Consumer watchdog Choice is taking on Coles and Woolworths, to expose the dirty tricks the major corporations are using to increase sales of their own private label products and push other companies out of the market.
“The big two supermarkets use tactics including poorer shelf positioning and copycat packaging, to advantage supermarket generic brands over established labels,” the Choice report, released today, says.
Choice spokeswoman Ingrid Just said the consumer watchdog is aware of the almost total control the major supermarkets have over the sector.
“When two brands compete for space on the shelf, and when one of those brands is owned by the supermarket, it’s not hard to figure out who the winner is going to be,” she says.
“Coles claims to have reduced prices on 6000 products, including milk, bread and fresh produce, by an average of 10%. Woolworths also claims to have deflated prices over the past financial year,” the report continues.
“Yet despite this race to the bottom, the big two both posted healthy profit growth in the same period.
“So how can shelf prices of thousands of products be coming down while supermarket profits go up?"
For over a year, food manufacturers have been desperately trying to make governments and consumers see what Coles and Woolworths are doing to their businesses.
While food manufacturers and growers will speak off the record about the struggles they’re facing at the hands of the major supermarkets, very few are willing to speak publically, for fear that their company will be punished for doing so.
The Senate Inquiry into the predatory pricing and bullying behaviours of the major supermarkets is coming up against the same problem: Coles and Woolworths have created a climate of fear and nobody is willing to take the risk and speak up.
And the greatest punishment the major supermarkets have is to stop stocking a company’s products, using extremely questionable tactics.
Companies have little choice but to jump on the bandwagon and manufacture products for the supermarkets’ private labels; refusal to do so would result in the supermarket turning to another company which can provide products at the right price.
When that happens, factories close, jobs are lost and profits go overseas, so food producers have little choice but to bow to the pressure, get rid of their company as it once was, and instead produce at the unreasonably cheap rates the supermarkets demand, under their private labels
The impact on producers
Choice spoke with several manufacturers and suppliers whose product lines have been deleted by the big two, who also wished to remain anonymous.
“Kevin* is the managing director of one such company. “We were deleted to make room for their own brands. They’re reducing the third-, fourth- and fifth-most popular products in product areas,” he told Choice.
“Woolworths and Coles argue that introducing and expanding private labels has stimulated innovation and competition in many areas of the market.
“Coles claims only under-performing products are cut. “Where we don’t see innovation from branded manufacturers, we’ll use the Coles brand to innovate,” John Durkan, Coles merchandise director, points out.
“We don’t have elastic shelves and we have to keep stock for customers, not products that are not working.”
But Kevin does not believe his products have been removed through lack of innovation at all, and that the supermarkets are simply making excuses for their predatory behaviours which aim to get other companies out and theirs in.
“Coles told us it’s because our sales weren’t achieving targets.
“But that’s because they wouldn’t put us in catalogues, we got no shelf space, we were hidden behind a column and they refused to let us have promotions, and that made it impossible for us to compete with the big boys.
“We suspect what they were really doing was targeting the products they wanted to delete so that it would be easier to justify in six to eight months’ time.”
Woolworths is doing the same, Choice found when it interviewed Mark*, who had his organic product deleted directly after Woolworths acquired the Macro label.
After it experienced steady sales for three years, Woolworths’ category buyer informed him there was only room for one organic label, and of course, it’s own Macro label won the race.
He lost half his yearly earnings through that one decision by Woolworths.
And once they’ve got these companies right where they want them, things just keep getting easier for Coles and Woollies, and they are not making any apologies for that.
“We only have to advertise Coles,” Durkin says.
Are Coles and Woollies retailers, or mass corporations?
Presently, the supermarkets can get away with finding loopholes like this in the legislation, as Tim Morris, managing director of NZ strategic management consulting and market research firm Coriolis Research told Choice.
“At the end of the day, the retailer owns the store and can do whatever they want,” he said.
“They can put rival products on the bottom or top shelf, and their own products at eye level.
“They can manipulate the price. The only controls are competition and the consumer.”
According to Jennifer Dowell, National Secretary of the Food and Confectionary division of the Australian Manufacturing Workers Union, one of the major problems is that Coles and Woolworths are massive corporations that are still technically seen as retailers, which affords them the right to place products as they choose.
There are a number of issues, and I think the prominent issue is the marketplace and it will remain an issue until you allow for fair competition,” she told Food Magazine.
“The mistake that most people make in these Inquiries and things is that they look at Coles and Woollies as retailers, but they are food processors and they control the market.
“If I control a market I can just put all my own products in it, and as I have said at the inquiry, if I am mother pushing a trolley through Woollies with three screaming kids, and all they have is their own brand, I am not going to pack my kids up into the car and drive around to find non-existent corner stores that stock the product I actually want.
“They try to say they’re allowing consumers to decide, but they are making all the decisions for us, and it’s time we opened our eyes and saw that.
“If a company like Nestle came out and said “we’re going to buy a stake in Coles, and dominate the shelves with our products,” there would be uproar, it would be a huge scandal, but when the supermarkets do it, it’s a non-issue.
“That just doesn’t make sense.”
Choice agrees that the presence and power of the major two is increasing at a rapid rate.
“Coles and Woolworths are enormous corporations, and they’re growing bigger, stronger, and more profitable,” the report says.
“It’s no surprise, given Australians spend about $1.04 billion each week in the big two’s supermarkets which have a huge 71% combined share of the grocery market.”
Supermarkets deliberately copying packaging
Last year there was much interest in the packaging tricks employed by the major supermarkets to trick consumers into buying private label products and further push Australian food companies out of the market.
In November the Australian Food and Grocery Council (AFGC) accused the supermarket giants of deliberately trying to confuse shoppers with “copycat” packaging.
It accused the supermarkets of intentionally imitating well-known product packaging to make shoppers think they are buying the reputable and trustworthy brands.
And despite the AFGC calling for a Supermarket Ombudsman to oversee such issues, and many others, such a role has not yet been created.
“The days of cheap and basic labels that readily identified generic brands are long gone,” Just said.
“Nowadays, a generic label can look just like any other. In some cases, they’re almost copies.
“The generic labels are very effective, it is easy to mistakenly pick up generic brand products because they look just like established brands.”
Now Choice is calling on consumers to vote on the most obvious cases of deliberate copying by supermarkets in their packaging and advertising of private label options on its website.