Supermarkets battle over price of bread

Coles, Woolworths and ALDI have all pushed the cost of a 650g store-brand loaf to 85¢ – about 4 cents per sandwich slice.

Woolworths lowered the cost of its Homebrand white bread last Thursday, and Coles dropped the price of its Smart Buy white bread on Friday. ALDI followed suit and lowered its price on Saturday.

Woolworths' media spokesman Russell Mahoney said the new price will not impact upon suppliers.

The price reduction is the lowest ever price on Homebrand white for Woolworths, which the supermarket said is in response to customer demand for value on everyday staples.

George Weston Foods supplies Woolworths' store-brand bread, which is baked in Australia.

According to Goodfood, Baking Association of Australia executive officer Tony Smith said the cheap cost of supermarket bread came at a cost to Australian bakeries. “Basically it's a disgrace. All they're doing is bastardising the industry. Bakers can't make a loaf for under $1.50,” he said.

“It puts the local baker out of business and people out of jobs. Small business doesn't need this at the moment.

For Coles, the 85¢ cost is a further reduction on the $1 price tag on Smart Buy bread from the Coles' “Down Down” campaign in 2011.

Coles communications manager Jasmine Zwiebel said there had not been any supply problems with the discounted Smart Buy bread. “Bread is a staple in Australian households and will always be a popular item on the shopping list. Therefore, we will continue to ensure we have the quantities required to meet customer demand.”

Tom Godfrey, head of media at Choice, said getting consumers into the supermarket is the primary purpose of these types of discounts, but that another possible reason for the discounting is the growth of Aldi supermarkets.
“Particularly in the eastern states, Aldi is increasing its market share, with more people getting very cheap items from the 1500 product lines they stock,” he said.

Godfrey also suggested that consumers should ensure they are getting value for their money. "Price is one thing but you've also got to look at quality of the products," he said.

The Senate inquiry into supermarket giant Coles’ decision to slash the price of milk to $1 a litre has found the dairy industry has not suffered as a result.

Similarly, in 2011 Coles, then Woolworths lowered the price of store-branded milk to $1, and experienced a backlack from dairy farmers, who said they will be pushed out of business, through “unsustainable” prices.

A senate inquiry, into Coles’ decision to slash the price of milk has found the dairy industry has not suffered as a result and the ACCC concluded there was no problem with Coles’ decision.


Prices down down, and the tab’s on Coles

Coles said it is funding the down down and deeper down down price cuts that it has announced across its freezer aisles.

A spokesperson for the supermarket said “Coles is investing millions of dollars in lowering prices and the price cuts across the freezer are being funded by Coles.”

Coles has expanded it’s down down and deeper down down discounted range across its freezer aisles, to include an additional 100 products.

Coles has added 35 new products on the down down list, and 66 products to the deeper down down products.

Some of these include:

  • Coles Brand Frozen Corn Cobs 1kg (Aussie Grown)
  • I&J Crispy Frozen Fish Fillets 425gm
  • Streets Blue Ribbon Ice Cream 2L, multiple varieties
  • Bulla Frozen Yoghurt 1.8L, Mango & Wildberry varieties
  • Coles Brand Frozen chips 1kg (Aussie Grown)
  • Coles Brand Frozen Fruit 300-500g, multiple varieties

The Deeper Down Down campaign began in February, with the discounting of brands such as Nescafe Blend 43, Lipton Black Tea Bags and Sanitarium Weetbix.

Last year, the Australian Food and Grocery Council criticised Coles’ and Woolworths’ discounting, claiming Coles favours its own private label products in its Down Down range. Coles retaliated, arguing that branded products make up 75 percent of all products in-store.


Supermarket wars – a tale of the Australian duopoly

Consumers do not automatically consider the Australian grocery duopoly as an industry at all. Its stores play a part in most Australians’ everyday lives, whether it’s dropping into the local supermarket on the way home from work, or being exposed to blasts of push media in the form of fresh promises or revised jingles on TV, radio and billboards.

