Sometimes it’s what you read between the lines that’s the most important. In the cause of reporting about supermarket giant Woolworths’ formal announcement today confirming it’s arranging to directly contract dairy farmers to supply it milk, the most interesting comments are those that appear below the line.
Dairy farmers have shared their concerns about the move but now the ball is well and truly in the corner of Australian shoppers. If the comments from readers of Melbourne newspaper, The Age, are anything to go by, Woolworths’ attempt to mitigate the growing public distaste for supermarket ethics may have backfired.
I’ve picked out a few to summarise the tone of discussion online (my subheadings):
Squeezing the life out of the producers
“This is how they make the real money, had this explained by an insider recently to me. They find a producer and ask them to make their home brand for them along with their own branded premium product. People buy the cheaper version and the premium product disappears so they then just give them the second quality product in their packaging. Then supermarket owns them, they then turn on them and say, now we will pick it up, give u the packaging and labels you just give us the raw product. This means the producer the gets no profit on packaging, transport etc for the goods, and they are cut to the bare minimum of profit, this is how the supermarkets are squeezing the life out of the producers so they have no profit and no hope of improving. I won’t buy home brand, I like choice and supporting Aust companies.”
Commenter: Newcastle Gal
The admission of guilt
“Surprise, surprise I thought it was only several months ago that the supermarket giants (media) told us that the milk companies etc were not being disadvantaged and that the supermarket chains were picking up the losses, now it turns out that the supermarket chains are ripping off our suppliers after all..”
Commenter: Mik of Melbourne
Part of a bigger plan to screw consumers
“I ‘m sure the money that Woolies gets from their gaming machine can well and truly subsidies the milk (* bread). Instead, pay the real price for branded milk and cease this war. The only outcome will similar to Europe where fresh milk is now a luxury, mainly God awful UHT milk on shelves.”
It’s all about control
“Woolies and Coles will only rip off farmers because you let them. Note the success of Norco on the NSW North Coast, their milk is still selling for a fair bit more than $1 a litre and has withstood the “home brand” assault. Sales only dropped by 1-2% compared to the 25% drop of brands in the cities. Norco and the communities they support care for farmers, because they are farmers. Woolworths don’t care about farmers, by dealing directly with farmers they are hoping to break up the co-op models that are beating them in the rural areas and drive the farm-gate price down.”
And then there’s this from someone who obviously knows the dairy industry very, very well:
“Actually, it’s a combination of marketing ploy and the knowledge that Queensland and Western Australia are close to real domestic supply troubles if they keep losing dairy farmers.
Not being privy to Woolworth’s strategy in this move, this is what I suspect will occur.”
“(1) They’ll target large scale farmers or encourage investment in large scale farming for their direct supply. Good economics on their part but increases the exposure for the suppliers since return on their investment will be solely dependent on Woolworth’s assessment of a fair price.
“(2) They’ll concentrate on areas where they aren’t up against strong competition and where’s there’s excess manufacturing capacity available. Both WA and Queensland fit the bill here.
Victoria would be a less attractive option with its reliance on export markets and dominance by co-operatives and farmer owned supplier groups. South Australia has a small localised industry and is attracting interest from Victorian based co-operative Murray Goulburn. Tasmania has good production prospects but transport is an ongoing issue. So probably WA and Queensland.
“(3) Once they’ve got a foothold, it’ll be a balancing act. Do they squeeze their fresh milk suppliers or do they loss-lead and extend their range of products by trying to increase both their supplier base and their range of manufacturing options? More ‘supermarket own’ brands would probably be their ultimate goal but not at the cost of having to carry the brands for a long time before a return on investment. I’d say their ideal is complete vertical integration but they know that can backfire big time if you don’t control enough of the market.
“One thing for sure. This is about Woolworths not about the farmers. And let’s face it, that’s what all businesses are about- not just supermarket owners”
Commenter: David of Leongatha
All in all, I’d call it an unmitigated PR flop. On the other hand, those commenting online on a story in The Age are hardly a representative sample of Australians. It’s inevitable that farmers will be recruited by Woolies (and Coles, in turn, no doubt) but whether Aussies will buy either the rhetoric or the “fair” home-brand milk is far from a sure thing.