Dan Murphy’s executives have been making presentations to alcohol producers across Australia, trying to lure them to become part of the new model which is termed the “Drop Ship Vendor’’ approach in the “Range Extension Programme’’ documents. Under the new model, Dan Murphy’s intends to take a 25 per cent slice of the retail price, plus GST, on products sold through the online business. Dan Murphy’s currently offers 8,000 different product lines across beer, wine and spirits in its online business and depending on the level of take-up by producers across the nation, this could easily expand to beyond 20,000 product lines. This is separate to the 188 stand-alone bricks and mortar superstores that form the engine room of Woolworths’ broader liquor retailing operations. Woolworths’ generates $4 billion-plus from liquor sales annually across all of its operations. The aggressive expansion plans spell bad news for a number of smaller online rivals such as Kemeny’s, Naked Wines Australia, Cracka Wines, Get Wines Direct and Graysonline.com. It comes at a particularly vulnerable time for the Graysonline.com business which has a substantial online wine sales component and has just undertaken a backdoor listing on the Australian Securities Exchange through a scrip merger with online retailer Mnenom. According to the document, Dan Murphy’s website currently gets two million visits per month. It is the number one liquor site for customer traffic and sales, with 46 per cent of the market, according to data from online measurement firm Hitwise.

The document also outlines that Dan Murphy’s online sales increased by 100 per cent in calendar year 2013 and that it has 500,000 customers in its database. It provides comparison figures indicating that websites run by the top 50 wineries in Australia where customers can purchase online generate monthly traffic of just 3,800 visits, and that the number two player in online liquor retailing traffic – Coles’s 1st Choice business – generates about 25 per cent of the traffic that Dan Murphy’s does. Beer, spirits and wine producers are being told that the range extension plans will be built on a consignment model applied as a percentage of the full retail price, and that the standard percentage is 25 per cent plus GST. There will also be a vendor hosting fee of $49 per month, but the first year is free. Vendors are being asked to provide a “reasonable RRP” as a “guide for price upload’’. That is short for recommended retail price. But Dan Murphy’s outlines that its “Lowest Liquor Price Guarantee’’ will apply right across the range, which in practical terms means that Dan Murphy’s will control the pricing ultimately and takes seriously its price promise to customers that it won’t be undercut. Vendors are required to manage the inventory and are being promised an “expedited 10 working day vendor payment”. Dan Murphy’s explains the Drop Ship Vendor simply in three steps. The Vendor provides ‘’virtual consignment’’ to Dan Murphy’s in step 1, then the customer purchases on Dan Murphy’s online in Step 2, and in Step 3 the vendor picks and packs the order and advises Dan Murphy’s to pick it up and deliver it to the end customer.

Under the timeline set out in the documents, the ‘’go live’’ date is listed as August 25, but it is understood the launch may be a few weeks away. It is a similar model to one set up three months ago by the Winemakers Federation of Australia, which represents 2,500 wine companies, called “From the Producer’’ where wine producers can sell their product through a central site but with no middle man involved. They get to keep all the profits under the From The Producer site, set up in conjunction with Victorian information technology pioneer John Cameron. The WFA set up the site in part to help wine producers battle declining profits, which in part have stemmed from the rising power of large liquor retailers and a high Australian dollar which have hurt exports. Follow us on Twitter @BusinessDay