Australia is the most concentrated grocery market in the developed world: our top two retailers hold 78 percent of total grocery market share collectively, according to the Australian Food and Grocery Council (AFGC). This compares to 48 percent in the UK, 44 percent in France and only 24 percent combined market share of the top two grocery retailers in the USA. As an industry, the Australian grocery scene reads like a twisted schoolyard rivalry. It’s a high school scene with a fierce tension between ‘cool groups’. There’s never room for two. Let me explain.

Regarding industry leadership, the helm of Australian grocery was largely uncontested until 2007 when Wesfarmers bought Coles for $20 billion. This acquisition saw a brand new managerial board from the “Tesco school of grocery leadership” reshape the frumpy bridesmaid of grocery retail into a real threat for Woolworths. They initiated a flurry of revised consumer marketing, celebrity chef endorsements, Tesco-inspired business strategy, fierce price discounting and an emergent pride and equity associated with private label products.

The complacent Woolworths had been around forever, with a strong heritage (‘Safeway’ street cred) and a relative trend setting reputation on their side. They were the first to ‘liven up’ the consumer experience by draping their staff in green shirts and installing self-service checkouts.

To the tune of promotional renditions of Status Quo’s greatest hits played on big-red-hand guitars, Coles continued to challenge for leadership. The red they’d always worn was brighter (and damn, that’s a food colour), their jingles catchier and their pricing promotions more memorable. The mothership from the UK had been flying under the radar whilst gathering information about the local turf. Before 2008, 70-80 percent of Coles’ staff were employed on a casual basis. They instantly transferred as many employees as they could onto permanent part-time basis’ to gather camaraderie and champion the shopper’s in-store experience in their quest for a supermarket shake up.

Despite all of this action, the Australian Food and Grocery Council reported a 2.2 percent Compound Annual Growth Rate (CAGR) food and grocery industry decline in 2009-2011. Of course other school yard factions made moves, but none have made any real threat to the throne. Metcash, whose primary grocery channel is IGA, is trying to cling to its second tier status while playing a strong ‘locals’ card and capitalising on its ability to customise stores as needed. A recent Roy Morgan report identified Metcash had officially been knocked off its third place perch by German retailer Aldi, which now accounts for over 10 percent grocery sales. 

As the country’s largest manufacturing sector, Australian food and beverage manufacturing employs a quarter of a million people. Grant Thornton’s survey of industry CEOs revealed that manufacturers are feeling the impact of private label competition and anticipate further negative impact on profits.

From primary producers to suppliers, everyone is now fighting for their share of scarce profits and competitive advantage. The implications of this rivalry reach far and wide into the Australian economy. Supermarket shelves are the culmination of Australia’s  $110 billion food and grocery manufacturing industry’s supply chain.

Manufacturers face constraints on shelf space and therefore opportunities to reach their consumers. Their products are often sacrificed to make way for competitive copy-cat private label offers, trade margins and the ‘cost of doing business’, as well as retailer demands for deep promotional pricing (either fully or partly funded by the manufacturer). This is additional to the external, non-grocery factors impacting Australian food manufacturing’s business such as the high Australian dollar, ever changing regulatory compliance initiatives, commodity pricing and increasing costs of energy and labour.

In order to increase competition, the Australian government should appoint a supermarket ombudsman responsible for assessing the trade margin implications of both Coles and Woolworths on the greater supply chain. The ombudsman should also hold responsibility for monitoring private label market share across all categories. As per the AFGC’s 2011 recommendation, such an ombudsman should ensure that branded products continue to have access to supermarket shelf space on a fair and equitable basis. Without such an authority, the anti-competitiveness of the industry will continue to rise, and both the industry and consumers will suffer.

Alexandra Wall is a student at RMIT University and was a Global Voices Delegate to the OECD Forum in May this year.

Supermarket milk prices bite suppliers

The supermarket price wars have been difficult for dairy producers and suppliers, with Longwarry Food Park forced to concentrate on the export market.

At a recent BRW/GE Capital ‘Momentum For The Mid-Market’ industry discussion panel, Longwarry’s founder and CEO Rakesh Aggarwal said that within three months of its attempt to sell domestically, Coles had begun selling $1 milk.

