Kingsley Wood reckons there is no way he would be able to start up another First Glass - the Takapuna specialty wine shop that he runs - in today's competitive environment.
Wood, formerly the national wine manager for Liquorland, set up First Glass six years ago and has slowly built up a loyal customer following based on a good location, personal service and weekly wine tastings.
But the growing dominance of supermarkets in beer and wine sales, and their ability to use their massive buying power to drive down margins, mean it's getting harder and harder for the likes of shops such as First Glass, says Wood.
"Today you would lose $500,000 before you got your customer base and then a supermarket would open across the road," he says.
Supermarkets have been able to sell wine since the late 1980s but it has been the advent of beer sales in supermarkets in 1999, that has paved the way for them becoming a one-stop shop for liquor.
Wood says supermarkets did not really grasp the opportunity with wine during the 1990s, but in the past three years or so they have become more aggressive in going after liquor sales.
Their dominance is also changing the type of wine New Zealanders are drinking. Larger wineries, with an array of different grocery brands, are starting to dominate supermarket sales at the expense of smaller wineries which cannot afford to get their product on the shelves, says Wood.
ACNielsen figures show supermarkets sold $38 million worth of wine in 1991, $223 million in 1998 and $500 million in 2004. Beer has grown steadily from 1999 with supermarkets selling $287 million worth of beer last year.
Their increasing dominance is affecting the industry. According to Wood, there are only about 30 specialty wine stores in the country. And not only would it be hard to start a new one, many of the present crop will go under, he says.
Several in Auckland have gone out of business recently and more may do so in the coming months.
Toast, a Ponsonby wine shop, shut its doors recently and Vinotica in Takapuna closed about 18 months ago.
Mt Eden's Lovrich Wines is halving its retail space in the next four to six weeks.
Owner Paul Lovrich says supermarkets have affected his business. "Almost a third of our trade is now via mail order and internet and it makes sense to reduce floor space," he says. La Barrique is considering closing down its Mt Eden shop to focus on its Remuera outlet.
What about the impact on liquor chains such as Liquorland or Liquor King and independent liquor outlets?
An Australian-based liquor industry analyst, who follows Liquor King owners Lion Nathan, says that the greater buying power of supermarkets is driving down margins for liquor stores across the board.
Because Lion Nathan does not separate figures for Liquor King on its financial statements, it's hard to tell how it's doing, he says.
"The problem for Lion [with the increasing dominance of supermarkets] is that supermarkets are a distribution channel that its competitors also find easy to access."
But although margins are getting tighter, the total liquor market is growing (from $931 million in 2003 to $987 million in 2004) and there are still a lot of new liquor stores opening.
According to Statistics NZ there were 722 non-supermarket liquor outlets in New Zealand at the end of 2004, compared with 686 in 2003.
Tim Morris, the managing director of grocery industry research company Coriolis Research, says supermarkets attract more female customers, who are more comfortable buying beer and wine there than in a liquor outlet.
Richard Umbers, chief executive of Progressive Enterprises - which runs the Woolworths, Foodtown and Countdown supermarket chains - says supermarket sales have added a new impetus to the wine and beer industry.
"As in any market there will be some operators who feel like they have been disadvantaged."
Umbers rejects claims that supermarket wine sales favour large wineries.
He says a typical two-week shelf promotion would cost a winery about $2500, while an aisle-end promotion would cost more.
The wine racks at Progressive supermarkets are a mixture of paid-for and non-paid-for space, he says. It's not just determined by the wineries' marketing spend.
And there are some smaller operators prospering in the present environment. Sanjay Jamnadas owns the Kingsland Liquor Centre and Dominion Wines and Spirits in Mt Eden and is planning to open a third outlet in Whangaparaoa before the end of the year.
"It all comes down to service, location and convenience," he says.
"We carry a large range and make sure that all the beer and [white] wine is cold. If one of our regulars asks for a beer we have not got we will make an effort to get it in."
Jamnadas says that the specials run by the supermarkets often have a positive spin-off for his stores. "If a couple get a wine on special at a supermarket and like it, they will often come in and buy more of it in one of my stores."
Power of the market
Wine sales in supermarkets have surged from $38 million in 1991 to $500 million last year.
This is putting pressure on the smaller retailers and some are having to reduce retail space or close altogether.
Even the larger operators, such as Liquor King, owned by transtasman brewer Lion Nathan, are finding the going tough
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