coles Archives - Page 4 of 4 - Clover Hill Diaries

Coles and Woolies take pot shots at each other but its their customers and farmers who are being critically wounded

The words “loss leader” sends shivers up my spin. Why? Because Coles is using milk as a loss leader. This marketing strategy is lining their pockets with gold and it is crippling Australian dairy faming families See previous post “ Wake up Coles please don’t put your profits before Australian farming families”

So what is a “loss leader”. Our friend DR Google and Wiki (1) do a nice job of explaining it

A loss leader, is a product sold at a low price, at or below its market cost^[ to stimulate other sales of more profitable goods or services.

The Strategy

One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the supermarket .

“Loss leading” describes the concept that an item is offered for sale at a reduced price and is intended to “lead” to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both.

Now the concern for supermarkets using this strategy is deep price promotions may cause people to bulk-buy (stockpile), which they obviously don’t want .

Characteristics of loss leaders

A loss leader may be placed in an inconvenient part of the store, so that purchasers must walk past other goods which have higher profit margins.
A loss leader is usually a product that customers purchase frequently—thus they are aware that its unusually low price is a bargain.
Inexpensive products like milk, eggs, bread and other low cost items that supermarkets would not want to sell without other purchases.
Some loss leader items are perishable and cannot be stockpiled.(1)

So as you can see milk is the perfect loss leader, kept at the very back of the store, purchased everyday and its perishable ( no stockpiling milk)

Don’t be fooled Coles customers Coles are not doing you an favours by selling you milk at a $1/litre. The billion dollar profits tell the real story

Thank you to this great article from Punch for the inspiration for my heading

Australian dairy farming families are in Crisis

I don’t know about you but to me no-one tells a story from the heart more powerfully than Marian MacDonald. See Sad Discovery that is Good for My Green Farm Girl

My story today comes from my heart to yours. The Australian dairy industry in crisis. It is not just the domestic milk supplying states of QLD, NSW and SA that are affected. The milk processing company Lion will endeavour to offload the 15c/litre* (see footnote) T2 milk it is paying its farmers into milk processing plants in Victoria and this will put severe downward pressure on farm gate milk prices in this state as well.

Victoria is known as the dairy state and currently 70% of milk production comes from south of the border. The current farm gate milk price in Victoria is already impacting on farm and this new pricing structure for Lion suppliers I can assure you will have serious ramifications right across Australia.

How did we get in this sorry mess you ask? Let me share what Dairy Australia has said in its In Focus publication.

“The two issues putting downward pressure on prices at present are – oversupply of milk in the Eastern states and the supermarket discounting of milk“

Now it should be as clear as the nose on your face that a milk processor like Lion could get smart and correct the oversupply issue by investing in a dryer for skim milk powder production for example which would allow it to take up the excess milk for export purposes.

On the other hand we could have another ten year drought. Don’t think anyone will be suggesting the latter option.

Just so you understand why we have an oversupply of milk in NSW, SA and QLD. Dairy farmers were given clear market signals through large incentives paid by Lion to grow their milk supply businesses. Sadly Lion’s milk sales business did not have the same growth spurt

Now to the supermarket price wars. The supermarket discounting will end when they have achieved their objective of growing the home brand share of the milk market to their targets and ultimately the target is to have only home brand milk on the shelf and the strategy is working.

Supermarket’s share of Australian drinking milk sales is now around 53% and growing. Home label brands now account for around 51% of total supermarket milk volumes, up from around 25% in 1999/2000. This result has been rapidly assisted by the current $1/litre milk discounting marketing strategy

And as you can clearly see using milk as a loss leader is making them buckets of money. See “Another strong earning performance from Coles supermarket division “

How can you help?

To assist dairy farmers you can choose to purchase branded milk products not house brands. It doesn’t matter what brand as long as it is not Woolworths label or Coles label. This will support the margins of the processors and this offers the best opportunity for farmer margins.

You can also choose to purchase milk from venues other than Coles and Woolworths.

What can Coles Do?

It is absolutely critical that they stop using milk as a loss leader

So what solution will we chose?

What are we going to do Australia? Do we change our buying habits or do we lobby Coles?

