Newspapers pay people whose sole job is to come up with headings for news articles that will motivate people to buy newspapers. Woolworths latest foray into innovative fast moving consumer goods must be a dream come true for them. Despite the temptation to use the tongue in cheek clever line from Brian Dodd @bushboywhotweet that Woolworths maybe ‘artificially screwing dairy’ I wont go there in the name of good taste.
What I would like to do this morning is reflect on this article in The Conversation Worried about Coles and Woolworths – then look in the mirror and in particular these comments from the author
The greatest public concern has been the treatment of Australian farmers, particularly since the introduction of ‘one dollar per litre’ milk. So we should not be surprised that the major supermarkets have moved to stock more local produce and to set up supply arrangements that clearly benefit local farmers.
When customers complain, even retail gorilla’s listen!
Coles and Woolworths behaviour, however, highlights the underlying source of their marketing and their market power. The customers.
The two supermarket giants reached their current positions because people choose to shop at them rather than the competitors. We may rail against the closure of a small retailer when Coles or Woolworths opens up nearby, but the real cause of the closure is, well, us! As consumers, we choose to buy from Coles and Woolworths rather than the retail alternatives. We may complain but the low prices, the product selection, the convenience or whatever else, draws us in to buy at the major supermarkets and, in so doing, we slowly but surely push the retail competitors out of the market.
This is not anti-competitive; it is the very nature of competition. Businesses who best serve customers win. But when we complain, we should look in the mirror. Because it is our choices as consumers that decide who wins and who loses in the retail wars.
Put simply, Coles and Woolworths have succeeded because they are so damn good at giving us what we want!
…………. The major supermarkets are no angels. But they do respond to customers’ demands. So if you want more small grocers, you have the answer. Shop at them. But do not call on the politicians to make that decision for you.
On my previous post Coles Show Some Respect the very wise Greg Mills commented
What I found interesting about the Coles presentations was the issues management cycle slide. Coles had a ‘process’ and they stuck to it. Farmer objections where just an ‘event’ in the cycle to be dealt with. Which makes me think about what is the farmer ‘process’ to deal with these and other consumer issues. I suspect that there may not be a ‘process’ to deal with these issues by farmers and the food system, but rather the response is simply a number of events..
While I may not agree with Cole’s tactics I have learnt from this presentation and their FOCUS – Follow One Course Until Successful. I thinks it a good thing that this presentations is out there and being talked about. I hope that it gets some discussion going about how to deal with issues in the longer term.
Greg is right and I will be blunt it is not just consumers who have to take responsibility for their actions and stop expecting the government to be their white knight. Its time for farmers and Australian agriculture to convert supply chains into value chains.
Its tough out there dealing with the big 2. Is there a better current example than the latest very sad case of How private labels helped bring down Tasmania’s Tamar Valley Dairy
This company make yogurt to die for. I love it. It is divine and it appears working with Coles may have been their downfall
As Associate Professor of Marketing at Melbourne Business School Mark Ritson says in his article on Tamar Valley Dairy in BRW .
…. while around 25 per cent of all grocery sales in this country are now accounted for by private labels, in dairy categories that figure is closer to 50 per cent.
Given this proportion, it would be almost impossible for a dairy producer like Tamar Valley to grow revenues without manufacturing private labels and they aren’t alone. Almost every major branded manufacturer in Australia now makes some private label products for retailers or is trying to get a contract to start. In the case of Tamar Valley the company had clearly become extraordinarily dependent on this kind of trade supplying Coles, Woolworths and Aldi with private label yoghurts. The scale of its dependence was revealed last year when Tamar Valley’s founder and managing director, Archie Matteo, acknowledged that around 40 per cent of the dairy’s planned growth was built on a single, newly signed contract to supply Coles with private label yoghurt.
Unfortunately, manufacturing private labels is a very tricky strategic business.Private labels depend on a winning combination of prices that are 25 per cent to 30 per cent less than their branded competition but which usually return at least the same profit per unit sold to the retailer. That means that although the volumes involved in a private label supplier contract are gigantic the margins on such products are extremely tight. The nature of supermarket negotiation also means that no matter what the initial agreed supply price, there will always be future discussions on reducing it further ….
The margin pressure on private labels also means that retailers are constantly on the lookout for alternative suppliers who can offer the same quality commodity product at a lower supply price. And as private label penetration grows, more and more companies are offering their excess capacity for exactly that purpose.
The other big problem with supplying private label is the strategic schizophrenia it creates at the heart of a branded manufacturer. Tamar Valley Diary, like any other branded producer, should have had several clear strategic priorities that drove their business. They should have been focused on understanding and responding to the tastes of Australian consumers. They should have been working on product innovations to propel their Tamar Valley brand past its rivals on the shelf. And, most important, it should have been investing in and building the Tamar Valley brand to build brand equity, create differentiation and protect its market share.
The problem with private label supply is that it runs counter to all these principles. Producing private labels means manufacturing large amounts of commodity product, at the lowest possible price, without any innovation or branding considerations It also means focusing on one or two giant customers (the supermarkets) rather than the ultimate consumer for the product (you and I). As private label supply becomes an increasingly important source of revenues for a company its switches focus from branded innovation to commodity production. Its brands consequently begin to wither and fail making the company more and more dependent on private label supply to stay afloat. But, as Tamar Valley Dairy learnt this week, that’s a very fickle business to depend upon.
It would be naive to suggest that any supplier should avoid any and all private label supply. But it would be equally naive to become as dependent as Tamar Valley Dairy to sustain your business. Any company that builds their business on significant proportions of private label supply is making an enormous gamble in my opinion.
Very smart man Mart Ritson. I would love to sit around the table with him and a group of like minded farmers
In reality just how do we deliver the change that agriculture must have? For farmers this will mean working beyond traditional boundaries and challenging the conventional thinking of primary industries and individuals. It will require a paradigm shift in thinking and a collaborative re-allocation of resources and responsibilities amongst all stakeholders in the value chain.
It will require deploying agriculture’s young people into schools to build relationships with the next generation of consumers. It will need innovative and fun ways of engaging the next generation of consumers in considering the issues affecting sustainable food and fibre production.
I have set up Farming Ahead of the Curve to do just that with a a suite of programs, training and networking opportunities that will change the way farmers and consumers interact, increasing value across all sectors.
These programs will provide a supportive environment, professional development, access to inspiring leadership, first class mentoring and training.
The legacy of these programs will allow farmers of all ages to participate in, and extract greater value from the fibre to fabric and paddock to plate supply chain.
I don’t know about you but I have had enough of others defining my future for me. I say its time to take control and get my dignity back and farm ahead of the curve
