21 September 2008

Bully Beef: David Vs Goliath

STEPHEN LONG: In Australia, in the food business, two retail giants dominate the supply chain. It's among the highest concentrations of retail power in the developed world.

Last month the competition watchdog delivered its report on grocery prices. It says the market is working.

GRAEME SAMUEL, ACCC CHAIRMAN: We characterise it as workably competitive.

STEPHEN LONG: But there's another story that hasn't been told. It's about buyers, sellers and power and how Coles and Woolworths are squeezing more and more concessions from suppliers.

DAVID KERR, REDLICH SMALLGOODS: It's extremely hard for a small supplier to do business with Coles or Woolworths. It's just almost impossible.

STEPHEN LONG: Is it driving efficiency or threatening the food bowl?

REG CLAIRS, WOOLWORTHS CEO 1993-98: I am immensely worried about the ultimate destiny of a lot of food manufacturers in this country.

EMILIO GOTTANI, GROWER: We're just a dying breed. Our use-by date's gone, you know. We're just finished.

STEPHEN LONG: Tonight, "Four Corners" shines a light on the retail duopoly and asks: What's the price we pay?

Australia is awash with supermarkets - more supermarkets per capita than America, nearly three times as many as Britain, and Coles and Woolworths own most of them. Together they control at least 70 per cent of the dry groceries; 60 per cent of the dairy market; and about half the fresh food.

GEOFF CUTLER, RETAIL CONSULTANT: I think it is generally agreed that this is the most severe concentration of power in the world.

STEPHEN LONG: It's not just supermarkets. The two retail giants touch us when we eat, when we drink and when we drive. They've got close to half the retail liquor market; more than 1100 petrol stations, hardware, variety stores, pubs and pokies.

Coles used to be the biggest. Now it's Woolworths.


THE PRICE WE PAY. View it...

By Stephen Long, broadcast 1st September 2008
'Four Corners' program, Australian Broadcasting Commission

One Monday night in front of the telly...

Mr Stickyfingers: "From now on, let's stop shopping at Coles, Woolworths and their subsiduaries."

Me: "You're on." I said. How hard could it be?

"We barely buy anything there anyway."

And that's how it happened.

When the ABC 's Four Corners aired The Price We Pay by Stephen Long, a piece on the relationship between the two major Australian supermarket groups and small local producers, we were gutted by what we saw. It added to our friend's experiences and my own enquiries, showing that local producers were being sent to the wall by supermarkets and their offshoots in the liquor industry. It confirmed why more manufacturing is going to China instead and in its wake, our people are losing their jobs

"...Coles and Woolworth’s sell 70 per cent of the dry groceries and half the fresh food that Australians consume – among the highest concentrations of market power in the developed world.

Last month the competition watchdog the ACCC officially ticked this arrangement, insisting the market is working.

But the growth in supermarket muscle has come at a cost to many suppliers and small retailers. "Crippling" is how one industry analyst terms Coles’ and Woolies’ power over food producers; the regulator calls it "simply tough dealing".

"It’s just eating my farm away, we’re just finished," says a despairing pumpkin grower whose produce retails for as much as 10 times the price he gets for it. He scoffs at the ACCC’s view that the gap between farm gate prices and the checkout isn’t growing.

Don’t like pumpkin? How about an ice-cream story to illustrate supermarkets’ throat-hold? Four Corners meets an ice-cream maker who buys a lot of milk – and bizarrely he gets it cheaper from his local supermarket than from the wholesale processor. Why? Because the wholesaler has to accept ultra low prices from the supermarket - and compensates by inflating his price to smaller buyers, says the ice-cream man.

Or try sausage. One sausage-maker explains the choice he made when the supermarket told him he had to cut his supply price or get kicked off the shelf: "The only way we would do that was by using lesser quality meat product... and adding soy proteins and what some people might call 'fillings' to extend the product." He then volunteers to Four Corners that he wouldn’t even eat the product himself.

Suppliers can reel off a list of punishing "rebates" – fees - that they must pay supermarkets for product promotions, to get paid on time, or just for the privilege and opportunity of supplying goods. But few are bold enough to do so publicly.

Like suppliers to the big supermarkets, minnow retailers are fed up – but more outspoken. Small liquor merchants can get some beer and wine cheaper from supermarket-owned retail grog barns than they can from wholesalers. Some refuse to see this as competition: "In the 36 years I’ve been in our two shops I’ve had 12 armed hold-ups, 11 with a gun and one with a machete, and the biggest predator we face is this company here."

While Coles’ and Woolies’ market clout can translate into cheap prices for consumers, there are fears it may threaten the survival of Australia’s food industry. As reporter Stephen Long reveals, these concerns are held by eminent people at the very top of the food chain."

I had presumed in my indignation that by the following day, everyone would have been abuzz with these revelations. When everyone heard that Aussie Battlers were being forced to sell to the two supermarket majors at prices that didn't cover costs, and in turn having to pass on inflated prices to family run grocery or liquor businesses and farm gate shoppers, we would all be outraged.

I thought that consumers would be livid about finding out they were being cheated. After all, when you heard that Coles and Woolworths had vastly increased their profit margins on certain lines by arrogantly selling an inferior item that looked the same, cost the same but was actually a cheaper, no frills version of you were used to, you'd feel cheated - wouldn't you?

