Supermarkets

In Australia, in order to appear to be ‘doing something’ about the cost of living, the Government has tried to lay the blame on supermarkets - particularly Woolworths and Coles. How much effect has all this rhetoric had? Probably very little. Beyond good headlines, that is.

As a supplier I have dealt with the supermarket trade in South Africa, Britain and Australia. The supermarkets in all three counties behaved in much the same way towards suppliers, i.e., badly and possibly unfairly. Would I have wanted to have Government intervene on my behalf? Absolutely not. The relationship between suppliers and supermarket chains is critical and often complicated. Introducing Government into the mix would just add another dimension to the relationship, and when Government starts to focus on other things, suppliers would be left ‘holding the baby’.

Here are two examples of the sort of issue we had to deal with.

In Australia I had taken over as Managing Director of a medium-sized publishing company who had made the unwise decision to run their own distribution, instead of using an external distributor. The book business is based on a sale or return system. Without exception the large retailers, including supermarkets, who were critical to the business, disputed every single return, which meant that they paid nothing until the dispute was settled. Settling disputes was made difficult with the retailers invariably dragging their feet. If this had continued the business would have gone bankrupt. Government would have been  in no position to intervene.

We quickly engaged an external distributor, who also distributed many other products and who had a strict payment regime, where if the retailer failed to pay on time, the next month’s delivery would not be made.

It took six people a year to unscramble the mess, and we eventually were paid most of what we were owed.

In Britain the same publishing company had relationships with the major retailers including supermarkets. One particular chain, every year or so, demanded a large ‘one off’ payout, otherwise we would be delisted. All we did was to phone a few of the other publishers asking them what had been demanded of them. There was then a lot of to-ing and fro-ing including visits to the operations headquarters in London. We then settled for a significant promotion, where we discounted the price of our books in their stores. This suited us in any event. Was the retailer’s action unfair? Most people would say ‘yes’. With regard to these issues, it’s difficult to see how government involvement would have helped.

Part of the problem in Australia is that the market is dominated by Coles and Woolworths, who have an almost 70% share of the market between them with Aldi holding 10 % and IGA 7%.

If the government wanted to ‘do something’. they would encourage an overseas chain such as Tesco, Sainsbury’s, M&S Food, or the various US chains to enter the market. The Government would have to ensure that sufficient suitable sites were available for a new entrant, possibly by forcing Woolworths and Coles to relinquish some of their ‘unused’ sites. In short, the only feasible way government can bring down the cost of living through supermarkets is to break the Coles and Woolworths duopoly, by bringing meaningful competition into the market.