own, independent liquor stores are grouping together to achieve buying power, and Bourne has definitely jumped on this trend, owning Pubmart and Liquorstop stores, both members of the Independent Liquor Group. “The biggest and most successful thing independents can do is to join together, as ILG proves.”
He says independents are also more savvy about being recognised in the local community and will quite often sponsor local football and indoor cricket teams, and donate funds.
In terms of in-store trends, the range of alcohol offered in liquor stores has evolved. The wine category is huge and the introduction of ready-to-drinks (RTDs) has definitely swayed buying habits. As a result beer sales have consistently deteriorated over the past 10 years, although some of that market has also gone to premium beer.
So, what of the future for liquor stores? “The liquor store indust
ry is going to continue to consolidate over the coming two to three years,” predicts Westbury. “Coles and Woolworths are too determined not to see that happen in some form, be it through expansion or continued acquisition.
“The liquor industry is barrelling down the path of what the grocery store industry experienced 20 years ago. Those who are smart and know what they’re doing, will maintain a place.”
Bourne believes independents will survive if they get together, buy and market correctly, and continue to out-manoeuvre the big competition.
Online Option
Liquor stores haven’t avoided the infiltration of the internet. Coles operate their own online liquor store, Liquorland Direct, but an independent giving it a go is Jamie Chittick of www.liquorhomedelivery.com.au
When he purchased his Cheeers liquor store in Dianella, Western Australia, Liquor Home Delivery was already set up as an added income stream by the previous owners, but it hadn’t been used in about a year. So Chittick re-launched it about 15 months ago. “You’ve got to have a shop to be online because you’ve got to have a liquor licence,” he explains.
Despite the connection with Cheeers, Chittick tries to keep the businesses quite separate. “We could cross-promote them but we try to keep it different because the prices in our shop are a bit cheaper than the internet. People pay for the convenience of shopping on the internet, whereas in-store you’ve got to compete against the other shops.”
He says the internet is a good place to promote new things: “People just like to browse on the internet. You get a lot of people looking for things that are hard to find, and so you can put different kinds of products up there at any time.”