It has forced Longwarry and Aggarwal to concentrate on the Asian market, BRW reports.

“In the last six months, we’ve brought down our volume of business with the supermarkets; we were doing 20 per cent last year and next year we’ll probably do seven per cent,” BRW reports him as saying.

The last four years had seen, according to Aggarwal, “the price of milk [go up] about 15 cents, but the price supermarkets are willing to pay has come down seven cents.”


Coles expands discounts with new Deeper Down Down range [video]

Supermarket giant Coles has taken its Down Down discounted range a step further, offering up to 34 percent off the original price on a number of popular brands as part of its Deeper Down Down offering.

Coles will also add 50 new products to the Down Down range.

John Durkan, Coles chief operating officer, said “Together with some of Australia’s favourite brands, we are offering our customers Deeper Down Down prices. This means pantry staples that are already on Down Down will have their price reduced even further – with discounts up to 34 percent on brands including Nescafe, Lipton and Sanitarium.”

While the Down Down campaign reduces prices for a minimum of six months, many products have been held at the lower price point for over two years.

Fiftty new items will be added to the existing 1,400 products currently in the Down Down range, including Golden Circle Fruit Juice 2L (was $3.59 now $2.70) and Huggies Bulk Nappies 30-54pk (was $19.98 now $17.00).

The Deeper Down Down campaign commences today (26 February).

While advertising campaigns from both Coles and its key rival, Woolworths, have focused on reduced prices in recent years, research conducted by Roy Morgan in mid-2013 questioned the effectiveness of such campaigns with that less than half (45 percent) of Coles customers believing it offers low prices.

From 2009 to the start of 2012, one in two Coles customers believed that the supermarket had low prices, while rival Woolworths, which offers its down Every Day Value prices, came in lower with just over 40 percent.
Last year’s research however states that the two supermarket giants are almost on par, with Woolworths only two percentage points behind Coles.

Norman Morris, Roy Morgan’s Industry Communications Director, said “Perhaps the effectiveness of the ‘Down Down’ campaign has come to an end, with consumers tuning out the message after years of exposure: the latest March 2013 results reveal there is once again only a small gap between Coles and Woolworths customers, primarily due to a decline shown by Coles rather than any ground made by Woolworths.”

The food industry has criticised Coles’ and Woolworths’ discounting, with the Australian Food and Grocery Council claiming Coles favours its own private label products in its Down Down range. Coles retaliated, arguing that branded products make up 75 percent of all products in-store.



Higher farmgate prices leads to increased dairy confidence

Dairy Australia released its Situation and Outlook report today which indicates a positive consensus for the industry’s future amongst the nation’s dairy farmers.

The report stated that 73 percent of farmers surveyed were positive about the industry’s future and that 40 percent were considering farm investment.

Norman Repacholi, an analyst at Dairy Australia, said the survey indicated that farmers had intentions to increase production over the next three years, the Weekly Times Now reports.

"Overdrafts have increased by $70,000-$150,000 in some areas and that will take a bit of time to digest," he said.

"From a financial perspective, some areas that didn't (take such a financial hit) are rebooting expectations of investment on-farm, infrastructure on-farm outside of the dairy."

Dairy Australia has also forecasted milk production growth to increase by two percent to approximately 9.5b litres this season.

Dairy giant Fonterra Australia announced an increase of 16 cents per kilogram of butterfat and 40 cents per kilogram of protein for the 2013/14 season for Victorian and Tasmanian suppliers late last week.

Fonterra say that the price increase was possible due to strong and consistent international dairy commodity prices, coupled with the fact that the Aussie dollar has steadied at lower levels.

The strong outlook serves as positive news for the industry, who had recently suffered from price pressures relating to $1 milk deals with supermarket giants Coles and Woolworths.


IGA enters price wars with new ad campaign [video]

IGA joins supermarket giants Coles and Woolworths in the battle for lowest prices, with the launch of a new advertising campaign featuring an animated padlock.

The TV advertisements features brand ambassador Anh Do, as well as an animated padlock, 'Lockie'.

