Woolworths and Coles should heed simplicity lesson from Aldi

Woolworths is ditching its Select private label range. It intends to launch a new brand for a more focused range of products that promises more bang for the buck. The move comes after Woolworths decided in March to axe its Homebrand label as part of its strategy to compete with Aldi.

The move makes sense, but will likely do little to restore consumer trust and sales growth.

Management guru Michael Porter has long argued that products need a clear positioning in consumers’ minds as either special and expensive or convenient and cheap. Woolworths Select was neither, stuck somewhere in the middle. This positioning was confusing for customers.

But will fixing this problem make a difference, and perhaps even keep growing Teutonic supermarket force Aldi at bay?

Unlikely. After all, similar efforts are only baby steps towards what truly distinguishes growing companies: the ability to make consumers’ lives simpler. Think of Uber, Netflix, Amazon, but also Aldi. That’s the common denominator.

And yet, research shows that most companies keep confusing the gobbledegook out of us. A lot has been written about how consumers get more than they want, and how more product choice often makes us less happy.

But consumer confusion extends to other tactics too, like pricing and discounting. Shoppers increasingly ask questions such as: why are some products almost always on special (while others never are)? Do half-price offers mean that we usually pay twice as much as we should?

At best, discounts have become meaningless. While discounts were used successfully in the past to move excess merchandise, they have become ubiquitous and permanent, providing little incentive to respond. It’s a bit like the guy in the audience of a stadium that stands up to see more: it’s an effective tactic so long as not everyone else is standing up too.

Another major concern that emerges is product claims and packaging; for example, most consumers do not know the difference between “Product of Australia” and “Made in Australia”.

Also, products claiming to be “natural”, “real”, or “healthy” are usually hiding behind meaningless terms, undefined in labelling law and merely meant to persuade rather than inform people. The result is ever more confusion.

So what should brands do to simplify the consumer experience? Ironically, the answer to this question is not simple. It takes an awful lot of work to make things less confusing. An app that you visit once in a while and find easy to navigate may be the result of years of painstaking work, with many difficult decisions made behind the scenes about what should go where, and just as importantly, what to leave out.

Companies should start making every aspect of their product offerings simpler. Consumers do not appreciate clutter; they appreciate everything being transparent, clean and easy.

Marketers should understand that consumers rarely inherently care about brands. In some countries, only about 5% of brands would truly be missed. Whether consumers order an Uber ride, or buy a carton of milk, they often want to invest the least amount of effort and time in making the right decision.

Overloading consumers’ already saturated brains with all kinds of marketing tactics, including dynamic pricing and even heavy discounts can backfire or fall flat. This was clear when consumers showed a lack of interest in even 90% discounted product at Dick Smith’s closing down sale.

Instead, every decision brands make should be guided by a desire to help customers feel confident about their choices. Fortunately, we can learn from a handful of companies that have long understood the principle of simplicity in driving customer satisfaction.

Aldi’s success, for example, is often attributed to its simple business model of providing consistently low and transparent prices for a reduced range of high quality products.

No discounts, no confusing ads, no loyalty cards, no bullshit.

The Conversation

Richard L. Gruner, Asst Professor, University of Western Australia

This article was originally published on The Conversation. Read the original article.

Aldi winning shoppers from Coles, Woolworths

Aldi is the most profitable retailer in Australia and it should grow by about 15 per cent a year for the next three years, according to a new report.

According to AAP, the report by UBS analysts found that the German supermarket chain is growing four to five times as fast as the overall Australian grocery market and that it could grow to $14.8 billion by 2019 if the company focuses on fresh food on customer service.

In addition, by 2019-20 Aldi is expected to grow its share of the national grocery market from 7 per cent to at least 10 per cent and take a significant share of business from industry heavyweights, Coles and Woolworths.

Indeed, according to the report, Aldi could claim $450 million in sales per year from Woolworths over the next three years. It added that Coles is handling the challenge better than Woolworths.

UBS analyst Ben Gilbert pointed to the experience of Aldi overseas as having similarities to what is happening here.

“In the UK the tipping point came when the discounters (Aldi and Lidl) lifted their share of main shops to more than 10 per cent,” he told Fairfax Media.

“We think Aldi’s share of main shops is 8 per cent nationally, 10 per cent on the east coast and 15 per cent in their catchment.”

Retail outlook: big retailers feel the pressure of new challengers

It’s reporting season, and over the past few weeks some of Australia’s biggest companies have been releasing information on how they’re travelling. These reports reflect key themes of how things are going in key sectors of the economy. Over coming days we’re going to report on the results a handful of major companies in key sectors, transport, construction, retail, mining, insurance and banking. Today we look at the retail sector.

 

Dominant retail giants Wesfarmers – owner of Coles supermarkets – and Woolworths hold a 70% of market share of Australia’s fresh food grocery market, but have had contrasting fortunes over the past few years. Half-year results for Wesfarmers and Woolworths for 2016 show very different outlooks.

image-20160304-9463-1cuzyw1.png

CC BY-ND

Meanwhile, the major retail players are continuing to feel the disruptive impact of smaller players such as Aldi and highly competitive market conditions; both will have employ new strategies away from the tried and true defensiveness that has worked in the past.

Wesfarmers reported a net profit after tax of $1.4 billion, up 1.2% since the same time last year, while Woolworths reported a net loss of $973 million after a profit of $1.3 billion. Over the last few years Coles has seen stronger sales growth and comparatively better market share.

By contrast, Woolworth’s strategy problems with its home improvement business, Masters, has been widely ventilated. The company attributed $1.8 billion loss to the costs related to its exit from Masters.

Woolworths' underlying profit was $925 million, still down 33% on prior year. Woolworths would hope that its exit from the ultimately costly Masters endeavour will serve as a boost to investor confidence.

