Who foots bill for discounts?
Published:  08 February, 2008

Q I saw Harveys Bristol Cream reduced to £3 over Christmas

- cheaper than I can buy it. How can this kind of discounting be sustained and who is paying for it: the supplier or the retailer?

A Discounting is a controversial area and promotions are rarely discussed in the open. Suppliers will point out that it's the retailer's job to set the price; retailers will, in turn, expect favourable terms in return for promotional slots that will achieve big volume increases for suppliers. They will tell suppliers that this volume uplift will compensate for the reduced pro fit margin.

The question of who pays is complex because the transaction will potentially be clouded by all kinds of payments and invoices. In many cases, the negotiations will specifically be about a certain promotion and it will be clear that the supplier is effectively paying for it. In other cases, suppliers are caught unawares by deep discounting.

Very few big brand owners want to see their products caught up in a price war at Christmas because of the bad feeling and retaliation this stirs up among a particular retailer's competitors.

But it is the big brands, which have worked hard to build a consumer franchise, which are most prone to footfall-driving discounts.

Major retailers may decide to slash the price of bestsellers like Harveys, Baileys or Stella Artois without any encouragement from brand owners, simply because they hope the money they lose on those brands will be compensated for by customers who are attracted by the deal and go on to buy other products on offer at more profitable prices.

Q With the country sliding into recession - or so it seems - can we expect the affluent south to fare better than the north when it comes to drinks sales?

A Not necessarily. In 2007, the north east of England saw the biggest increase in drinks sales - an 11 per cent rise on the previous year. The Meridian TV region, stretching from Hampshire to Kent, performed far less well. Its 4 per cent growth was behind the national average of 5 per cent, according to Nielsen data.

True, Yorkshire and Granada (+3 per cent) were even further off the pace while Scotland achieved a disappointing 2 per cent increase. Tyne Tees was remarkable in that all product areas performed well. Beer was up 11 per cent, spirits up 9 per cent and wine up 10 per cent. It was easily the star-performing region of 2007.

Nobody can be sure how an economic downturn will affect the drinks trade, though it is widely expected that a recession will hit the on-trade harder than the off-trade. The smoking ban will also continue to have an effect.

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