Want a Woollies Ale?

The strategic manoeuvring in the Australian beer market continues. Our most successful supermarket chain, Woolworths, just bought 25 percent of listed Western Australian micro-brewer Gage Roads.

Woollies own the most successful big-box alcohol retail chain in the country – Dan Murphy’s – plus several other liquor chains, and a very large pub business. Shoring up some supply in the fastest growing segment of the beer market – boutique beers – certainly makes some sense.

Owning (or at least having a very strong say in the operations of) one growing brand may give Woolworths even more bargaining power versus any other brands that establish strong recognition in this market (i.e. “look, if you won’t drop your prices to us, we’ll just stock more Gage Roads”…).

The announcement to the market about the purchase indicated that Gage Roads would “contract brew” 350,000 cases a year for Woolworths. That equates to 6.3m litres. The brewery’s website claims they currently have the capacity for “3.5 million litres per annum, scalable to 7 million”. Clearly Woolworths are buying pretty much the whole lot.

This is virtual backward integration by Woolworths. Might we consider the Gage Roads brands simply as a private label now? Will Wesfarmers reply with a similar move for Coles?  And will Woollies do the same on the East Coast (shipping all that beer across the country might cost them a bit)?

Tags: retail, Australia, vertical integration, Woolworths, supermarkets, beer, brewing, mergers and acquisitions, craft brewing, wesfarmers, business, bargaining power, Dan Murphy's, Gage Roads