Interesting article in the Drinks Business today by Patrick Schmitt. He has interviewed David Dearie, who is the new CEO of Treasury Wine Estates, which includes Penfolds, who make Australia’s most famous wine, Grange. Grange sells for much more in Australia, than, for example in the UK. This has resulted in grey market imports hitting the Australian market, because it’s actually cheaper to buy in the UK and ship to Australia than to buy it in Australia.

In the interview, Dearie states, in relation to the allocation of Grange: ‘Next year we will set a minimum price and you must hit that minimum price or you won’t get an allocation.’

I can only assume he is talking about the allocation to Treasury Wine Estates’ different regional territories. It isn’t clear in the interview. Of course, it would be totally legal for Treasury to set a global minimum price at which they sell to retailers.

But it would be quite illegal to set a minimum retail price, and then withdraw allocations from any retailers who sold below this price to consumers. That’s called price fixing. And there are quite severe penalties for this anti-consumer act.

So how come some wines, notably prestige Champagnes, are pretty much the same price across all retailers? Is that price fixing?

It’s a grey area. It would be illegal to tell retailers not to sell below a certain price and to threaten them with the consequence of losing their allocation. But it is not illegal simply to withdraw an allocation from a retailer who had chosen to undercut other retailers on your product.

Retailers aren’t stupid, and they know that this is likely to happen if they try to use price to promote certain brands. It’s price fixing, but it just stays on the right side of legality.

Update: note added by Treasury Wine Estates –

The comments reported in the Drinks Business with regards to the minimum pricing of Penfolds are incorrect.  David Dearie’s comment related solely to the pricing of Penfolds Luxury and Icon wines to its internal business units globally, as part of the company wide allocation process. Penfolds of course complies with all global competition laws that prohibit resale price maintenance. The comment was clearly not made in relation to Penfolds’ pricing to retail partners and it is unfortunate that the article did not give the correct context for the comment.