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Legal matters

Foster’s Withholds Supply, Supermarkets Loss-Leading

Foster’s withholds supply over below-cost pricing

By Michelle Hammond
Wednesday, 23 March 2011

Australian beer brewer Foster’s has confirmed it withheld supplies of top-selling brands in February and early March after learning Coles and Woolworths were planning to sell beer for as little as $28 a carton.

 

The supermarket giants infuriated Foster’s when it heard of the plan, with the beer giant retaliating by cutting supply of key beer brands including Victoria Bitter, Carlton Draught and Pure Blonde.

 

A Foster’s spokesperson says the company referred to section 98 of the Trade Practices Act, covering loss-leading behaviour, whereby a product is sold at a loss to attract customers who might then purchase other profitable products.

 

“Under the consumer competition law, there is a right for manufacturers to withdraw supply where a retailer is selling their product below their cost for the purpose of loss-leading,” the spokesperson says.

 

Coles is yet to comment on Foster’s claims about loss-leading behaviour, but Woolworths has denied it is engaging in a beer battle with Coles.

 

Woolworths claims Foster’s pulled products from various liquor retailers, arguing the move was mainly driven by the pricing of independent stores.

 

“The whole market is very competitive when it comes to beer. We’ve responded to the pricing of some independent retailers as much as other chains,” a company spokesperson says.

 
“This is something that has applied to all liquor retailers, whether it’s a chain or independent.”

 

Independent senator Nick Xenophon – a vocal opponent of Coles’ and Woolworths’ market power – supports Foster’s action.

 

Xenophon says Foster’s “did the right thing” and is urging the Australian Competition and Consumer Commission to take action to outlaw below-cost pricing.

 

Frank Zumbo, an associate professor at the University of New South Wales, says it is a “brave move” by Foster’s to protect competition in the market.

 

“When you’ve got players like Coles and Woolworths, if they engage in below-cost pricing, that distorts the market,” Zumbo says.

 

“That’s bad for consumers over time because that below-cost pricing is used as a tactic to drive out independents.”

 

An ACCC spokesperson says while below-cost pricing isn’t illegal, resale price maintenance is.

 

Resale price maintenance occurs when suppliers prevent independent retailers from advertising or selling products below a specified price.

 

“Businesses must allow independent distributors of their products the freedom to determine the prices at which they sell,” she says.

 

“If retailers suspect a wholesaler of engaging in resale price management, they should report it to the ACCC and say, ‘This supplier is telling me I can’t sell X below this price’. Obviously, you’d need to have evidence of it and then we would look at it.”

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