The campaign, which will run across online platforms, point of sale marketing and catalogues, confirms IGA's entry into the supermarket price wars, dropping and locking prices on 1,000 products for three months.

According to Mumbrella, the campaign will be followed by a series of price cuts on hundreds of other products.

Both Coles and Woolworths have launched advertising campaigns promoting their reduced prices, with Coles' adding more than 40 new products to its Down Down range in May this year.



Coles ‘low price’ association is going down down with consumers

Research conducted by market research giant, Roy Morgan has indicated that less than half of Coles customers believe that the supermarkets' prices are ‘down down.’

The results state that 45 percent of Coles customers believe that the supermarket has low prices despite its heavy cost-cutting campaigns.

Advertising campaigns from both Coles and Woolworths over the past five years have demonstrated a heavy focus on price. From 2009 to the start of 2012, one in two Coles customers believed that the supermarket had low prices, while rival Woolworths came in lower with just over 40 percent.

The new research however states that the two supermarket giants are now almost on par with Woolworths only two percentage points behind Coles.

“Despite the strong five-year gains overall, still less than half of each supermarket’s customers associate it with low prices. The successful Coles ‘Down Down’ campaign that has aired for three years, would have played a considerable part in moving low price perception upwards among their customers, and been the point of difference that allowed Coles to pull ahead of Woolworths for cut-through of low prices.,” said Norman Morris, Roy Morgan’s Industry Communications Director.

“But perhaps the effectiveness of the ‘Down Down’ campaign has come to an end, with consumers tuning out the message after years of exposure: the latest March 2013 results reveal there is once again only a small gap between Coles and Woolworths customers, primarily due to a decline shown by Coles rather than any ground made by Woolworths.

“Satisfaction levels amongst Coles customers are similarly trending downward, indicating a strong relationship between satisfaction and perception of low prices.

“It remains to be seen whether Coles’ recent advertising campaigns involving promotional competition this will have any effect on reversing the ‘one direction’ Coles is heading in.”

According to the research, Aldi still holds the strongest association with low prices amongst consumers in the sector with nine out of ten believing that the supermarket has ‘low prices.’


Metcash says supermarket playing field is unfair

Ian Morris, the soon to be CEO of Metcash will be launching a review into the company’s operations following a recent drop in market share.

Metcash today announced that although its underlying full year profit rose by 6.9 percent to $281 m, the wholesaler lost market share in its core grocery business due to a poor trading environment and a major restructure which included the closure of a number of stores.

Metcash, whose portfolio includes supermarkets chains IGA and Franklins, will be reviewing its online offerings and its relationship with suppliers in face of nationwide deflation and the ever increasing battle for customers between supermarket giants Coles and Woolworths.

As reported by SHM, Morris said that Metcash must help its independent grocery stores drive better results as aggressive cost cutting initiatives from Woolworths and Coles, coupled mounting pressures from new market entrants, Costco and Aldi continues to rise.

"The playing field certainly is not level in grocery in this country at the moment," Morrice said as reported by Weekly Times Now.

"We'll be looking for help from the people who've got the power to level the playing field for us in that regard because, unlike our competitors in grocery, we don't control the petrol stations and the price of petrol.”

Despite the loss in market share in the core grocery business, Metcash shares rose 4.9 percent to $3.61.

Commonwealth Bank analyst Andrew Mclennan said that although the increase in share price came in above analyst expectations, market share remained a concern.

“Market share remains an issue for Metcash,” McLennan said. 

"The longer term trend has been one of a difficult competitive position that's likely to continue.” 

Coles poised to increase dairy processor payments

With a number of milk processors announcing increases in opening milk prices for the next season, Coles is being pressured to stay "true to their word" and increase its payments to processors.

Fonterra, Murray Goulburn and Warnambool Cheese and Butter recently announced stronger opening milk prices, crediting the rise (20 percent, on average) to global demand and the weakening Australian dollar.

According to Queensland Country Life, the supermarket giant has "rise and fall" clauses in its private label milk contracts and has announcedit will ingredient processors' payments to reflect the higher farmgate prices.

