Dan Murphy reshapes liquor retailing in Australia

Wine marketers will tell you that drinkers shop around: serious wine collectors cherry pick at numerous outlets; casual shoppers go where it’s convenient; and bargain hunters scour the press and web before leaving home – or pushing the button.

And wine marketers will also tell you that within the context of the massive liquor retail struggle between Coles Myer (Liquorland, Vintage Cellars, First Choice) and Woolworths (Woolworths Liquor, BWS and Dan Murphy) – it’s one brand – Dan Murphy – that’s doing more than any other to reshape the landscape.

Woolworth’s acquired Dan Murphy – a then Melbourne based large-format liquor retailer, specialising in wine — for several tens of millions of dollars in 1998.

In retrospect, the buying price was a bargain as Woolies acquired not just five stores in Melbourne but a proven and potent business model that had been honed and polished for decades by the original owner, Dan Murphy, with support, in later years, from a partner, Tony Leon.

Rare for a predatory big company, Woolworths resisted any temptation to engulf Dan Murphy with its own culture. Instead, it left Leon to run the business separately from Melbourne (Woolies head office is in Sydney) while providing the resources to spearhead a nation wide expansion.

The rollout from 5 stores in Melbourne in 1998 to 43 nationally in 2005 (two in Canberra with another to come), appears to have bulldozed archrival and former liquor market leader, Coles Myer Liquor Group.

The strategic advantage of having acquired Dan Murphy and exploiting the business model has now become apparent.

In Sydney this week, Tony Leon said that the business – apart from being much larger – still runs substantially at it did under the late Dan Murphy. He said, “It’s not complicated. We’re traders. We buy and sell liquor and that’s what we work on”.

Part of the success, he says, lies in having a long-term view. “When we open a new store we expect it to take three years to perform well”. The principal, he said, was expressed in something Dan Murphy once told him, “Tony, no single advertisement works. But advertising works”.

And if you’ve looked at Dan Murphy’s ads over the years, you’ll have seen that they’re direct and single minded: “Nobody beats Dan Murphy”, they scream. And the outlets back the scream with a raft of specials and a unique in-store experience: prairie-like space bristling with wines, beers and spirits.

Such is the appeal of the offer that a typical store, says Leon, draws customers from within a 20-30 minute travelling distance. Naturally, this has a dramatic effect on competitors within that catchment – including other outlets owned by Woolworths. Nothing in the history of liquor retailing in Australia, I believe, has had such competitive impact.

Indeed Coles Myer responded to the Dan Murphy threat with a look-alike offer – First Choice – now being rolled out nationally, with one outlet already operating at Philip.

But nothing’s ever the final word in retail (or anything else). Local, independents like Jim Murphy, Georges Liquor Stable, Cand Amber and Australian Winebrokers, each in its own way, continues to fight for and earn part of our liquor dollar. As do our dozens of independent, licensed supermarkets catering to the convenience factor.

All of this, in conjunction with a wine surplus, spells a field day for wine drinkers in the immediate future. Longer term, market consolidation could make it difficult for smaller makers to find outlets, thus reducing diversity. However, if demand is there, that could be a profitable niche for future, fast-moving independents.

Copyright © Chris Shanahan 2005 & 2007