Brave warriors taking on the fight to rein in the power of Coles and Woolworths

This morning I listened to Radio National’s Hagar Cohen expose CASUALTIES IN THE SUPERMARKET WAR.  It sent shudder’s down my spine and left me feeling sick in the stomach. You can hear the full podcast here

Background

The consumer watchdog is investigating Coles and Woolworths for allegations they abuse their dominance. The ‘Big Two’ control over 70 per cent of the grocery market.

As part of its well-known ‘down down’ campaign, Coles cut prices across a large number of food products in its stores nationwide. The company had always claimed that it absorbed the cost of those discounts through making its business work more efficiently. But now Mr McLeod concedes that the supermarket has been passing on the cost of the discounts to some suppliers.

The food industry has been going through a major restructure, with manufacturers finding it tough to operate in Australia because of the high Australian dollar, increasing labour costs and the supermarkets’ behaviour. Many are operating on wafer thin margins, while others have already collapsed.

Food producers are claiming their margins are being squeezed by the supermarkets’ appetite for profits, and one supplier has now alleged blackmail in confidential evidence supplied to the ACCC.

During the initial stages of the ACCC’s investigation into the supermarkets’ conduct, over 50 producers have approached them, on the condition of confidentiality.

‘Speaking to the ACCC, it puts these things out in the open,’ the anonymous supplier says. ‘Companies understand that it’s not isolated situations that they go through.’ This supplier claims he’s been blackmailed by a supermarket buyer.

‘At some stage we started feeling—and this is what I hear from other companies as well—that their behaviour was really blackmailing,’ the supplier says. ‘The supermarkets expect a certain quantity of sales from your products and if that is not met they request a lump sum of money to be passed on to pay for that shortfall. Or another example is being asked to pay to be on the shelf in the first place, and that would mean a lump sum that has to be paid.’

I spent a whole day with Hagar. At this stage people willing to speak out where few and far between but as you will see when you listen to the program many have now drawn a line in the sand and are helping pave the way for much needed change

I applaud the other gutsy suppliers, farmers and manufactures (and there were a lot of them – some who preferred to speak through pseudonyms and actors) who spoke out on  out on Background Briefing. These brave warriors are taking on the fight for everyone in their efforts to rein in the power of Coles and Woolworths and get some balance and equity in the supply chain.

Firstly lets take a look at what the ACCC has unearthed and what it is investigating as a result of the initial 50 suppliers coming forward

From ACCC Chairman Rod Sims. 

‘it is clear that both farmers and suppliers are terrified of it ever been known that they made the allegations’

Allegations include

  • Persistent demands from supermarkets for additional payments from suppliers above and beyond the negotiated terms of trade
  • Threats to remove products from shelves or disadvantage suppliers if claims for extra penalties were not met
  • Failure to pay suppliers negotiated contract prices
  • Conduct discriminating in favour of house brands

Radio National found examples like

Suppliers being charged an additional fee for

    • for using the supermarket technology system for ordering even though it only improves efficiency in the supermarket business and has no real benefit for the supplier
    • Love this one – a fee for customer breakages  i.e. if the customer drops something or decide they don’t want a frozen product and leave it on the shelf somewhere else ( I despise people who do this) – a percentage is taken from the supplier to cover in store incidents irrespective of whether breakages occur or not

This extract from Tony Lutfi CEO of Green Wheat Freekeh is also a classic example

Here are just a few more things I pulled out of the Background Briefing expose that sent shudders down my spine 

The example involving CRF was the most frightening one to me. How Coles got away with this I don’t know. If this isn’t unconscionable behaviour I don’t what is ?

Hagar interviewed Simon Ramsay former board member of CRF (nice website check it out) and now Member of Upper House in Victoria. Colac based CRF had a 10 year contract with Coles to supply lamb. Coles accounted for 90 per cent of CRF business and CRF was Colac’s biggest employer. In the eighth year of their contract CRF was put on the market. ‘Coles put in a bid that was 60% below the price shareholders eventually accepted’ said Simon Ramsay. Coles then told the lamb processor it would no longer buy CRF meat if it was sold to a rival consortium.

Coles’ actions seemed “like a classic dummy spit to me. We believe we gave Coles a very competitive price and good quality product,” Mr Ramsay said.

You can read more about this very chilling story in the The Weekly Times Coles dumps CRF.  According to TWT the rival consortium withdrew its bid and Coles was left last bidder standing, but an 11th-hour bid from a new consortium EC Agribusiness saw CRF shareholders refuse Coles’ bid for the company. Coles re-opened a tender for its business and chose Brazilian-owned meat processing giant JBS Swift over CRF, ending a 10-year relationship. Good news story CRF is now trading well

Rosella, Australia’s most famous brand of tomato sauce went out of production this month when the factory that produces it in Sydney closed down and over 70 full-time employees lost their jobs. Rosella’s parent company Gourmet Food Holdings went into receivership in November. Gourmet Food Holdings also owns other well-known Australian food brands like Aristocrat.

Mr Fawcett sold Aristocrat to Gourmet Food four years ago. When he owned the business, he told Hagar that he relied on Coles and Woolworths as his two main customers.

‘Coles and Woolworths would represent around 62 to 63 per cent overall …. If you lost those two customers it would be death’ Mr Fawcett says

He says that large orders from the ‘Big Two’ retailers meant his company was producing 200 jars a minute, or around five semi-trailers a day. Such large orders meant that if his company had fallen foul of either of the major retailers, Aristocrat would likely have collapsed.

‘You’d have to reconsider whether or not you continued in business,’ he says. ‘The amount of money you spent on machinery—you just had to make that machinery work. If it didn’t work you’re in all sorts of trouble.’

And from the independent supermarkets

Fred Harrison CEO of Richie’s IGA . Fred says he participating in price wars against his conscious ‘We have got to compete. 90% of customers applaud us but 10% wont. We do stock a small amount of $1 per litre milk for those 10% but we promote the brands. We do this because we  can’t afford to lose 10% of our customer base. I know I am playing into the hands of duopoly and it has had a big impact on our business … in fact it has halved our profitability. He went on to warn ‘when you remove layers of competition the powerful players can charge whatever they like – consumers will eventually lose’

I too spoke at length to Hagar. I was initially very wary of being interviewed for the program for a number of reasons which didn’t involve a fear of retribution. However Hagar is an absolute delight and after much consideration agreed.   In the end 99.9% of what I had to say hit the cutting room floor but I did do a day’s prep for the interview and spoke to many experts before I decided what I wanted and didn’t want to say. I will share this with you in another blog post shortly