Woolworths has also struggled with branding and has seen advertising agency changes over the last few years the most recent being the dropping of Leo Burnett and a return to M&C Saatachi.

Perhaps more revealing to the outlook of the industry are some of the underlying similarities in strategy. Both Woolworths and Wesfarmers emphasised price deflation, cost reduction and further price cutting, as key strategies.

The companies expect highly competitive market conditions and consumers to remain price sensitive, and will largely focus on improving supply chain productivity, through cost reduction. Woolworths is reducing its spending on activities such as marketing, property acquisition and rent as part of $500 million in cost savings during the 2016 financial year (July 2015 to July 2016).

Likewise, Wesfarmers has highlighted similar measures, with cost cutting objectives, the company hopes will allow them to lower their prices in the supermarket even further.

In an industry where profit margins are already low, such intense competition would carry significant risk. If sales don’t meet expectations, the retailers have little room to lower prices when margins are low. As a consequence, covering fixed costs like maintenance and rent of stores becomes increasingly difficult and the likelihood of making a loss is higher.

To some extent these price wars reflect the two retail giants directly competing against each other, but another factor is the disruption caused by new entrant Aldi. The supermarket chain has gained 11% of the market since it came onto the scene in 2002, using its streamlined, low cost supply chain to undercut Woolworths and Wesfarmers on price.

Aldi is a unique player in this space. In the past Coles and Woolworths could exercise their market share and size to squeeze out small producers; but Aldi is a different beast, a global company with a presence in both Europe and the USA.

Aldi may not even be the biggest problem facing the locals, if reports that European retailers such as German retailer LIDL are sizing up the Australian market prove true. LIDL is the fourth biggest retailer in the world, with $128 billion in annual sales. Whatever hold true for Aldi is doubly true for LIDL. Other hypotheticals floated around Danish discounter Netto and UK grovery giant, Tesco.

The traditional defensive strategy against competitors employed by the Aussie giants relies on economies of scale, being larger than your rival and being able leverage this efficiency to deliver a cheaper end product or more controversially to loss lead and force your opponent out of business maintain your market share and eventually maximise your profit.

Woolworths and Coles are falling back on their old ways to try and beat Aldi, the companies' corporate strategy for the most part is focused on a doubling down on the traditional squeeze out all newcomers approach. However Aldi brings global resources to the table that Woolworths and Coles don’t have access to.

In the retail sector Aldi will continue to steal market share from Wesfarmers and Woolworths more so if the companies continue with old strategies and don’t think of a way to innovate the retail space.

 

Shumi Akhtar is a Senior Lecturer at University of Sydney.

Farida Akhtar is a Lecturer at Curtin Business School, Curtin University.

 

This article first appeared in the Conversation. You can Read the original here.

 

Powerful supermarkets push the cost of food waste onto suppliers, charities

At a time when one billion people globally experience hunger, as much as 50% of all food produced – up to two billion metric tonnes – is thrown away every year. In Australia alone, as much as 44 million tonnes of food is wasted annually.

Last year, French supermarket chain Intermarché launched a highly successful campaign encouraging consumers to purchase “ugly” food. This year, France became the first country in the world to implement laws cracking down on food waste, with new legislation banning supermarkets from throwing away or destroying unsold food. Under this new legislation, supermarkets are required to donate any unsold food to charities or for animal feed.

While there is no law in Australia requiring supermarkets to donate any unsold food, both Coles and Woolworths have aligned with food rescue organisations to donate unsold or “surplus” food.

This surplus food is distributed amongst those experiencing poverty and food insecurity and is done voluntarily by the supermarkets under the banner of corporate social responsibility.

But our research into the issue of corporate social responsibility and wastage of fresh fruit and vegetables has identified a number of tensions and contradictions, despite leading Australian supermarkets’ zero food waste targets.

First, the strict “quality” standards required by the Coles and Woolworths duopoly means that a large volume of food does not reach the supermarket shelves. This is produce that does not meet size, shape and appearance specifications – such as bananas that are too small, or apples that are too red. If producers do not agree to meet these standards, they will lose access to approximately 70-80% of the fresh food market in Australia.

Second, the two major food retailers do not take ownership of produce until it passes inspection at the distribution centres. It is here where suppliers, such as farmers and growers, are “invited” – under the supermarket’s corporate social responsibility initiatives – to donate rejected food to rescue organisations at their own cost, or otherwise pay for further transportation or dump fees.

Thirdly, in an effort to reduce the high levels of food wasted at the farm gate, Australian supermarkets have followed France’s lead by marketing “ugly” food, (or what Intermarché termed “Inglorious Food”) – food that does not meet strict cosmetic standards, but is still perfectly edible.

While a step in the right direction, this “apartheid” between beautiful and ugly food was criticised in this study for reinforcing values that perfection comes at premium and ugly food, which is often the way nature intended, should be price discounted. Growers are also concerned about the lower prices that “ugly food” attracts, and the flow-on effects to them in reduced profits.

A final tension regarding food waste is “who is to blame”? Supermarkets attribute their high quality standards to consumer demands – however, consumers can only buy what is available at the supermarket. Supermarkets have also been criticised for marketing tactics that encourage household food waste, such as “buy one, get one free” campaigns.

Despite the lack of transparency regarding food waste in the supply chain, supermarkets – with their powerful market position at the end of the supply chain – are in a good position to transfer the problem of waste elsewhere.

They do this by setting cosmetic standards in the procurement of food which results in high level of wastage, not taking ownership of produce that does not meet their own interpretation of the standard, claiming corporate social responsibility kudos for donating to food rescue organisations (while at the same time saving on dumping fees) and differentiating between “beautiful” and “ugly” foods – reinforcing difficult-to-attain standards of perfection.

