Independent Liquor Group

Established in 1975 by a group of independent hotel and bottle shop owners, Independent Liquor Group is now a major business comprising two separate but related co-operatives with a combined annual turnover of just over $773.5 million.

ILG’s dual co-operative structure was adopted in June 2000 with the objective of gaining the full taxation benefit of co-operative loans offered by the NSW Treasury Corporation. The change in structure allowed ILG to build its first distribution centre. More than 1,200 small licensed liquor stores, hotels, clubs and restaurants across NSW, Queensland and the ACT are members of both co-operatives (ILG Suppliers Co-operative and ILG Distribution Co-operative). ILG Suppliers Co-operative also includes large liquor suppliers in membership.

ILG owns five banner groups: Bottler, Super Cellars, Pubmart, Clubmart and The Liquor Co-op. This provides the group with significant buying power. ILG also has a sophisticated supply system in the form of ILG Logistics Contract Warehousing and Distribution Solutions, which has wholesale distribution centres located in Western Sydney, Brisbane and Townsville. This system offers a range of warehousing, handling and distribution services to members and can give specific customised supply chain solutions to members.

A better deal for independents

The overarching member value proposition (MVP) for the ILG Group is the ability to work collectively to secure and maintain a competitive position in a marketplace dominated by a few very large investor-owned firms. This was the key motivating factor that led to the foundation of the co-operative in the mid-1970s. As ILG chairman Chris Grigoriou explains:

Going back approximately 42 years … a bunch of hoteliers and bottle shop owners got together and said, ‘Hey, look, why don’t we form a … buying group so that they could get a better deal for their stores?’ They leased a little warehouse in Blacktown, then offered the products to other hoteliers and bottle shop owners, then as they grew, the co-operative model emerged with the members buying the shares. So, the basic idea was to return all the value back to the members.

The factors driving the formation of the co-operative in 1975 remain important to the present day. The economy of scale achieved through collective action is achieved not just in wholesale prices of liquor, but across a wide range of equally important areas such as marketing, advertising and logistics. As Paul Esposito, CEO of the ILG Group, says:

You talk about the value proposition, it is essentially about scale. It gives us better buying power, and this is not just in terms of the alcohol, but when it comes to media, point of sale, etc., it gives us that bit of extra power to create value that we pass back on to the membership.

Managing both suppliers and distributors

The management of two separate but interrelated co-operatives with suppliers and distributors in membership may appear to pose potential managerial challenges, this is not the experience of the ILG Group. As Paul Esposito notes:

For the suppliers, their motivation to get involved is based on the objective of pushing their products, and making sure that their products are positioned well, priced well, and placed into our promotional calendar and buying cycle.

While suppliers are minority members (and only in the ILG Suppliers Co-operative), the value of this structure is that it allows suppliers and distributors to work together for the long-term sustainability of the industry.

The membership of ILG Group’s distributor co-operative is divided into two tiers. The Tier 1 ‘banner group’ consists of those members who operate under the Super Cellars and Bottler brands. They contract with suppliers to distribute a specific volume and range of products, co-ordinated via dedicated marketing and promotion campaigns. For this, Tier 1 members receive higher rebates as a reward.

The Tier 2 group operates under the Pubmart, Clubmart and Liquor Co-op brands. It consists mostly of smaller operators, who receive slightly reduced rebate distributions compared to the larger Tier 1 members. This reflects the lower capacity of these smaller distributors to commit to the volume and range of products that larger members can accommodate.

The ILG member value proposition

The ILG Group focuses on ensuring that the margins made by all members are sufficient for them to stay financially viable in a highly competitive, oligopolistic market. The co-operative must closely match or better the pricing and rebates suppliers o er to its competitors.

Despite the importance of financial issues in attracting and retaining members, the ILG Group is also aware of the need to build its value proposition to members on non- nancial issues. This includes the sense of mutual ownership in the co-operative, and the resources, assets and systems it can deploy to assist its members. This includes the co-operative’s ability to collectively market its members’ businesses to the wider community, to compete with massive marketing and advertising campaigns mounted by major investor-owned firms. As CEO Paul Esposito explains:

We’re under attack by the opposition and the price at the till matters, but we also need to come up with strategies to ensure that the members get footfall into their stores. So, it’s a total mix, and it is the marketing aspect that our members are really looking for at the moment.

He noted that getting all the members on-board to support and comply with a marketing campaign was challenging. This particularly applied to smaller distributors in regional towns, where the level of competition was much less than in major cities. However, those members were allocated into the Tier 2 group and, as such, they did not face the same level of compliance expected from the larger Tier 1 group. This partly accounted for their reduced rebates.

The value of sticking together: More than price

As they operate in a highly competitive market environment, the members of ILG Group understand that they are better o working within the co-operative than they might be trying to go it alone. The co-operative communicates this message to its members all the time, as Esposito notes:

We communicate this regularly. We hold different forums throughout the year where we can present that. So, what Metcash do to combat that is what might be described as chequebook warfare. They say to our members, ‘OK, we understand that you belong to [the] co-op, but here’s some money: please sign up with us’.

He noted that for many small distributors, particularly those who might have just taken over a new liquor store or hotel, cash ow is tight and stock is the largest cost. The ILG Group supports these members not only with competitive pricing but also with education and training to help them deal with regulatory and compliance issues.

The co-operative’s ability to demonstrate its value to members has been a strategic focus. As Paul Esposito says:

We’re trying to be more than just a box mover. Our plan going forward is to provide our members with HR support, assisting with store layouts, work health and safety management, the training of their staff. This is what a co-operative should be about.

Geographic and digital expansion

Despite its success, the ILG Group is not complacent and recognises the need to adapt to changes in the market. One such change is the need to move its business and that of members further into the digital marketplace. This shift to new, and increasingly digital, approaches to retailing has not always been understood or appreciated by all members, and it might take a ‘generational change’, with younger members coming into the co-operative, to fully engage all members in these strategies.

The co-operative has bought a store in Victoria (part of an expansion strategy) and leased another in Sydney where it can trial various retail strategies. These company stores will allow the co-operative to test and develop best practice and use the findings to educate their members in the operation of their own retail outlets.

The branding of the planned network of six or seven company stores in Victoria is evolving, but the first will operate under The Liquor Co-op brand. This will help to position the store as a co-operative owned by the small businesses and family communities that comprise the co-operative’s membership base. According to Grigoriou:

If you look at the long-term plan for Victoria, once we get the stores up and we can create a brand, we can then start to get people to start joining up and … into this new banner group. I think that the next step would be to establish a warehouse there. Then we can use the same model as we have in the other states. There are a lot of states and territories, such as the Northern Territory, who have no idea who ILG is or what we do.

The extended version of this case study is presented in Australia’s Leading Co-operative and Mutual Enterprises in 2018, which is part of the CEMI Discussion Paper series.