Supermarket Price Wars…Bullying…To What End?

FoodMagazine writes about our food companies being too scared to speak up at the Senate Inquiry into anti-competitive practices by our major supermarkets, stating that while these giants have more than 70% of market share, suppliers have little option but to put up or shut up.

Extreme Capitalism

Food producer Dick Smith says businesses and farmers being pushed out of work by what he calls ‘extreme capitalism’. He agrees with Simon Coburn from Ausveg that Australians are being conned, saying:

“Choosing price over products grown and manufactured locally will lead to a complete dependence on imports.”

A New Program From Coles

Coles now has a new way of wielding power over suppliers – a program called ARC (Active Retailer Collaboration) designed to identify possible efficiency gains and potential cost reductions plus data sharing, all for an upfront fee.

Over 200 suppliers have signed up but a number are complaining that the program is not collaborative, just another way to further turn the screws on prices.

The Ferocious Price Wars

As SMH reports the food and liquor discounting between Coles, Woolies – and more recently Metcash – ‘has never been more ferocious and the cries from suppliers never louder’.

Complaints From Suppliers And Now A National Debate

Complaints came first from the dairy industry then the bread industry, then Foster’s found its beer was being sold below cost, hurting independent outlets.

Coca-Cola Amatil has been a target of our supermarkets and international food manufacturer Heinz says the Australian market is the most difficult and ‘inhospitable’.

There is now a national debate about the concentration of Australia’s grocery industry and the long-term toll it is having on Australian suppliers.

What Can Be Done? What Should Be Done?

• A grocery ombudsman?
• A small business and farm tribunal with powers to monitor the behaviour of the supermarket chains?

The Dark Side To The Discounting

Coles estimates that since the start of 2009 there has been a price deflation of 2 per cent a year, a saving of more than $2 billion a year, benefitting consumers.

BUT, if enough suppliers and smaller competitors are driven out of business, it will reduce consumer choice and eventually drive up prices.

In the past year, the profit growth of the entire sector has shrunk.

A recent report by Merill Lynch analyst David Errington says that in the first half of this financial year, the three food retailers delivered a combined $150 million earnings before interest and taxes growth, well below the $400 million-a-year earnings growth required for an ‘acceptable return’.

Question: Is It Realistic To Expect Continued Economic Growth?

Today there is much discussion over the values of living simply – degrowth and relocalisation – and sustainable development:

“Sustainable development is rooted in mainstream development ideas that aim to increase capitalist growth and consumption. Degrowth..sees sustainable development as an oxymoron, as any development based on growth in a finite and environmentally stressed world is seen as inherently unsustainable. Since current levels of consumption exceed the Earth’s ability to regenerate these resources, economic growth will lead to their exhaustion. Those in favor of sustainable development argue that continued economic growth is possible if consumption of energy and resources is reduced.” Wikipedia

Harsh Reality And ‘Food Giant Bullies’

If Coles, Woolworths and Metcash don’t achieve an ‘acceptable return’ in the next couple of years, investors’ patience will run out.

A former senior executive at Foster’s says he had never seen such tough treatment of suppliers in all his years in the business.

At the recent national conference of vegetable growers the AWU called for the federal government to improve labelling and prepare a white paper on food security.

“In Australia we really have no idea what we are eating and where it has come from..

[The supermarkets]..have cornered the Australian market with their own private labels, typically sourced and manufactured overseas,” said Paul Howes.

With pollies ‘alerted’, how will the Coles and Woolies position themselves?