Tuesday, April 23, 2013

Why you pay for below-cost selling

I'm not sure why I am on an email list for a certain symbol group drinks promotions, but I am and I got one yesterday that set me thinking....

We all know that selling alcohol is below cost is perfectly legal. We all know that it goes on all the time - supermarkets use alcohol as a loss leader to get you in to the store where you will then do the rest of your shopping and they can fleece you for bread or eggs or bananas or whatever you are into. I understand that many see this as a good thing, healthy competition etc etc. But what if you were told that the supermarket are not doing this as some sort of charity strategy, but that it was being partly funded by you?

How does this work? Ok, looking at the pricing sheet I was emailed yesterday and, taking a random example of Faustino VII Rioja, an unexciting but drinkable (this phrase is forming the basis of a future post) rioja from a massive factory in Spain somewhere. According to this, the normal wholesale price for this wine is €87.75 + vat  with the promo price at €83+ vat per case or a wholesale price at €102.09 including vat or €8.51 per bottle. Now this same wine is often on promotion in at least one of our leading supermarkets at €8 per bottle of 51c LESS than the wholesale price. Maybe they get a better price than this, maybe they are bringing it in from the UK, but lets take it as an example of how below cost selling costs you money. If it's not on this wine, the maths work the same on other wines, beers and spirits.

Let's say they buy the wine at the promo price of €83 per case or €6.92 + plus vat at 23% of €1.59 - a total of €8.51.
They sell it at €8.00 including a vat amount of €1.50. In their vat return, they pay €1.50 to the revenue and claim back the €1.59, so the revenue have to pay them back €0.09 per bottle. Now, 9 cent won't go far in funding Bertie Ahern's pension, but multiply it out and it adds up pretty quickly. Lets say 100 stores each sell 20 cases ( conservative) each of this wine - how much does that make? That adds up to €2160. Still not enough to make Bertie open a bank account. But say they do this on 20 wines and say they do it six times a year and all of a sudden you are up to a cool quarter of a million in reclaimed VAT. That's just one supermarket and its just one wine. Its probably worse on beer and spirits.

This is costing the country literally millions every year, is contributing hugely to the problem of binge drinking and is driving the independent sector, not to mention the pub trade to the floor, and every business that closes costs the revenue more. All financed you and I, the compliant taxpayers and to the benefit of whom?

So, after that little rant, just two questions:

1. Why don't the government ban below-cost selling? (Afraid of supermarkets - jobs)
2. Why don't any of the newspapers pick up on it? (Afraid of supermarkets -advertising revenue)

Cheers, and keep fighting the good fight!

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