"If they are true to their word the price for Queensland dairy farmers supplying Coles with fresh milk should see their price rise by at least 24 percent, which is the increase announced by Murray Goulburn," said Queensland Dairyfarmers' Organisation president, Brian Tessmann.

A Coles spokesperson said the company will be reviewing and substantiating claims and cost price rises and then deciding whether to absorb the increases or pass them onto consumers.

There's no doubt the dairy industry will welcome any move by the supermarkets away from their $1 pricing schemes, which have been heavily criticised by dairy farmers and are belived to have contributed to the collapse of two West Australian dairies, one being Lactanz Dairies, the state's biggest dairy producer.


WA dairy struggles raise questions over industry’s future

The collapse of two West Australian dairies, now in the hands of receivers, has raised questions over the viability of Australia's dairy industry.

Western Australia's biggest dairy producer, Lactanz Dairies, and a family run dairy at Capel have both collapsed and acting chief exectuive of Lactanz Dairies, Michael Allen, said the company's woes are because broader industry issues.

According to, Allan is based in New Zealand, where the dairy industry is thriving, and says Australia's industry is at risk unless farm gate prices rise.

"Unfortunately in WA over the years our production increased but the milk payout fell. Prices fell by more than 15 percent two years ago and on top of that land prices fell," he said.

Dairy farmers have spoken out about the supermarket duopoly's $1 milk wars, arguing that it's made the industry unsustainable.

Western Australia experienced its biggest shortfall in decades this year, with Lion, which supplies to Woolworths, bringing in milliopns of litres of milk from interstate.

While Fonterra, Warrnambool Cheese & Butter (WCB) and Murray Goulburn have announced strong opening farmgate milk prices this month, WCB's CEO, David Lord, says the company will remain cautious in the coming months.

"These movements have been very positive and give us confidence in our outlook for the first half of the season where we anticipate world dairy prices will remain strong. Given the volatility of the many external factors, such as; milk supply growth, market demand, world dairy prices and exchange rates make it difficult to predict in the longer term, we maintain a cautious approach to the second half of the year," he said.

Ben Purcell, managing director at Brownes Dairy, said farm gate prices have been given a boost over the past 12 months due to competition for local suppliers between the Lion, Brownes and Harvey Fresh processors, they're still not delivering farmers a reasonable return.

"If we don't get a fair price out of the market and a fair price back to farmers, the industry won't survive … We are not seeing people taking up dairy farming, we are only seeing exits," he said.


Warrnambool Cheese & Butter announces opening milk prices

Warrnambool Cheese & Butter (WCB) have announced their final 2013 and opening 2014 milk prices.

The average opening milk price is approximately 25 percent higher than last year at $5.65 per kilogram according to a recent statement from the company. WCB’s forecasted full price range is $5.90 to $6.10 per kilogram of milk solids, and will be subject to a quarterly price review process.

WCB’s CEO David Lord, said that the price reviews will be undertaken due to the volatile nature of the industry.

“As the Industry has experienced in recent years, markets and exchanges rates are volatile and can move very quickly in a positive or negative direction. In this environment we need to be aware that this volatility can impact on the industry and on milk prices paid,” he said.

The 2012-13 season will see a step up of six cents per kilogram for butterfat and 15 cents per kilogram for protein. This will serve as a retrospective payment with the new rate applying to milk supplied from 1 July 2012. A statement from the company says that the payments will be made from June 2013 proceeds in July this year to current milk suppliers.

Lord said that the increases represent a strong competitive milk price for suppliers.

“This increase once again delivers on WCB’s commitment to delivering a strong competitive milk price for our suppliers in a very difficult year and takes our final average milk price to $5.00 per kilogram milk solids equivalent.”

The recent improvement in global dairy prices and the easing of the Australian Dollar poses as a positive outlook for the industry, however Lord says that the company will remain cautious in the coming months.

“These movements have been very positive and give us confidence in our outlook for the first half of the season where we anticipate world dairy prices will remain strong. Given the volatility of the many external factors, such as; milk supply growth, market demand, world dairy prices and exchange rates make it difficult to predict in the longer term, we maintain a cautious approach to the second half of the year.”