Much of the food wastage and transfer of blame for food wastage can be attributed to the market power of the duopoly. Most significant, are the proprietor-driven private standardswhich require produce to be perfect.

Although donating to food rescue organisations may be positive for people in need, it does not address the structural problems of the supply chain. This raises the question of state-led regulation, as with the case in France, to restrict food wastage at the retailer level. However, more is needed. Food waste is one symptom of excessive market power, something that needs to be addressed to steer mass food retail in a more sustainable direction in Australia.

 

Carol Richards is Vice Chancellor's Senior Research Fellow, Queensland University of Technology.

Bree Devin is a lecturer in Public Relations, Queensland University of Technology.

Disclosure statement

Carol Richards receives funding from the Australian Research Council and the Norwegian Research Council.

Bree Devin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

 

This article first appeared on The Conversation. Read the original here.

Murray Goulburn wins Coles cheese supply contract

Murray Goulburn has entered into a five-year national private label contract to supply Coles brand Australian cheese as part of MG’s ongoing push to secure critical mass in the Australian dairy foods market which will underpin and support the company’s growth plans.

The announcement follows a ten-year partnership that MG commenced with Coles in 2014 to supply daily pasteurised milk for Coles private label brands in Victoria and NSW.

The contract includes the supply of a range of Coles brand cheddar-style cheese including tasty, colby, mild and light cheese in blocks, shreds and slices for Coles supermarkets across Australia.

Approximately $130 million will be generated in additional sales per annum and will also deliver a stable stream of profits to MG over the life of the contract.

According to MG Managing Director, Gary Helou, the company aims to build a world-class cut and wrap consumer cheese processing facility at its Cobram cheese plant.

“We are delighted to extend our existing relationship with Coles and its customers to deliver the quality, taste, and freshness of cheese made by Australia’s largest dairy farmer co-operative, which is 100 percent controlled by Australian farmers,” Helou said.

“This additional Coles business complements our investment strategy to build a state-of-the-art supply chain and adds to our critical mass here in Australia, as we look to substantially grow our business internationally.”

As part of its capital investment program, MG has announced plans to invest up to $145 million to significantly increase ‘ready-to-serve’ cheese capacity and capabilities at its new consumer cheese plant in Cobram.

“Cobram will deliver world-leading technology for processing and packaging a range of consumer and food service cheese products including block, slices, snacking and shred,” Helou said.

Foodbank and Coles fight food shortages in South Australia

Coles and Foodbank have begun a new campaign to enable poor local families to be assisted by shoppers in South Australia.

Customers will have the opportunity to buy food donation cards with values of $5, $10 or $20 at Coles supermarkets, which will fund much needed food items for Foodbank’s warehouses and food hubs.

Providing more than four million meals annually through a large network of charity partners as well as school breakfast clubs in South Australia, Foodbank is the s largest food relief organisation in the country.

According to Foodbank SA Chief Executive Officer Greg Pattinson, more than 3,000 children miss out on Foodbank’s services every month.

“It’s not just traditionally vulnerable people they’ll be helping, but low income families doing it tough, single parents and the elderly, often within your own neighbourhood,” Pattinson said.

Coles has worked nationally with Foodbank for the past 14 years, donating food and groceries each year that have been used to provide a total of 20 million meals.

Coles State General Manager Neil Lake said Coles was proud to work with Foodbank in South Australia.

“Coles has been donating food and grocery items to Foodbank for more than a decade, to help families and individuals in need to put a meal on the table,” Lake said.

“Customers and team members are telling us that they want a simpler way to make a difference in the community, and give people the products they require to prepare healthy meals. The food donation card campaign will provide this and will make a major difference to the people in our community who need it most.”

The donation cards will be displayed on stands inside Coles stores and then scanned at the checkout and added to a customer’s grocery bill.

Measurement authority weighs in on supermarket giants

The National Measurement Institute has found thousands of products to be under the stated weight that was promised on packaging sold by Coles and Woolworths. 

Over the 2014-15 period, 3,962 non-compliance notices were issued to traders, up 13 per cent on the previous year’s figure.

Woolworths was found guilty and fines $3,000 for selling birthday mock cream sponge cakes, with shortfalls of up to 41 per cent. Coles was also hit with a $3,000 fine for using a weighing instrument not at zero that led to shortfalls of up to 9.4 per cent in prepacked lamb chops.

According to consumer advocate Christopher Zinn, a third of the complaints to the institute about prepacked articles were found to be justified, along with 40 per cent related to meat and 14 per cent related to fruit and vegetables.

“You can’t tell at the shops if something is 5 per cent underweight. While that might seem like a trivial amount, which makes no difference to the producer producing a million pounds of something –it might make a very significant difference in terms of their bottom line,” Zinn said.

A Coles spokesman said the case involved one product in one store.

“The issue, which resulted from a piece of fresh meat sticking to an automatic cutting and weighing machine between slices, was quickly corrected and no wrongly labelled items were sold to customers,” he said.

“Coles takes its trade measurement responsibilities very seriously and has robust operational and compliance systems in place in every one of its stores right around Australia.”

Will Coles crack under pressure to freeze their eggs?

Pressure is mounting for Coles to move eggs into refrigerated aisles in a move to protect consumers from salmonella, a practice currently rolling out at Woolworths.

Woolworths has pledged to keep eggs in refrigerated cabinets as it continues a nation-wide revamp of its stores.

In order to prevent the spread of the harmful salmonella bacteria, fresh eggs are now being chilled in new cabinets installed at dozens of Woolworths outlets in the past year.

Coles has come under some criticism across social media platforms as it would not disclose if any of its stores would keep eggs refrigerated in response to cases where egg-related incidents lead to hundreds of hospital admissions each year.

According to infectious diseases expert at Australian National University medical school, Professor Peter Collignon, eggs must be treated just like raw meat and kept in a refrigerator at all times.

