Battle of the beer: Costco takes bid to sell alcohol in SA to the Supreme Court as local pubs and bottle shops stand to lose out

Small alcohol retailers and even producers could be the losers if US retail giant Costco is given permission to sell alcohol from its warehouse in Kilburn, South Australia.

Under South Australian liquor licensing laws, alcohol retailers are prohibited from selling other goods, which means to date supermarkets have not been able to sell liquor from the same premises as their food businesses.

But the Adelaide Advertiser reports Costco is seeking to change the rules by taking its case to the Supreme Court.

Costco had applied for a Special Circumstances liquor licence in the state’s Licensing Court in August 2014 and was knocked back in October. The retailer has now appealed the decision and the full court of the Supreme Court will hear the appeal in July.

The South Australian branch of the Australian Hotels Association says if successful, Costco’s bid would set a dangerous precedent that could be exploited by other large organisations, with smaller retailers and producers on the losing side.

“Competition for liquor retailing is extraordinary already and our interest is particularly for trying to preserve a role for independent retailers,” AHA South Australia general manager Ian Horne told the Advertiser.

“We already know that something like 78% of all Australian wine is sold by the major grocers and that’s put massive pressure on the wine producers because of pricing structures and trading practices.”

“We’re not sure that the Costco model adds any value to consumers in terms of choice, quality and it certainly would be a further undermining of the independent retailers.”

Costco has argued it operates on a different model to other alcohol retailers as it is seeking to stock a smaller range of alcohol products in the South Australian outlet, it would only sell unrefrigerated alcohol, and shoppers must sign up as a Costco member in order to shop at the store.

But Peter Strong, executive director of the Council of Small Business of Australia, told SmartCompany if Costco successfully argues it deserves an exemption, there is little to stop other operators, including the large grocery chains, from tweaking their business models.

“The thing with really big organisations is they think they can manipulate the law,” Strong says.

“The big supermarkets do it, as do the big developers and landlords.”

Strong says large businesses also have deep enough pockets to fund lengthy legal cases to attempt to “change the rules”.

“We’ve got to do something about it, we’ve got to change the way things work,” Strong says.

But while Strong says the entrance of large international retailers such as Costco into the Australian market has the potential to further squeeze smaller retailers, he says adding more players to the grocery supply chain could be beneficial.

“Time will tell. They could push the small players out, but I think not,” Strong says.

“It may indeed put the competition in the supply chain that we need in Australia.”

But Strong says the argument is “about culture as much as competition”.

“It’s about the culture of our communities. If we keep concentrating retail into fewer and fewer places, it will really change the high streets of our communities,” he says.

SmartCompany contacted Costco but the company declined to comment as the matter is still before the courts.