The announcement has come after Murray Goulburn announced its early opening price of $5.60, a month premature of the new season starting date.


Victoria’s dairy farmers told to wait on milk prices

Despite Murray Goulburn’s early opening price announcement, many Victorian dairy farmers have been told to wait until the new season commences to uncover their opening milk prices.  

Murray Goulburn (MG) has announced an early opening price of $5.60 per kilogram of milk solids, almost a month premature of the new season starting date.

The Weekly Times Now reports that the price includes a ‘prepaid step up’ equating to 13c/kg of milk solids which will be available to dairy suppliers next month, resulting in a 24 percent rise in its opening price.

The announcement was widely embraced by industry, however other milk processors in the region say that they will not be ‘rushed’ into a price announcement.

Other major processors have stated that as the market is moving in a positive direction they will announce prices soon, however volatility in the market required decisions to be made with caution.

Heather Stacy, Fonterra’s milk supply general manager said that the weakening in the Aussie dollar and rising commodity prices provided a positive outlook.

“(MG’s) opening price, which includes a binding loyalty payment, does confirm our view that the market is moving in a positive direction," said Stacy.

Robert Poole, MG’s shareholder relations general manager said that the early announcement will aid in the development of suppliers budgets.

"Given the very tough season we wanted to provide dairy farmers with maximum opportunity to budget on known pricing so they could plan their (financial year) 2014 cashflow," he said.

Supermarket giant Coles has also said that it would consider paying processors more, providing they can demonstrate that the increase is a direct result of farmers receiving a higher price.


Coles’ restructure plan takes aim at independent field reps

In an effort to save millions of dollars annually, supermarket giant Coles is considering creating its own panel of field agents to replace traditional independent merchandising representatives.

The shift would make Coles the arbiter of fees charged to suppliers by field agents and allow the retailer to generate significant rebates in the process according to SMH.

The plan to dramatically cut independent merchandising representatives has allegedly sent waves of uncertainty throughout the agent ranks.

Merchandising reps watch over product on behalf of suppliers inside the store through restocking and changing price points, and currrently charge a fee of approximately five percent of sales to suppliers, equating to around $500 m annually.

A similar plan by Coles was blocked in 2006 by the competition regulator as it was deemed to be “third line forcing” which prevents a company from purchasing goods or services of a particular type from a third party nominated by the company.

The new proposal would see Coles hiring their own “approved” field agents who would charge fees to food suppliers for their services. The fee would be pushed below the industry standard of five percent and a rebate would be charged on top, enabling Coles to revert hundreds of millions of dollars back into their revenue stream.

The move would also mark a dramatic shift from current supplier relationships and continue along the supermarkets long term plan to simplify its supply chain and cut costs. Field agents who are not part of the Coles panel will either have to undergo a new Coles accredited training course for an undisclosed fee, or possibly be shut out of stores.

Coles believes the move will deliver more value for suppliers by simplifying and standardising duties performed by field reps.

''One area suppliers tell us we could improve is how we work with their field force teams – reps they employ to support their brand in-store,” said a Coles spokesman

''So we are currently exploring options to make this service better for suppliers, better for our stores and most importantly better for customers.''

The spokesmen said that the no decision will be made without consulting suppliers and Paul Meyer, chairman of the Association of Sales and Merchandising Australasia said that the peak body representing field agents has not yet been approached about the proposed changes.

''We understand that a private tender process has been undertaken, but we were not privy to the tender document,'' Mr Meyer said.

''The members of our association would be particularly concerned about, if correct, the implications of these rumoured changes to the current system.''


Shoalhaven Farmers consider Devondale offer to supply Coles

Farmers from the Shoalhaven region are considering an offer from Devondale/ Murray Goulburn Co-operative (MG) to supply milk to supermarket giant Coles on a 10 year contract.

The dairy Co-operative discussed plans for a new milk processing facility and future milk supply with local dairy providers and farmers at the Bomaderry Bowling Club last Thursday. The local producers appear to be cautiously interested in the proposal according to the South Coast Register.