“I’m always surprised by the lack of anxiety about this. We ought to make the product safer, and we do that by refrigerating it, even at the supermarket,” Collignon said.

Collignon stressed that poor practices at farms, where "dirty eggs" are graded and used when they shouldn't be, combined with poor food-handling practices, particularly in catering or at restaurants, have been the main culprits behind large outbreaks of the food-borne illness.

The salmonella bacteria is spread by birds, usually through faeces, with food safety laws requiring eggs to be washed, inspected for cracks, graded and then kept at cool temperatures at farms and during transport.

But there is no legal requirement to keep eggs in a cool environment at the retail level, and there is no scientific consensus about the need to do so.

Its Tim Tams at 10 paces: Round 1 goes to Arnotts

According to a number of media reports, Coles has lost Round 1 in its Mexican standoff with Campbell Arnott's, with the supermarket giant accepting price rises on dozens of products after the biscuit maker held its much-loved Tims Tams hostage.

Campbell Arnott's warned Coles earlier this year that due to increased production costs, it planned to lift its prices by between two and 10 per cent on a range of common biscuit snacks, including Tim Tams, Scotch Fingers, and Monte Carlo biscuits.

In what could only be described as crumbling in the face of a more powerful brand, Coles had little choice but to accept Arnotts's demands.

A Coles spokesperson said: “Coles has made a commitment to bring down the cost of shopping for our customers, and we have been doing that every year for the past six years.”

“So when a major international manufacturer decides they will unilaterally force through a price hike without justification, we will resist that.”

This chocolate-encrusted standoff lasted for almost two weeks before Coles caved in and agreed to pay an increased price on 44 Arnott's biscuit lines.

However the bean counters at Arnotts didn’t have it all their own way as Coles has refused to pay more for 14 other products, which have since been removed from its shelves. 

This includes six varieties of Tim Tams, including a range of flavours designed by Adriano Zumbo as well as other well-known Arnott’s biscuit varieties.

“Our average family shopper spends around $150 per week on food and groceries, and they don’t have the spare cash laying around to give to Campbell’s-Arnotts every time they decide to put their prices up,” noted the spokesperson in an attempt to explain this move.

So while Arnott’s may have won this round, the fact remains that Coles has also used the power of its brand and shelf space to show the biscuit maker that it will not tolerate being held to ransom.

The deleted biscuit lines are:
 
Tim Tam Zumbo Coconut Cream 165 gram
Tim Tam Zumbo Choc Raspberry 165 gram
Tim Tam Zumbo Salted Caramel 171 gram
Chocolicious Tim Tam Multipack: Caramel 191 gram
Chocolicious Tim Tam Multipack: Dark 187 gram
Chocolicious Tim Tam Multipack: Original 187 gram
Twisted Faves Monte Carlo: Salted Caramel 250 gram
Twisted Faves Shortbread: Strawberry Cream 250 gram
Arnott's Chocolate Biscuits: Royal Dark 200 gram
Arnott's Cheeseboard

 

Costco driving change in Australia’s FMCG sector

Collectively, Australia’s supermarket and grocery stores and fuel retailing industries will generate an estimated $ AUD125.1 billion in 2015-16. Business information analysts at IBISWorld forecast that this figure will reach $AUD134.5 billion by 2020-21. 

The traditional supermarket giants Coles and Woolworths currently account for more than 70 per cent of the supermarkets and grocery stores industry in Australia, and over 40 per cent of the fuel retailing industry.

Competitor Costco’s continued expansion has seen the bulk-buying retailer grow its share of supermarket revenue. According to IBISWorld industry analyst Brooke Tonkin, “the company already claims 1.2 per cent of this $ AUD88.1 billion dollar industry, with only seven stores.” Costco’s ongoing diversification into the fuel retailing industry is expected to increase competition, with the company’s low-price strategy attracting motorists, as customers have little brand loyalty in terms of fuel.

“The trading landscape for supermarkets and fuel retailing has changed considerably over the past three decades, with new entrants increasing competition, and changing consumer preferences creating new challenges and opportunities,” said industry analyst Brooke Tonkin.

Price competition

Supermarkets and grocery stores once operated alongside specialist food retailers, but now compete fiercely with specialist retailers on price and product range in a bid to attract shoppers. Industry retailers like Coles have recognised the importance of price competition by implementing substantial price cuts across their stores. Consumers have become increasingly price-conscious, and want to be assured that they are purchasing value-for-money goods.

Sales volumes generally remain relatively static for supermarkets, as shoppers tend to buy similar goods from week to week. As a result, price cuts have a significant effect on profit margins. To combat price competition and maintain profit margins, Woolworths has been forced to reduce costs.

“While supermarkets continue to compete on the basis of price, other factors such as convenience, product variety and quality have emerged as driving forces in securing customer loyalty. This helps explain the growth of Costco, which has steadily gained market share over the past five years,” Ms Tonkin added.

The Costco model

Convenience has become a major factor in attracting customers, with major supermarket players attempting to broaden their ranges to include basic necessities as well as specialist gourmet products. Meanwhile, Costco is attempting to increase its market share through the opening of new stores, and the sale of a diverse range of products in bulk. The expansion of new stores has been a major driver of ALDI’s growth, and similar success is expected for Costco, as the number of stores is a key competitive factor.

Costco offers a much wider range of products than the current supermarket duopoly at its seven Australian stores, including clothing, televisions and other appliances. Costco’s bulk-buying power allows it to offer very low prices. The wholesaler is able to offer such large discounts on its products and remain profitable due to its annual membership fee of $AUD60.

The majority of the company’s profitability comes from this fixed source of revenue, allowing it to pursue aggressive price competition. Costco’s earnings before interest and tax have only shown positive results once in Australia since 2009, indicating that the company is primarily focused on gaining market share in Australia. The membership fee also helps foster customer loyalty.