I say let’s go both barrels. Love to hear what you think

Look at these beautiful creatures Surely their milk is worth more than 16c/litre

Footnote I am yet to find a farmer who has received the mooted 15c/litre most people are getting between 11 and 13c/litre. The variation is caused by the different milk fat and protein percentages on farms

Wake up Coles please dont put your profits before Australian farming families

Coles profits are riding on the back of their Down Down Down campaign. As reported in the Sydney Morning Herald today “Wesfarmers said full-year net profit rose 11 per cent to $2.126 billion. Its Coles unit capped a third year of market-beating performances as it stepped up its price war with bigger rival Woolworths.” But this comes at a cost, a huge cost and there is no denying dairy farmers are the current collateral damage in this drive for billion dollar profits”

My blog post yesterday Coles is Making my Blood Boil saw an outpouring of united support for dairy farmers from both the community and our fellow farmers.

Now that the community is aware that Coles is suggesting their customers support their Down Down Campaign that is having such a devastating effect on Australian dairy farmers to put an extra $1.23 per day in their pockets they are mortified. Appalled that Coles is effectively asking them to be complicit in the downfall of Australian farming families.

How do we right this terrible wrong. People Power that’s how. No matter how much the government would like to help their hands are tied. However every single Australian can stand up and have a voice and say Coles we wont support you if it means Australian farming families and the jobs they support in the broader community are threatened

What can you do”. You can vote with your wallet and/or your feet Australian families.

You can do this in two ways

Option 1. Is to buy branded milk rather than supermarket equivalents. This would support the margins of the milk processors and the real opportunity for this to flow back to farmers.

Option 2 You can seek out your independent Australian owned supermarkets and grocers and support them instead of Coles.

The government needs your help too. Their National Food Plan aims to provide all Australians with affordable, nutritious LOCALLY produced food that is good for people, animals and the planet. Lets help them do it. Support Aussie Farmers and say no to Coles Down Down Down campaign and the massive profits it is putting in their pockets

Our future is in your hands Australia. We can win this one together

Coles is making my blood boil

What a month it has been. On the home front Michael took the plunge and attempted the double knee replacement . The less said about the outcome of that at this point in time the better .

Out in the wider dairy community suppliers to Lion via the Dairy Farmers Milk Supply Coop (DFMC) got the devastating news (and there is more to come) of what their “quotas” were likely to be and the atrocious price on offer for Tier 2 milk (milk in excess of quota). What was this bad news? I am finding it difficult to even put the figures on paper. Farmers supplying Tier 2 milk are receiving a max of 14c/litre and some even as low as 11c/litre

I can categorically say the NSW dairy industry is facing decimation and in the short term its the emotional trauma that is hitting first for those farmers finding themselves affected by this double whammy.

As in any situation like this, various factors have bought on the conditions DFMC suppliers find themselves in. The one underlying factor that is preventing any hope of a revival is the Milk Price Wars started by the Coles Prices are Down Campaign that comes surrounded with spin like this COLES CUTS PRICES AGAIN TO HELP AUSTRALIAN FAMILIES.

Well I can tell you Coles there are a lot of wonderful, caring dairy farming families hurting very badly at the moment and I am finding it hard to believe you are that naive that you think Australian families want you to destroy other families to deliver an extra $450 savings in their pockets by shopping at Coles

Then this came along and it made me even more furious. In another blatant marketing gimmick Coles has announced it wants to put video cameras on Aussie Farms. This stunt has been covered superbly by Milk Maid Marian in these two blog posts

http://milkmaidmarian.com/2012/08/10/coles-wants-video-cameras-on-aussie-farms/

http://milkmaidmarian.com/2012/08/10/coles-wont-rule-out-cctv-on-australian-farms/

As soon as I have a window I will be officially inviting Coles leadership team to our farm. I can offer them 6 star Eco accommodation, hands on milking experiences as well as a guided tour of our dairy facilities, pasture research trials and natural resource management activities but that will have to wait a few weeks.

Today I am off to Canberra with my farm consultant Dr Neil Moss. Neil and I both care very much about our fellow dairy farmers and we are doing everything in our control to make the future a better world for them to farm in

Today we have a wonderful opportunity to talk to some very bright minds in Australian Government Lands and Coast and we will be listening and having highly productive two way conversations and we will come up with a plan I am confident of that.

