Coles is pushing prices down, down, down to help the Aussie battler, right?
Actually, it appears the driving force behind Australia’s supermarket wars is something much more prosaic – supermarket ROI. According to the Sydney Morning Herald:
“A report released in March by the Merrill Lynch analyst David Errington warns that the big three retailers, Coles, Woolworths and Metcash, will need to boost their earnings by $1.3 billion in the next three years if they are to make an acceptable return on the billions of dollars of investments made on acquisitions and capital expenditure. This is on a total earnings before interest and tax (EBIT) pool of $4 billion for the retailers.”
“In the past year, the profit growth of the entire sector has shrunk. Errington’s report says that in the first half of this financial year, the three food retailers delivered a combined EBIT growth of $150 million, a far cry from the $400 million-a-year earnings growth required to make an acceptable return. It will be interesting to see what the full-year earnings will be when the sector reports in the next few weeks.
“If Coles, Woolworths and Metcash fail to generate suitable returns on capital in the next couple of years, investors’ patience will run out and the groups will suffer a significant de-rating.
“It goes a long way to explaining the intensifying price war among the supermarket chains as they try to snatch market share to justify their investments.”
Doesn’t sound like the hostilities will ease up any time soon, does it? In the meantime, we can expect more and more private-label products – especially dairy – to flood the shelves of Coles and Woolworths.
Research by IBIS World Australia reported in the International Business Times showed that, already, “Up to 68 per cent of butter sold in the two supermarkets is private label, while for sugar it is 67 per cent, 56 per cent for bread, 55 per cent for fresh milk and 53 per cent for eggs”.
Alarmingly, the researchers predicted that “by 2017, the share of such products would make up one-third of total supermarket sales”.
Why am I alert and alarmed? Because this is bad news for anyone who cares about good food. When price becomes the only differentiating factor, quality must suffer right along the food chain and the ones who will ultimately feel the pain will be the little people – the farmers who grow the food and the consumers who eat it.
So where does this leave the foodies of Australia? I’ll let you draw your own conclusions.
No need to worry, I guess. Celebrity chef Curtis Stone will save us all. His spin doctors, Thrive PR, say this:
“And don’t think that Curtis is just a face when it comes to his partners like Coles. He is an active contributor behind the scenes to their business and marketing function. Their success is his success.”
Then again, maybe he’s blissfully unaware of the damage to Australian food caused by “his success”. I intend to appeal for help by emailing him at contact@curtisstone.com and am sure he’d love to hear from you, too.
While you’re at it, don’t forget to sign Lisa Claessen’s petition to Coles CEO, Ian McLeod by visiting http://www.change.org/en-AU/petitions/coles-up-the-price-of-generic-brand-milk-to-a-sustainable-rate-of-return-for-all
The Milk Maid Marian 
The Farming people in Australia should not be used by the Three major Food retailers to keep thier profit margins up. They can survive without doing that. They CANNOT sell Milk at these ridiculous prices in New Zealand because Fonterra sets the Farm Gate Milk price, not the Supermarket chains. We have Woolworths Australia here in N.Z. with thier Countdown brand of Supermarkets. They only have one NZ owned competitor who has a greater market share anyway. Milk is sold in N.Z. at a realistic price.
LikeLike
Pingback: Farmers and the Community maintaining the rage in the Milk Price Wars | Clover Hill Dairies Diary
I don’t mean to be a downer but I am pessimistic that much can (or will) be down to improve the heavy discounting of items like milk at companies like Coles and Woolies given the seemingly ineffectual dairy representative bodies and cooperatives and given that, apart from lip service, the only thing that motivates the big retailers is money (nothing wrong with that but ‘supplier love’ is not part of their thinking).
In a small way, the petitions and Facebook campaigns will help but to really change customer perceptions in a large way and get changes to how people buy milk will require coordinated social, political and financial campaigns, none of which are evident at the moment. If nothing is done then it is hard to blame customers for buying no-name milk – plain milk will continue to be seen as a commodity and will be priced as a commodity. Sellers of commodities are price takers. Same as wool, same as bulk wheat, etc, etc.
The only guys who have really successfully stood up to the big retailers are Coca-Cola Amatil: when the retailers tried to squeeze them, they just stopped supplying their fizzy drinks. Wanna see a Coles manager cry? Empty shelves where the Coke should be.
I’d love to know what Dairy Australia or the cooperatives say is their strategy to combat no-name milk. As a normal consumer, I cant see anything they are doing. Maybe as a start they could contact CCA and ask their guys: ‘if you were selling milk, how would you combat the big retailers?”
LikeLike
But Mr O’Brien will also have to maintain his focus on the food and liquor business which still trails behind junior rival Coles in terms of earnings growth (5.2 per cent against 15 per cent at Coles), although Woolworths margins have shown signs of improvement.
LikeLike
I’m a ‘normal’ grocery shopper and I would love to see more milk products at farmers markets. My husband works in the ag industry and loves to tell me about the realities of farming and how selling to grocery stores is where the $ is, but there must be other ways surely?
I hate those down down ads. And Curtis Stone and his dinners for under $10. Curtis’ $10 meal ingredients are pointed out to buyers at different locations in Coles, but first you have to walk past the jumbo cheese filled schnitzels and $2 crap bread. I can’t even buy a tomato at my local Coles, I have to buy 5 tomatoes wrapped in plastic.
I heard a dairy farmer talking on 774 about how he’d gone organic the previous year. He said he had changed because bulk discount buyers just wanted the cheapest price and he received no thanks for his efforts. With organic he got a higher price and some appreciation. My husband just rols his eyes when I say organic, but there is value there. People want product that isn’t crippling farmers, it just isn’t going to sell at Coles.
I don’t know the answer, but Coles sucks the big one. I was actually googling to see where one can buy milk from a ‘farmer’, ha!
Down down Coles gets us down.
Kim
LikeLike
I think we all know where this will leave the foodies of Australia – and it’s producers. Did you hear back from Curtis?
LikeLike
Pingback: How to rescue dairy – from the nutty to the tricky | The Milk Maid Marian
Pingback: Coles Please remember real people farm | Clover Hill Dairies Diary