Store location is also important, and Coles and Woolworths have attempted to broaden their reach by expanding fuel station grocery offerings into mini supermarkets. “Costco’s expansion into fuel retailing is in line with this trend, as the wholesaler plans to become a convenient one-stop-shop where customers can buy all their groceries and fill up on petrol in the one location,” Ms Tonkin explained.

Fuel retailing

The fuel retailing industry faces a high level of competition, as price and location largely determine where motorists buy petrol. “Most consumers see petrol as an undifferentiated product and therefore purchase on price – there is effectively no brand loyalty,” Ms Tonkin said.

The Costco fuel retailing strategy offers customers convenience and consistently lower prices, in line with the company’s grocery strategy. Costco’s establishment of a Moorabbin store with fuel pumps is a first in Victoria. 

The first Australian Costco fuel station was established in Liverpool, NSW, in November 2013. The introduction of a fuel station at the Brisbane North Lakes store in May 2014 prompted a flurry of price cutting in the surrounding area, as other fuel retailers scrambled to compete with Costco’s low prices.

However, Costco’s fuel prices remained lower than other retailers in the city, with customers saving up to 15 cents per litre. In the months following its opening, competition from Costco has continued to force down prices among other petrol stations in the area.

The way forward

As ALDI and Costco continue to expand in the supermarkets and grocery stores industry, the well-established major players are expected to look for new ways to remain competitive and boost market share. Woolworths announced in September 2015 that it would invest $AUD65 million in store improvements and increasing staff hours. Meanwhile, Coles has already begun upgrading some of its larger stores to a new market-style format.

“These strategies are designed to keep shoppers instore for longer by presenting stores as foodie destinations, and attract greater sales through premium offerings such as ready-made meals and delicatessen products,” said Ms Tonkin. 

These new stores also offer patisserie goods, artisanal breads and even sushi bars. However, major competitor ALDI is also transitioning its stores to a market-fresh approach, with more fresh food, branded groceries, and ready-to-go and organic food. This is expected to further increase supermarket competition.

ACCC concerned over implementation of Food and Grocery code

The Australian Competition and Consumer Commission is investigating reports about the approach supermarket retailers are taking to implement the Food and Grocery Code of Conduct (Code).

ACCC Chairman Rod Sims said, “The aim of the Code is to redress the imbalance in bargaining power that can exist between suppliers and large grocery retailers by prohibiting certain types of unfair conduct”.

“The Code imposes a duty to deal with suppliers in good faith and we are concerned by reports we have received from suppliers that suggest that some retailers have not got off to a good start when it comes to implementing the Code,” Mr Sims said.

“The ACCC has concerns as to the manner in which some retailers, in particular Woolworths and Aldi, are presenting new Grocery Supply Agreements (GSAs), which might give the impression that the supplier is not able to negotiate the terms of the GSA.”

“The ACCC is also concerned about the low level of detail provided in some GSAs about the circumstances in which certain payments may arise.”

The Code sets out a number of prohibitions on, for example, requiring a payment for wastage that occurs at the premises of the retailer. While it is possible for retailers and suppliers to opt out of such prohibitions, this can only occur if the opt outs are agreed, if the agreement sets out the circumstances in which the opt out applies and if the payment is reasonable in the circumstances.

“One of the purposes of the Code is to provide certainty to suppliers, who are often in a much weaker bargaining position when dealing with retailers. In order to provide that certainty, the ACCC expects retailers to set out the circumstances in which they will seek payments from suppliers,” Mr Sims said.

The Code requires that retailers offer code-compliant GSAs. Suppliers should not feel compelled to sign these agreements and should seek advice before signing them. In particular, the Code will confer protections on suppliers 12 months after a retailer has signed up to the Code, regardless of whether a supplier has accepted a code-compliant GSA.

The ACCC said it has written to retailers about the manner in which they purport to be giving effect to the Code. The retailers have responded providing their new GSAs and the correspondence they have sent to suppliers offering the new GSAs. 

The said ACCC said it will continue to monitor compliance with the code.

Tassie berries set to get more Coles shelf space

Tasmanian berry producer, Westerway Raspberry Farm is teaming up with Coles to put Tasmanian-grown berries in supermarket freezers around the nation.

Westerway, with the support of Coles, will install the only berry freezer tunnel in use in Australia.  As a result, Australians will now be able to choose fresh frozen Tasmanian raspberries, blackcurrants, blackberries, blueberries and mixed berries, rather than imported frozen berries.

Tasmanian growers already produce all of the vegetables used in Coles’ frozen vegetable line and it’s fantastic to see that Tasmania will once again be feeding the nation, this time with frozen berries.

This announcement will see Westerway increase its plantings, open up new markets for Tasmanian produce and critically, employ an extra five people full time, with hopefully more jobs to come as the company looks to new markets for its premium products.

Coles’ connection to Tasmania goes back over 100 years.  The Coles family owned and operated a general store in Wilmot in early 20th century and now Coles supermarkets employ more than 1,800 people across 31 sites in the State.

 

Woolworths’ poor results hide long-term success

As Wesfarmers and Woolworths continue to battle for leadership across different retail categories in Australia, Julia Illera from Euromonitor International assesses how successful they’ve been in their attempts to gain market share – as well as the hearts and minds of Australian consumers.

 “Although competition has been almost head-to-head in most of retail categories in recent years, including grocery retailing (supermarket, forecourt retailing, food/drink/tobacco specialist) and mass merchandisers (discount department stores), Wesfarmers has managed to step ahead in the competition thanks to its position in mass merchandisers and home improvement and gardening stores with its Kmart, Target and Bunnings brands,” said Ms Illera.