“They want to know if this is an opportunity or a threat,” said Dairy Connect Consultant Mick Logan.

Local dairy farmers appear to be interested in the offer providing that an appropriate price is negotiated according to local farmer, Col Walsh.

“They said that they would give us the market value, I’m hoping they can offer more,” said Walsh.

Walsh also explained that despite an attractive ten year contact many farmers remain wary of locking in contracts with either of the supermarket giants.

“Farmers are now sceptical about partnerships with big companies like Coles and Woolworths.”

The new Devondale/ MG processing plants are said to be built in Melbourne and Sydney with operation commencing on 1 July 2014 following the finalisation of the contract with Coles.


Iconic Australian brands will disappear: Pacific Brands

One of Australia’s leading industry executives, Pacific Brands chairman Peter Bush, says that the future of Australia’s iconic retail and grocery suppliers is in doubt as Coles and Woolworths continue to dominate the sector.

Bush believes that smaller companies are likely to fold as the two supermarket giants expand into new market segments, according to the Australian.

 “We are going to probably see in the next 10 years some quite iconic local brands just disappear off the face of the earth,” said Bush told the Australian.

“If you are a small supplier and you want to have your product listed with the major chains – anywhere, whether it is in liquor, apparel or on the supermarket shelf- it’s going to cost a lot of money. It is pretty tough.”

His comments have come as the duopoly enters final negotiations for a voluntary code of conduct with food and grocery manufacturers.

Assistant treasurer David Bradbury has warned that the government may develop a mandatory code of conduct if negotiations for the voluntary code did not equate to a “meaningful” outcome.

The ACCC is also examining the impact of private-label groceries on competition in the supermarket sector. Coles had recently warned suppliers that they risk not being given new business if they are deemed inefficient.

Pacific Brands has been hit by the duopoly’s move into the clothing sector, and pressure from private label brands contributed to the collapse of iconic Australian brand Rosella late last year.


Coles points finger at Coke in latest pricing debate

The MD at Coles has pointed his finger at Coca-Cola Amatil and other multinational Australian manufacturers, claiming prices in Australia are too high.

In the latest chapter of the grocery pricing debate, Ian McLeod, Coles' MD, said manufacturers are asking for much higher prices in Australia than in other overseas markets.

As part of the final stages in the creation of a voluntary code of conduct for dealing with manufacturers, McLeod is asking manufacturers to lower their prices for Australian retailers.

McLeod told Financial Review Sunday, on Channel Nine, “In Asia I see Coca-Cola selling for one-third the price in Australia – that raises another question mark … When it’s 60 percent cheaper then you start to question why it should be so much more in Australia. And those are the challenges that we will then put back to the suppliers and say why is this? Why can’t we get a better price, give a better price to the Australian customer?"

He also mentioned the wine industry, arguing that manufacturers are being sold overseas at a discount to local prices.

"You can take wine from Australia to the other end of the world and sell it at a lower retail price – that causes me to question the price being charged here," he said.

McLeod's comments come at the tail end of the creation of a voluntary code of conduct, aimed at regulating and improving the relationship between supermarkets and retailers.

While many producers are in favour of the code, some even pushing for it to be mandatory rather than voluntary, McLeod said it could do more harm than good, and could even bump prices up further.

"If you are not careful prices could go up on the back of it. It adds the risk of an administrative burden, it could mean it takes away the negotiating position of one party or another and therefore we are not able to negotiate the best deal for the customer," he said.

When McLeod first took on the challenge of revitalising the supermarket giant five years ago, consumers, he said, were complaining that grocery prices were too high.

"Those criticisms were being levelled at the supermarkets, they weren’t being levelled at the suppliers," he said. "When we came in and we had a look at what prices were in Australia relative to the prices that were being charged in other countries, we could see difference in price.

"There may be a reason for those differences in price, but you have to question and challenge some of them when you see them."

Just last week news broke that both Coles and Woolworths were planning to tackle the pricing issue with multinational suppliers, with Coles calling for an independent analysis of wholesale pricing, on the basis that local and overseas prices differ so greatly that they can't be blamed solely on distance, higher production costs or the size of the Australian market.