And we need to, because, Australia we have a big problem, the supply value chain model isn’t working and we have to get it remodelled fast.

Sustainability must be embedded in the supply chain system. It is imperative we have partnerships between community, government and the private sector to enable our farmers to continue to supply the best quality products for people, animals and the planet.

This will only happy when our supply chain partners become advocates for our farmers and sadly Coles you just don’t get it YET but you will and I look forward to helping you see the light.

Coles their future is in your hands – lets make it happen together

The hidden costs of Private Label Milk

This morning I had a call from ABC Radio National looking for comment on behalf of our regional dairy farmers on this story National Foods cutting fresh milk contracts.

This story is a very sad reflection on state of the fresh milk industry in this country and the ongoing ramifications of the supermarket milk price war

For many farmers in our region like those in the Bodalla region it is time to sign new milk contracts with Lion ( National Foods) but there has been no communication from our milk supply company (Dairy Farmers Milk Supply Company) who supplies Lion as to price per litre being offered nor contract volumes on offer .

Can you imagine how difficult it is to make smart business decisions in this situation. Dairy farmers need to make decisions about our cows, our people, equipment and environmental investment twelve months in advance. So to make the best business decisions for everyone on our team we are looking for clear market signals at this time from our processors

However, the processors are not able to commit to supply arrangements with farmers until the processors have finalised their contracts for private label milk volumes with the supermarkets.

As currently these contracts are only for short periods of time processors are second guessing supermarkets and the farmers are second guessing how the processors will respond if they don’t get the private label contract and as you can imagine all this second guessing leads to a third rate supply chain model and undermines farmer confidence in the whole milk supply sector

The latest Dairy Australia survey show 85% of dairy farmers in NSW see milk prices as the biggest challenge to the survival of their businesses.

So you may well ask why processors continue to supply private label milk to supermarkets. Well they have been asked that at several Senate inquiries so I have an answer (or 3) for you.

In confidential evidence provided to the ACCC Grocery Inquiry 2008 * (see reference at bottom of post) by processors indicate that the main reasons they pursued private label contracts were:

overhead recovery—generating revenue through private label sales to contribute to fixed costs of running the business
supply relationships with retailers—supplying private label product provides a stronger relationship and possibly improves processors bargaining position in relation to branded products
volume—the volume of milk supplied through private label contracts provides some stability to the business

The first national contract for supermarket private label milk was given to National Foods (now Lion) by Woolworths in 2002 The ACCC remarked in 2008 that the change in tendering arrangements by Woolworths in 2002 had a clear impact on the returns farmers received

National Foods (Lion) like all processors tenders for private label milk contracts to maintain relationships with the supermarkets and gain shelf space for its own brands

When the volumes of private label milk were relatively small compared to their own brands then the milk processor could recover the costs associated with supplying this milk at the low price

This is no longer the case. There has been an 11 per cent increase in the sales of private label milk in the last 12 months alone and now private label milk sales are 72% of all fresh milk sales

As you can imagine this is putting a lot of pressure on both farmers and processors. In fact I believe whilst all supermarkets in this country compete on price alone the entire fresh food sector in this country is at risk

Already 85% of products in a typical supermarket trolley are either imported or are supplied by foreign owned companies. This will only increase as more and more private label products are introduced so the supermarkets can compete with each other and continue to make profits.

At the moment milk processors have been the first line collateral damage in the supermarket milk price wars, farmers are starting to feel the brunt of it now and it wont be long before it impacts on consumer choice in the supermarket

At the moment shoppers have three choices “Will I buy a local product, will I buy an imported product, will I buy private label?” Unless we all stand up and be counted the only choice will be private label (imported from overseas)

So this is not just about the farmers, families who buy the Dairy Farmers brand are making an investment not just in the future of their community but in the future of Australia

Lets all get together and make an investment in the future of this great country

Further commnet on this story in this interview by Sarina Locke found here

*Australian Competition and Consumer Commission, Report of the ACCC inquiry into the competitiveness of retail prices for standard groceries, July 2008, pp. 234–5.