“Furthermore,” she noted, “Wesfarmers also has a strong presence in stationers/office supply stores with the Officeworks brand, a category in which Woolworths Ltd does not have a presence”

“Despite Woolworths’ poor FY15 results, out of these two competitors Woolworths seems to have a better strategy for the long term, with its online channel better prioritised and experiencing stronger growth. For FY14, the group reported a 50% increase in its online sales, exceeding $AUD1.2 billion. In FY15, it reported a 15.6% increase in online sales to $AUD1.42 billion.”
 
“Up until now the battle has been limited to the physical world, but it seems we will soon see the fight move increasingly online,” Illera concluded.

Thomas Foods set to pack on the beef

South Australian meat processor, Thomas Foods International says it will boost its beef processing capacity by up to 25 per cent with a new beef boning facility.

Thomas Foods has an annual revenue in excess of $AUD1billion and is Australia’s largest family-owned meat-processing company.

It currently supplies a range of retail outlets including Coles, Woolworth’s, Costco and also Aldi.

According to the company, this $AUD25 million upgrade of its Murray Bridge abattoir will boost the company's beef processing capacity by a quarter and will see the creation of an additional 200 jobs.

“The new facility will use the latest technology for refrigeration, conveying, sortation, cryovac packing and hygiene,” Thomas Foods CEO David McKay said.

"It will be one of our company's biggest investments," he said.

Australia lagging behind online grocery shopping

Just 12% of Australian consumers use e-commerce services to order groceries online and have it delivered to their home – 13 percentage points lower than the global average of 25%, and well behind the Asia Pacific average of 37%, according to the latest Nielsen Global E-commerce and New Retail Report. Despite this, more than half (55%) of Australian consumers say online order and delivery is a service they are willing to use.

 
An even smaller number of consumers are using the “Click & Collect” services that retailers like Coles and Woolworths readily offer for grocery purchases. Just 5% of Australian consumers say they order groceries online and pick them up using a drive-thru service. However, more than half (53%) are willing to use this option in the future.
 
“The Australian landscape and lifestyle is more complex to other markets, with many consumers living a reasonable distance from retail stores and many not being at home to accept grocery deliveries,” said Megan Treston, a Director in Nielsen’s Retail Industry Group. 

“Advances in technology are providing greater flexibility for shoppers, and offers like click and collect and, more recently, bundles to overcome individual delivery fees are introducing new ways to overcome barriers for online grocery shopping. The delivery fee bundling offer is very exciting and we’re watching this space closely.”
 
Nielsen’s Homescan Shopper Panel data shows that online represented 1.9% of all grocery sales in Australia for the year ending 13 June 2015, and growth is substantial; up by 29.3% for the year.  
 
There is a similar trend to growth in online grocery shopping when looking at dollar growth by key department (see below); signaling that online is vital to boosting growth in a relatively stagnant grocery market. The exception to this is Health and Beauty, which is a high involvement category and also faces intense competition from the likes of department stores, pharmacies and other online beauty retailers.
 
Treston says: “The retailers who will win the most of this prize are those that will leverage technology to enhance the existing shopping experience and meet consumers’ evolving desires with a trustworthy service and by offering real convenience. Consumers are ready for it, so retailers should meet that openness to technology.
 
 “As smartphone ownership and usage reaches saturation point in Australia, mobile commerce opportunities will also thrive and contribute to strong growth of digital grocery sales. We recently predicted the online channel will be responsible for over $1 billion of sales growth the industry is likely to see over the next five years, and this research shows an existing appetite that is waiting to be nurtured if consumer needs are accurately met, “said Treston.
 
“Retailers and manufacturers can add value by providing digital tools to help consumers take control of their shopping experience while also increasing sales potential. Mobile in particular can tip the scales in favour of increased shopper control, empowering them to shape the shopping experience more than ever before. Introducing digital strategies into the in-store experience is not just a nice-to-have—these options can increase dwell time, engagement levels, basket size and shopper satisfaction,” she said.
 

Coles refunds over $12 million to suppliers following ACCC action

Independent arbiter, Jeff Kennett has instructed Coles to refund over $12 million to suppliers and has also allowed suppliers to exit the ARC program without penalty or have their ARC contribution rebates reviewed.

The $12 million is in addition to the penalty ordered by the court of $10 million fine in December last year.

“The arbitration process conducted by Mr Kennett has proven both extremely timely and effective with significant benefits to suppliers,” ACCC Chairman Rod Sims said.

“The process will also deliver flow on effects for suppliers more broadly as a result of changes Mr Kennett says Coles has begun to implement that affect the way it deals with its suppliers.”

The refunds process arose out of the resolution of two proceedings commenced by the ACCC against Coles in 2014: the ‘ARC proceedings’, and the ‘claims proceedings’.  In December, the Federal Court made declarations in both proceedings by consent that Coles had engaged in unconscionable conduct in 2011 in its dealings with certain suppliers.

As part of the resolution, Coles also provided a court enforceable undertaking to the ACCC to establish a formal process to provide options for redress for over 200 suppliers. In December 2014, Mr Kennett was appointed to administer the process and to assess the eligibility of:

  • over 200 smaller suppliers listed in the ARC proceedings, categorised by Coles as ‘Tier 3’ Suppliers, to obtain refunds of any prior ARC rebate payments and seek adjustments of future rebates (taking into account the circumstances of their entry into the ARC program and any benefit received from their access to ARC over and above any arrangements they had with Coles prior to the implementation of the ARC program); and
  • suppliers referred to in the claims proceedings (in respect of which Coles made admissions in relation to profit gap claims, waste claims, and delivery fines) to obtain possible payments.

“The high level feedback from suppliers is that they are largely satisfied with access to redress from Coles and the timely, efficient and low cost approach. Ultimately, it was a matter for each supplier to decide whether or not to proceed with the resolution proposed, and as Mr Kennett’s report demonstrates, a very large number accepted the relief offered by Coles,” Sims said.