Woolworths agrees that prices need to be reviewed, giving examples of the pricing of products such as toothpaste and deoderant. According to the supermarket giant, the wholesale prices of these items can be 25 to 40 percent higher than the retail price of the same product in the US or the UK.

McLeod also addressed claims, now being investigated by the ACCC, that the supermarket chains misuse their market power to force suppliers to agree to unreasonable conditions.

"We’re not bullies at all," he said.

And he's got recent survey findings to support him – albeit Coles-commissioned ones. A survey in 2008 found that Coles was rated 14th out of 15 suppliers, but this jumped up to a top four position out of 16 in a recent survey.


Parmalat complains about Coles milk deal


Parmalat, Australia's second-largest fresh milk processor has claimed that the $2 billion private label milk supply deal which Coles has made with Murray Goulburn Co-op could damage the dairy industry.

The Australian Financial Review reports that Parmalat chief executive Craig Garvin said the 10-year milk supply agreement is good for consumers and possibly for Victorian dairy farmers, but will be damaging for farmers outside Victoria and for foreign-owned processors.

 “This is potentially a very divisive and a very disruptional strategy; I think farmers should be nervous,” he told the AFR.

“There's a lot of scepticism among farmers and they're really now starting to look through this deal and what's really in it.”

The deal has raised several other concerns within the industry.

Dairy producers unconvinced on Coles’ milk deal

Dairy producers remain cynical on Coles’ new milk deal with dairy co-operatives.

The supermarket giant signed long-term deals worth $2.6 billion with Devondale and Norco on Wednesday.

Nobby dairy farm owner John Saville said farmers will only gain from the deal if Coles replaces its $1 per litre milk with a higher-priced alternative.

“If Coles are going to pay a premium on the milk, and it’s not going to go a dollar a litre, as long as that nonsense stops, it’ll help the suppliers.

“If this private labelled milk goes in as cheap milk, it’ll have the same effect,” he told The Chronicle.

Coles and Woolworths have attracted extra shoppers by heavily discounting perishable items such as milk, as people need to shop for it frequently. This has taken shoppers away from convenience stores and brought them to supermarkets.

Saville said the Coles deal looks like a measure to boost public relations.

“Being cynical I’d say they’ve picked the cooperatives for the PR exercise.”

On an episode of ABC’s The Checkout, Chris Reucassel said the deal could mean the supermarket giants would reduce processors’ margins and distribute those gains with the farmers’ collective, making lower milk prices more sustainable.

This is different from the Woolworths model, which only provides a premium farmer-made brand.

Lion and Parmalat control 90 per cent of the market for processing fresh milk. While Lion processes Pura and Dairy Farmers, and Parmalat processes Paul’s milk, they also process private label milk for Coles and Woolworths.

Reucassel also said processors pay farmers the same price for milk, regardless of the label. While it might be too early to know the long term consequences of the Coles milk deal will be for farmers or consumers, they concluded that this will negatively affect processors.

Branded milks make a comeback

Company branded milks have a 50 percent share of the milk market, up eight percent on late 2011, with consumers putting health benefits ahead of price.

Research from Roy Morgan and scan data collected for Dairy Australia shows that – like the days before the supermarkets' $1 milk wars -branded milks are neck and neck with their home brand competitors, in terms of volume solds.

It's believed the rise of A2 milk and marketing campaigns promoting the health benefits of other milks, including permeate-free milk, have contributed to branded milks resurgence.

A2 Milk is rich in the A2 type of beta-casein protein that is a source of essential amino acids, as well as peptides.

Warren Reid, group account manager at Roy Morgan, told the Daily Telegraph that there was a spike in total milk volumes sold when $1 milk was introduced in 2011, but that had now flattened off.

"I think people said 'Great, it's on the shelf, I'm going to buy more of it because it's cheap'. So volume went up. The drop off we're seeing is people saying 'I bought too much of it. It wasn't working for me and I had to throw some away'.

"I think people are over it. They are past the $1 milk campaign. They are now on to the fact that permeate-free is there, A2 is there," he said.