CHOICE supermarket special

Supermarkets are back in the headlines - for all the wrong reasons.
 
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03.Price wars

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It's not just the cost of marketing and economies of scale that keep branded products more expensive than private labels in the supermarkets. There's also the myriad levied fees and rebates.

Suppliers tell us that these include ullage (a percentage rebate for potential damage in transit), distribution centre costs, warehouse pallet fees, catalogue and promotion fees. Woolworths and Coles admit "blended"; or "variable"; costs can be discussed in the cost-price negotiation phase.

Grant Muller is the editor of FightBack News, a magazine promoting Australian products and distributed through IGA supermarkets. He claims the supermarkets also engage in cliffing – the auctioning off of shelf space (sometimes called slotting).

He says he has examples of multinational corporations offering the chains millions up-front to secure “premium” shelf space.

“The chains will go back to the local manufacturer with an opportunity to match or outbid the multinational, but the dollars involved are too great or the supplier gets into a bidding war they can never win.

“All the costs that other brands have to pay mean home brand products have a 30% price competitive advantage, because obviously they don’t charge their own products.” Coles and Woolworths both deny selling shelf space.

Even when customers appear willing to pay more for the branded product than the home brand, manufacturers overwhelmingly tell CHOICE that the supermarkets forbid them from raising their prices, both wholesale and shelf.

All the costs that other brands have to pay mean home brand products have a 30% price competitive advantage...
- Grant Muller, FightBack News

Tony Lutfi is the managing director of Greenwheat Freekeh and the only manufacturer who spoke with CHOICE without the condition of anonymity. His product was initially stocked by Coles in 1998 for a short period of time, then re-stocked eight years later after he approached Coles again.

“We should have been selling to Coles at $2.90 per box but they wanted to buy at less than $2.00 a box – the 1998 price,” he says. “In spite of repeated pleadings and explanations about our increased costs of grains, labour, freight and gas [for dry roasting] to name a few, they insisted that our selling price to them should not increase in line with market conditions and that we could take it or leave it. We had no choice.”

Lutfi also says customers, and even Coles staff, could not locate the product in shops where it was stocked. “So, consumers started asking for Greenwheat Freekeh in other shops.” When Lutfi started to sell the product through other retailers, Coles deleted the line from its shelves altogether.

Lutfi says the 1998 price demanded by Coles made his product difficult to sell to other distributors. “Coles was restricting the market because they were keeping the price low, and no other distributor would take the product at a sustainable price. They were basically monopolising our product by restricting our ability to sell to others. Ultimately they deleted it even though sales were growing.

“All I want Coles to do is reconsider. We’d like to be back in there on commercial grounds so that we can afford to supply them.”

One manufacturer says his company is facing intense financial pressure as a result of what he estimates to be a $5 million loss following the “unexpected” deletion of his product from Coles. “We’ve told them this will have serious ramifications for us. It seriously threatens jobs and we can’t continue to operate if retailers continue to kill our brands without reason.”

Another told us he believes the treatment is “appalling” and he prefers to deal with IGA or Aldi. “In the future, smaller manufacturers will walk away from the big two because of the way they treat you.”

 

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