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 firstname.lastname@example.org 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