Brewers bear brunt of Dan Murphy's price promise
Brewers are facing increased costs to have their beers handled by Dan Murphy’s so that the Endeavour Group retailer can maintain its own margins without impacting consumers.
In an email to suppliers, including small brewers, the company said it had developed a ‘cost to serve model’ that calculates the cost for it to distribute through its national distribution centre.
“To offset the additional handling costs associated with using the NDC such as cross-docking costs, single pick cost and line haul costs, we will be introducing a new charge of $1.89 per carton in the NDC.”
Brewers were informed that the charge will apply based on the number of cartons delivered into the NDC and will be deducted from their remittance.
In a media statement, an Endeavour Group spokesperson said that brewers had to meet the charge so that Dan Murphy’s could maintain its pricing.
“As Australia’s leading liquor retailer, we are focused on giving our customers access to the best range, for the best value,” the spokesperson said.
“In order to keep this promise to our customers, offer value across all our retail brands, and in light of cost pressures in the logistics market, we have reviewed our cost to serve model to help us understand the true cost of moving product through our supply chain.
“Like most businesses in Australia, we are faced with rising costs across our network, and during the past few years we have held costs flat for our suppliers who use our warehousing network.
“Our focus is on working in partnership with our suppliers to ensure our customers have access to our full range nation-wide.”
Endeavour’s announcement comes as its brewer-suppliers also face increased competition from its own Pinnacle Brands that have gained an increasing presence on shelves.
One industry source who anonymously contacted Brews News said this would further hurt small and medium suppliers.
“They have written to suppliers and given them no choice but to accept the increase,” the email said.
“This will put further pressure on small to medium suppliers who are already disadvantaged to the large alcohol suppliers in the market.
“Small suppliers typically make between 15% to 20% gross margin.”
The emails said that Endeavour Drinks Group, which reported retail revenues of $2.5 billion for the first quarter of FY23, “insists on making 40% gross margin from its suppliers or they threaten to not stock the products.”
The email claimed the new charge was in addition to that gross margin and its existing 4 per cent handling charge.
“This will result in Endeavour Drinks earning almost twice the margin as their smaller suppliers,” it said.
Brews News has not been able to verify these figures.
“This action is likely to send a number of smaller to medium Australian independent suppliers to the brink of bankruptcy, especially given Endeavour Drinks controls more than 50% market share.
“This also comes at a time when small to medium suppliers are under significant inflationary cost pressures themselves.”
The email said alleged the move was an example of Endeavour Drinks abusing its market power.
“A number of small to medium suppliers have commenced discussions about joining together to ask the ACCC to investigate.”