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Price point lessons from the supermarket beer wars

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Moo-ve over milk (insert groan here) – beer is now the weapon of choice in the supermarket wars between Woolworths and Coles. But beer supplier Foster’s Group won’t have a hand in it.

After learning of the supermarket chains’ plans to sell their beer at below cost – at a low of $28 per case – Foster’s Group have cut supply of some of its popular brands such as VB, Carlton Draught and Pure Blonde. Cases of VB, for example, have a recommended retail price between $36 to $38, but Foster’s allows sales to go as low as $32 a case but no more. Below this price, Foster’s reserves the right to cease supply to the supplier.

Under the Trade Practices Act, suppliers reserve the right to withhold or cease supply when their product is sold below cost, especially if it believes the retailer is using the discounted product as a loss leader. The supplier can then give the retailer a section 98 notice under the Competition and Consumer Act to withhold supply.

“Section 98 of the Competition and Consumer Act allows a company like Foster’s to withhold supply in circumstances where a product has been sold below cost in the preceding 12 months,” Associate Professor Frank Zumbo, specialist in competition law, told ABC News.

The damage of underpricing product is two-fold – first, the reputation of the Foster’s brand is devalued.

“Some retailers are using some of our brands to loss lead to attract customers into their store," says Troy Hey, Foster’s spokesman, as reported on on Wednesday. “We want to protect the equity of our brand and have it sold at an appropriate price.”

Second, while the practice may suit the consumer in the short-term, in the long-term it creates anti-competitive activity in the marketplace.

“It is further recognition that below-cost selling – or otherwise known as predatory pricing – is bad for competition,” Professor Zumbo told ABC News. “This is just part of an overall strategy of Coles and Woolworths to spread their tentacles and to increase their dominance in the marketplace.”

With Coles and Woolworths (along with Woolworths-owned Dan Murphys) accounting for as much as 60 per cent of national beer sales, this is a brave supplier move on Foster’s part.

“It is very unusual for a company to pull a product, and obviously here Foster’s is being very courageous to take on the supermarket giants,” said Professor Zumbo.

Takeaway lesson? Your business should have ultimate control over your brand. Take affirmative action to position it how you want in the marketplace.

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Published on: Friday, March 25, 2011

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