draft liquor bill (b23 – 2003) public hearing – 13 may 2003 shoprite checkers - submission n

Draft Liquor Bill(B23 – 2003)

Public Hearing – 13 May 2003Shoprite Checkers -

Submission N

Presenter:Whitey Basson

CEO - Shoprite Checkers

Shoprite

• Currently operates 317 grocer’s wine licensed outlets

• Best represents the country’s demographic profile (LSM)

LSM1-3 LSM4 LSM5 LSM6 LSM7 LSM8Shoprite Checkers All Shoppers

Retail Shopper profile by LSM group

Shoprite• Total of 34m customers monthly• 60% of housewives shop at

Shoprite• Supermarkets sell approximately

22% of all unfortified wine

Bill objectives• Reduce socio economic and

other costs of alcohol consumption &• Promote the entry of new

participants in the liquor industry

1. 3 – Tier system• Manufacturer–Micro Manufacturer (not

specifically determined)• Distributor• Retailer

Disadvantage of 3 – Tier system • Abandonment of existing

infrastructure–Procurement (now only from

distributor)–Re-distribution not permitted

• Result = Increased cost

Disadvantage of 3 – Tier system (cont.)• New entry to the second tier

will be very costly while efficient distribution systems currently exist• Inevitably a cost passed on to

the already burdened consumer

Disadvantage of 3 – Tier system (cont.)• Price sensitive product– Increased price = reduced volume

(source: USB price elasticity –1)Price increase 20% volume down 20%

• Influence on employment–345 000 farm workers wine industry

Disadvantage of 3 – Tier system (cont.)• Proposed 3 tier system does not

dilute current monopolies of manufactures–Second tier will continue to dominate

sector as currently experienced by small retailers because of size and brands

Disadvantage of 3 – Tier system (cont.)– High establishment cost of new brands to

manufacturers without direct access to consumer markets – reduced competition (Possible control of delivery)

–We believe the 3 tier system will not meet its objectives as it failed in the USA – see handout of Adv Pretorius (advisory to the competitions board)

2. Conversion of Grocer wine license• Section 5 provides for the conversion

of current wine grocer licenses to full off-consumption licenses

• We welcome this– Require OPTION to retain the grocer wine

licenses as some locations cannot be converted.

– Extend range to include beer (reasons later in presentation)

Conversion of Grocer wine license (cont.)• For the following reasons:–No regulations available–Adhere to the specific needs of

community in which we operate–70% of wine purchases in

Supermarkets are made by women • conversion to a full license will force them

back into the old bottle store environment which they resent

Conversion of Grocer wine license (cont.)–Reduce grocers ability to lower

prices (10 – 15%)–Removal of the grocer wine license

will reduce competition and increase price discrepancy

Conversion of Grocer wine license (cont.)–Supermarkets are•well controlled and disciplined• comply to all the requirements of the

act not to sell liquor to minors and other unqualified people

–Tax collection is structured and controllable

Conversion of Grocer wine license (cont.)–Worldwide, liquor products across the

total range are offered for sale in retail supermarkets

3. Empowerment• The difficulty of achieving

objectives like– broadening the manufacturing and

distribution channels –and economic empowerment

• Is highlighted by the following slides of the current distribution control in the liquor industry

Empowerment (cont.)• Beer – 96% of the beer market is

dominated by a single manufacturer and beer equals 53.9% of the total liquor market • This resulted largely to the failure

of new participants entering the beer market succesfully in the 60’s

2.7 0.2 0.1 0.1 0.1

96.6

SAB

Win

dhoe

k

Bav

eria

Bra

u

Bec

ks

Gui

nnes

s

Impo

rted

Kilk

enny

Off consumption – Supplier % Share of Total Beer marketYE Feb/Mar 2003

Total Liq Off-cons – Category % Share of Total Liq market

24.5

11.57.8

2.3

53.9

Bee

r

Spiri

ts

Tot.

Unf

orts

Flav

Alc

Bev

Forts

YE Feb/Mar 2003

Empowerment (cont.)• New entrants require organised

high volume outlets such as supermarkets to enter and launch new brands successfully in the beer market and

• Utilise the efficient distribution network of grocers to deliver their products

Empowerment (cont.)• Wine–Brands are also strongly controlled –

unless diluted by strong retail channels new entrants will fail–Grocers successfully established

new wine brands and this could be enhanced should beer sales be permitted

Total Liq Off-cons – Supplier % Share of Total Liq market

20.8

8.63.4 1.6 1.2 0.7 0.4 0.1

10.0

53.2

SAB

Dis

tell

UD

V

E Sn

ell

Dou

glas

G

Seag

ram

s

Bro

wn

Form

an

Moo

iuits

ig

Jonk

eer

All

othe

r

YE Feb/Mar 2003

Conclusion• Welcome intentions of legislature–To weaken monopolies–Promote new entrants

• We believe the 3 tier system will not meet its objectives (US failure)

• 3-tier System to be properly investigated before implementation

Conclusion (cont.)

• Supermarkets holds the key to–New entrants–Effective Distribution–Delivery to the public –Responsible manner–Lowest prices

Conclusion (cont.)

Supermarkets will develop industry as a whole creating export

opportunities and employment

Thank you