Surely when everyone heard that people were losing their farms, small factories, jobs at companies like SPC, Arnotts & Don Smallgoods, their shops - their livelihoods - to the stranglehold of two mega corporations, that also controlled Hardware, liquor, electronics, petrol sales, pubs and pokies, we would do something to put a stop to the rot .... right?

But I was wrong. So wrong. The whole thing seemed to be quietly swept under the rug like a dead spider when the 'relies' drop in for a cuppa.

And then the penny dropped. My day-job brain kicked in.

TV, Radio and Newspapers rely on income generated from placing advertising to survive. According to the Advertising Federation of Australia, last year $13.2billion dollars was spent in Australia on advertising. Without which, the media has less money to spend on content with which to entertain you. And with $2.3billion spent by advertisers on metropolitan papers alone, media companies are loathe to jeopardise their revenue by pissing off the companies who place thousands of ads.

So it's no wonder the public are now claiming to go to the internet for the truth, citing Bloggers as more truthful than the mainstream media because they're not treading on eggshells to protect the hand that feeds them. In fact, nothing feeds a Blogger but passion and the freedom to express themselves.

For three consecutive years Coles Myer was, according to Nielsen Media Research, Australia's top Advertiser with an estimated spend of $190million. Since the Myer business was sold off and Wesfarmers took over, the group has dropped down to third place behind the Australian Government and Telstra, but the spend, without the department store is still around $175million. By March next year the figures will show an increase in spend when Bunnings is bundled into the mix.

Last year Woolworths spent $115 million dollars advertising their Supermarkets plus Tandy, Foodland, Big W and Dick Smith. But those figures didn't include their spend on hardware interests, Food For Less, Flemings, Thomas Dux, AHG pubs and Pokies, Dan Murphy & BWS Liquor.

Bottom line: The big supermarkets are spending enough money in the media to be influencing what we hear about them.

So it was left to good old Aunty to spill the beans. But I doubt there was a journo in the mainstream media who was commissioned to follow it up with another juicy piece, exposing the underbelly of the major advertisers. There was probably no Editor who would have dared to sanction an irate opinion piece on the subject either. The ABC were even quite low key about it, and unless you were a regular viewer of Four Corners, this particular show may have flown under the radar.

That sucks. But as usual I am going forward in the only way I feel I can. The way to effect change is not to whinge and bitch while sitting on the fence, but to live it. So our household is boycotting any business owned by the big two chains.

This is particularly poignant for me as I have turned down work with one of those groups, so am definitely biting the hand that feeds. On SOLE Mama you can read about how Mr S and I are getting around relying on Coles, Safeway and their subsiduaries. It's actually quite easy, you just have to be bothered to do it.

Going to Coles or Safeway was the lazy route for me, so like any bad habit I want to rid my self of, I made the effort to change. I chose to shop at the independents instead. The topic's also up for discussion at the SOLE Mama Forum, where you'll find a list of Woolworth's and Coles companies' offshoots.

For various reasons, the supermarkets are already seeing a shift in public attitudes regarding them, and the most effective way to continue to ensure that they notice public displeasure, is with a noticeable decrease in consumer spend. In the next eighteen months they will both be ramping up their presence online with multi million dollars allocated to the process to boost their already flagging image in the public eye.

My suggestion to you is to support the Aussie battler and show the supermarkets that you won't complacently support their bullying tactics. What's more important? The wealth of a few at the expense of our children's future, or a fair go for all in the lucky country? Thankfully, we still do have a choice, for now.

View 'The Price We Pay' free, at The ABC's Video on Demand.

Dial up and broadband versions available.


Ran said...

i agree with everything you say. i spend most of my shop at the local green grocer, buy other things from local small organic shops and meat from small butchers when i can.

For me there is still no getting around them for things like personal care products, cleaning products, milk (sadly) and canned goods. I could travel further in my car to find smaller sellers, but then i have a CO2 dilemna. we have started a vegie/ fruit patch and am hoping this will see us become more self sufficient but i really think that where i live i cannot break the strangle hold without using my evil car!

seen at my coles this weekend - tomatoes prepackaged that were labelled 'tomatoes the way they used to taste'. grrrrrrrr

Anonymous said...

here, here! Which is exactly why I don't shop at either. Must head over to SOLE Mama Forum to make sure I'm not inadvertently shopping at subsidiaries. Well actually I do sometimes but I try very, vey hrd to avoid it.

Anonymous said...

Great article Sticky.
Leep up the good work & maintain the RAGE!

stickyfingers said...

Hi Ran - some of the grocers listed on SOLE Mama deliver a range of personal items in addition to food. It may be worth checking out. We buy cleaning products from office cleaning suppliers and this even covers bog roll, glad wrap and washing powder. They deliver too. Consider Mooven Milk who will deliver dairy products - like the dairies used to when some of us were kids.

Thanks Dani - strength is in our numbers, now we need to tell all that it's not impossible to do.

Thanks Gobbler, nice to hear from you. Hope all is well in your corner of beautiful Taswegia.

Michelle said...

Great post - Watched with interest the program - It was interesting that even former Woolies CEO Reg Clairs was concerned about the supermarket stranglehold.

They are horrible places and I'm fortunate to live in an area where I can avoid supermarkets altogether...

stickyfingers said...

Thanks Michelle and welcome. I love your part of the world.

Hearing Reg Clairs opinion certainly added gravitas to the investigation. I only wish there was a way of enlightening more people on the subject...