Draft Liquor Bill (B23 – 2003) Public Hearing – 13 May 2003 Shoprite Checkers - Submission N

1. Draft Liquor Bill(B23 – 2003)Public Hearing – 13 May 2003Shoprite Checkers - Submission N

2. Presenter:Whitey BassonCEO - Shoprite Checkers

3. Shoprite • Currently operates 317 grocer’s wine licensed outlets • Best represents the country’s demographic profile (LSM)

4. Retail Shopper profile by LSM group Shoprite Checkers All Shoppers

5. Shoprite • Total of 34m customers monthly • 60% of housewives shop at Shoprite • Supermarkets sell approximately 22% of all unfortified wine

6. Bill objectives • Reduce socio economic and other costs of alcohol consumption & • Promote the entry of new participants in the liquor industry

7. 1. 3 – Tier system • Manufacturer • Micro Manufacturer (not specifically determined) • Distributor • Retailer

8. Disadvantage of 3 – Tier system • Abandonment of existing infrastructure • Procurement (now only from distributor) • Re-distribution not permitted • Result = Increased cost

9. Disadvantage of 3 – Tier system (cont.) • New entry to the second tier will be very costly while efficient distribution systems currently exist • Inevitably a cost passed on to the already burdened consumer

10. Disadvantage of 3 – Tier system (cont.) • Price sensitive product • Increased price = reduced volume (source: USB price elasticity –1) Price increase 20% volume down 20% • Influence on employment • 345 000 farm workers wine industry

11. Disadvantage of 3 – Tier system (cont.) • Proposed 3 tier system does not dilute current monopolies of manufactures • Second tier will continue to dominate sector as currently experienced by small retailers because of size and brands

12. Disadvantage of 3 – Tier system (cont.) • High establishment cost of new brands to manufacturers without direct access to consumer markets – reduced competition (Possible control of delivery) • We believe the 3 tier system will not meet its objectives as it failed in the USA – see handout of Adv Pretorius (advisory to the competitions board)

13. 2. Conversion of Grocer wine license • Section 5 provides for the conversion of current wine grocer licenses to full off-consumption licenses • We welcome this • Require OPTION to retain the grocer wine licenses as some locations cannot be converted. • Extend range to include beer (reasons later in presentation)

14. Conversion of Grocer wine license (cont.) • For the following reasons: • No regulations available • Adhere to the specific needs of community in which we operate • 70% of wine purchases in Supermarkets are made by women • conversion to a full license will force them back into the old bottle store environment which they resent

15. Conversion of Grocer wine license (cont.) • Reduce grocers ability to lower prices (10 – 15%) • Removal of the grocer wine license will reduce competition and increase price discrepancy

16. Conversion of Grocer wine license (cont.) • Supermarkets are • well controlled and disciplined • comply to all the requirements of the act not to sell liquor to minors and other unqualified people • Tax collection is structured and controllable

17. Conversion of Grocer wine license (cont.) • Worldwide, liquor products across the total range are offered for sale in retail supermarkets

18. 3. Empowerment • The difficulty of achieving objectives like • broadening the manufacturing and distribution channels • and economic empowerment • Is highlighted by the following slides of the current distribution control in the liquor industry

19. Empowerment (cont.) • Beer – 96% of the beer market is dominated by a single manufacturer and beer equals 53.9% of the total liquor market • This resulted largely to the failure of new participants entering the beer market succesfully in the 60’s

20. Off consumption – Supplier % Share of Total Beer market YE Feb/Mar 2003

21. Total Liq Off-cons – Category % Share of Total Liq market YE Feb/Mar 2003

22. Empowerment (cont.) • New entrants require organised high volume outlets such as supermarkets to enter and launch new brands successfully in the beer market and • Utilise the efficient distribution network of grocers to deliver their products

23. Empowerment (cont.) • Wine • Brands are also strongly controlled – unless diluted by strong retail channels new entrants will fail • Grocers successfully established new wine brands and this could be enhanced should beer sales be permitted

24. Total Liq Off-cons – Supplier % Share of Total Liq market YE Feb/Mar 2003

25. Conclusion • Welcome intentions of legislature • To weaken monopolies • Promote new entrants • We believe the 3 tier system will not meet its objectives (US failure) • 3-tier System to be properly investigated before implementation

26. Conclusion (cont.) • Supermarkets holds the key to • New entrants • Effective Distribution • Delivery to the public • Responsible manner • Lowest prices

27. Conclusion (cont.) Supermarkets will develop industry as a whole creating export opportunities and employment Thank you