“The arbitration process was intended to provide an efficient alternative to otherwise lengthy and costly processes in determining the loss and damage of affected suppliers.  Mr Kennett has now finalised his deliberations and has instructed Coles to refund over $12 million to a number of ‘Tier 3’ suppliers and a further $324,000 to suppliers listed in the claims proceedings. This is in addition to the penalty ordered by the court of $10 million,” Sims said.

Under the arbitration process, it was also open to suppliers to simply exit the ARC program. A number of suppliers took this option. Suppliers who sought a review of their eligibility for refunds also had the option to exit the ARC program.

“Mr Kennett has reported that his arbitration process has resulted in substantial ongoing savings for suppliers. Exit from the program chosen by some suppliers and reduced rates for others will save suppliers significant additional costs into the future,” Sims said.

Kennett’s determinations, as the independent arbiter, are binding on Coles and Coles has already moved to implement steps necessary to comply with those determinations. Kennett also made a number of non-binding recommendations to Coles on the basis of his discussions with some suppliers.

“The ACCC recognises and acknowledges Coles’ co-operation in acting upon the binding determinations made by Mr Kennett and in making some of the non-binding changes recommended by Mr Kennett. It moved quickly and without challenge to accept the decisions and implement changes,” Sims said.

 

ACCC will review Coles’ proposed acquisition of Supabarn

The Australian Competition and Consumer Commission will shortly commence a public review of Coles’ proposed acquisition of Supabarn supermarkets.

ACCC Chairman Rod Sims said: "Given Supabarn’s position as a significant independent supermarket chain, an important focus of the ACCC’s review will be whether its removal as a competitor would substantially lessen competition between supermarket chains. The review will also examine each of the individual local markets in which the Supabarn stores operate, and any effect on grocery wholesaling and supply markets".

“The legal test which the ACCC will apply in considering the proposed acquisition is in Section 50 of the Competition and Consumer Act (2010). Section 50 prohibits acquisitions that substantially lessen competition in a market, or are likely to do so.”

“The main indicator of a substantial lessening of competition is whether the acquisition would enable firms in the market to raise prices or reduce product quality (including service and choice) or innovation following the acquisition. Section 50 does not allow the ACCC to consider factors other than those related to competition. In particular, the ACCC cannot oppose a proposed acquisition because of its potential to impact on the character of a local area,” Mr Sims said.

As part of its review, the ACCC will invite submissions from consumers, suppliers, supermarket operators and other interested parties.

The ACCC will commence its review this week and will be accepting public submissions until mid-July.

 

Move over Aldi, Lidl may be next for Australian market

If speculation that German discount supermarket, Lidl, is preparing to launch into the Australian market is correct, it will be the biggest shake up in the grocery sector since Aldi’s arrival in 2001.

With potentially five viable combatants in the mix, the way we shop and how supermarkets and suppliers compete, will fundamentally change.

It’s not a matter if, but when

While Lidl has stated it has “no current plans”, it recently trademarked 500 brand names in Australia, including its own, and there have been media reports of it investigating logistics and distribution options.

It has just confirmed its long vaunted expansion into the United States.

Woolworths’ chief executive Grant O’Brien has sought to allay investor concerns about the impact of Lidl by pointing out it would take time for another grocer to gain traction and scale in the market – but with Aldi having laid down the foundations, market penetration and expansion will happen a lot quicker.

But it’s important not to understate the enthusiasm Australian shoppers have shown for the discounter model and more importantly, private label products. It is likely that private label product manufacturers would enthusiastically want to work with Lidl. Where once the option was to deal with either the big two or Metcash’s IGA stores, suppliers now have opportunities with Aldi and potentially Lidl. Lidl’s entry could provide a fundamental shift in power from the big supermarkets to suppliers.

Should the supermarkets be a Lidl worried?

The Schwarz Group, owners of Lidl, are the fourth largest retailer in the world, operating across more than 26 counties and generating more than US$100 billion in sales every year – substantially more than Australia’s Coles and Woolworths put together.

With more than 60% of revenues coming from its international operations, Lidl has both scale and foreign market entry know-how on its side. Lidl’s stores are larger than an Aldi site and while predominantly carrying private label products, they offer a fixed ranged of appliances, general merchandise, apparel and brand name products. All at very low prices.

Across Europe and the United Kingdom, discounters like Aldi, Lidl and Netto have carved out a strong market position and attained shopper loyalty. In Britain, the Lidl brand was considered more likable than Twitter, by young people, aged 18 to 24 years. We should expect to see the same market shift here in Australia.

If the experience of UK brands such as Sainsbury’s and Tesco are a guide, Coles and Woolworths should expect to lose market share. But it is independent grocers that would be would the worst hit. As the grocery market polarises, with full-line supermarkets at one end and discounters at the other, being stuck in the middle is not the place you want to be.

It appears that Metcash’s IGAs are already experiencing this shift.

What might this mean for shoppers?

Shoppers are visiting supermarkets more frequently than ever before, with most seeking “good value” and “low prices”. In any given week, customers shop across several brands and are no longer loyal to one.

With grocery prices in decline since the “supermarket wars” began, it goes without saying that shoppers will be winners.

Strategically, it is not uncommon for global firms to keep their market expansion and entry plans to themselves, rather than letting the incumbents know their planned locations and who their proposed suppliers may be, as global food retailers greatly rely on local supply and third party logistics providers.

The current leaks surrounding trademarking activity and alleged discussions with suppliers and logistic providers would not be sitting well with Lidl, and this may hasten their entry plans, before competitors can lock up key locations and suppliers.

Aldi raised such concerns against both supermarkets in its submission to the 2008 ACCC inquiry into the competitiveness of retail prices for standard groceries.

