The proposal was designed to help both the small grocery stores and local wine producers.
But Attorney-General John Rau says those objectives couldn’t be achieved without hurting independent bottle shops and without helping entrench the power of the supermarket giants, Coles and Woolworths.
“The last thing I want to do is see Coles and Woolworths eat alive the independent grocery sector in South Australia,” Rau said.
The proposal was intended to only apply to bottled wine and not to the sale of beer, fortified wines, spirits or cider.
The Liberal opposition said the government’s decision had ended months of uncertainty for the various industry groups.
The Independent Liquor Retailers Coalition and the Liquor Stores Association also welcomed the move.
Coalition spokeswoman Wendy Bevan said the government’s original proposal would have had disastrous consequences for the wine industry and independent liquor retailers.