It wasn’t a very merry Christmas at Dutch brewing giant Heineken and British pub company JD Wetherspoon. In an announcement devoid of any Christmas spirit, the pub chain said in December that it was immediately delisting Heineken from all of its 926 pubs.
It was a serious move; Wetherspoons was not just getting rid of Heineken but all its sister brands too, including Strongbow, Kronenbourg 1664 and John Smith’s. Quite a tally to lose as the busiest boozing days of Christmas approached.
The effect was almost certainly felt even more over at Heineken. Wetherspoons might operate around 2% of UK pubs, but the pulling power of the chain means it accounts for close to 10% of takings. That figure is growing dramatically as it opens more pubs and its existing establishments attract even more punters. Heineken’s brand portfolio also proved a disadvantage for the brewer. Losing not only its festive sales of Heineken but all the other brands it distributed through Wetherspoons during the busiest month of the year probably cost the company around £20m in lost revenues.
Ironically, despite the battle taking place in UK, the origin of the hostilities happened 50 miles outside the British Isles in the seaside town of Dun Laoghaire on the east coast of Ireland.
In early December, Wetherspoons opened the Forty Foot in the town. It’s an impressive pub and one that the company hopes will prove to be the second in a rapidly growing network of Irish establishments. As it was preparing for opening night, Wetherspoons claims that Heineken’s Irish operation threatened to withhold both its Heineken beer and Murphy’s stout unless the pub chain immediately raised its Irish prices.
Apparently, Heineken was not impressed at Wetherspoons’ first pub in Ireland, the Three Tuns, where both Heineken and Murphy’s were being sold for €3 a pint rather than the Irish-wide recommended retail price of €5. The brewer asked for prices to be reviewed but Wetherspoons told them their request was “unacceptable”, and so they had the corporate equivalent of a festive punch-up.
Last weekend, the two parties reached an agreement. Wetherspoons is selling Heineken’s portfolio in its UK pubs again. In Ireland, however, its pubs will sell only Fosters and Beamish.
It’s a smart move by Heineken because it gets back its UK sales and re-establishes its supply to a fast-growing Irish customer base. It has achieved this without undermining the brand or the prices of its premium brands in Ireland by offering two lower-tier alternatives.
The bigger picture is the story of channel conflict between supplier and discount retail. The supplier looks on aghast as the discounter ignores recommended retail pricing and undercuts its premium competitors with low prices and rapid market share growth.
The result is a double whammy for the supplier, which watches its premium brand status eroded by low prices and the gradual extinction of premium priced retailers which cannot compete with lower priced rivals. The discount retailer becomes more powerful and the bargaining power of the supplier ultimately diminishes.
All the more reason, therefore, for big brewers such as Heineken and Diageo (which has also opted not to supply any of its brands, including Guinness, to Wetherspoons’ nascent pub network in Ireland) to prevent this vicious cycle from starting in the first place.
It’s good strategic thinking but it will delay rather than destroy the threat from discounters. As we have already seen in many other supplier and retailer conflicts, the world of marketing is heavily tilted in favour of retailers these days. There are very few destination brands strong enough to pull distribution from a supermarket or big box discounter and consequently drive consumers to switch stores.
Despite the power of both Diageo’s and Heineken’s portfolios, most Irish drinkers will not notice that Guinness, Baileys and Murphy’s are missing. They’ll gaze across the bar, pick out an alternative and smile beatifically at the low prices.