In a move possibly indicating the big supermarkets want to lock in supply before Lidl arrives, Woolworths has been attempting to negotiate to extend supplier contracts from 18 months to between three to five years.

The future

While it will be tempting to compete on price, trying to beat these global discounters at the own game is fraught with danger. Such at strategy hasn’t worked elsewhere. In the UK and (specifically Holland), the impact of a prolonged price war has lead to eroded margins, and led to loss of market share and closures.

Woolworths and Coles should focus on what the discounters don’t offer, rather than compete on what they do best. IGAs appear the most exposed with the current business model not allowing operators to compete on range or price; accordingly we should expect to see structural change here.

With Aldi’s expansion into Western Australia and South Australia, and potentially Lidl’s entry, shoppers and suppliers will be the winners at the end of the day. As the market, once concentrated around the “big two” starts to distribute proportionately across all five players, shoppers will see lower prices, and suppliers, a greater choice of trading partners.

The Conversation

Gary Mortimer is Senior Lecturer, QUT Business School at Queensland University of Technology.

This article was originally published on The Conversation. Read the original article.

Coles announces $50 mill Nurture Fund

Coles will establish a Nurture Fund to help small Australian food and grocery producers, farmers and manufacturers to innovate and grow their business.

Coles will allocate $50 million over five years in grants and interest-free loans to fund the development of new market-leading products, technologies and processes.

Announcing the Nurture Fund with Coles ambassador and chef Curtis Stone at a vegetable farm in Victoria’s Werribee this morning, Coles managing director John Durkan said the Fund would be open to businesses with less than $25 million in annual revenue and 50 or fewer full-time employees.

“The Coles Nurture Fund is one way we can offer support and encouragement to small Australian businesses looking for assistance to take the next step in creating more productive and innovative ways of working,” Durkan said.

“Through investing in productivity driving activities we can not only provide better value to customers but also help set up small businesses to develop the products and platforms to expand their operations and, in some cases, export into global markets.

“Smart, energetic and agile small businesses can often be a launch pad for great product innovation and powerful new ideas on better ways of working.

“Coles wants to hear exciting and ambitious plans from smaller entrepreneurs about how they can deliver new and better product to customers, or about ideas they have for innovative business systems that will improve how they get product to market. Modest financial support can make the difference in getting great ideas up and running.”

Curtis Stone will join three Coles directors on a panel which assesses applications with the support of independent industry advice.

“Australia produces some of the highest quality food in the world and farmers, producers and manufacturers in Australia are continually demonstrating how innovative they are on their farms and in the factories. The Coles Nurture Fund will help drive innovation and growth for small businesses so they can take up more opportunities in Australia and on the world stage,” Stone said.

“I’m really excited to help support the industry by helping to assess applications from fresh food businesses.”

Application forms for the Coles Nurture Fund are available at www.coles.com.au/nurturefund.

 

Coles to pay $2.5 mill for bread claims

The Federal Court has ordered Coles to pay penalties of $2.5 million for its misleading "Baked Today" and "Freshly Baked In-Store" bread promotion.

The Federal Court has ordered Coles Supermarkets Australia Pty Ltd (Coles) to pay penalties of $2.5 million for making false or misleading representations and engaging in misleading conduct in relation to the promotion of its par baked bread products, in proceedings brought by the Australian Competition and Consumer Commission.

The products were promoted as “Baked Today, Sold Today” and in some cases “Freshly Baked In-Store”, when they were in fact partially baked and frozen off site by a supplier, transported and ‘finished’ at in-store bakeries within Coles supermarkets.

In imposing these penalties, Chief Justice Allsop said “The contravening conduct in this case is substantial and serious. Notwithstanding the absence of any specific evidence as to loss or damage by a consumer or a competitor, it is clear that the significant potential to mislead or deceive and thus to damage competitors, the duration of the conduct, and the fact that the goods in relation to which the impugned phrases were used were “consumer staples” indicate that the objective seriousness of the offending conduct was considerable.”

The evidence before the Court showed that Coles had engaged in the campaign with the clear purpose of improving its market share vis-à-vis its competitors, being bakeries such as Bakers Delight…It set out to do so by engaging in the conduct that, in fact, breached the Australian Consumer Law,” Allsop said.

“This penalty sends a strong message to companies that they should not use broad phrases in promotions that are deliberately chosen to sell products to consumers but which are likely to mislead consumers,” ACCC Chairman Rod Sims said.

“As the Chief Justice pointed out, it is important that sellers in the market recognise that consumers are entitled to reliable, truthful and accurate information”

“The ACCC took this action because it was concerned that Coles’ “Baked Today, Sold Today” and “Freshly Baked In-Store” claims about its par baked bread were likely to mislead consumers. The conduct also placed independently-owned and franchised bakeries that entirely bake bread from scratch each day at a competitive disadvantage,” Sims said.

Coles’ conduct was part of a nationwide campaign that was promoted in 637 Coles supermarkets. “Baked Today, Sold Today” was used extensively on packaging for par baked products over a three year period. During this time, Coles sold a significant number of par baked products and generated substantial revenue from these sales.

In September 2014, the Court declared that by using the phrase “Baked Today, Sold Today”, Coles represented to customers that certain bread products were entirely baked on the day on which they were offered for sale, when this was not the case, in contravention of the Australian Consumer Law (ACL).

The Court also declared that by using the phrases “Freshly Baked In-Store”, “Freshly Baked” and “Baked Fresh”, Coles had represented that certain bread products were baked from fresh dough, entirely baked on the day on which they were offered for sale and had been entirely baked in the Coles in-store bakery, when this was not the case and in contravention of the ACL.

At that time, the Court banned Coles from advertising that its bread was made, or baked on the day that it’s sold for three years and that it place a corrective notice on its website and in its in-store bakeries.