Australian food manufacturers being squeezed by big supermarket chains' price-cutting efforts, with some suppliers reportedly claiming that Woolworths is demanding up to 10% price reductions within two weeks, report says

Cindy Allen

Cindy Allen

Jul 9, 2012 – Industry Intelligence

LOS ANGELES , July 6, 2012 () – Australian food manufacturers are being squeezed by big supermarket chains’ price-cutting efforts, said the Independent Grocers of Australia (IGA), the third-largest domestic supermarket chain, The Sydney Morning Herald reported July 7.

Some suppliers have reportedly told The Sydney Morning Herald that Woolworths Ltd. is demanding price reductions of as much as 10% within two weeks. If the suppliers do not comply, their products could potentially be removed from the shelves, according to The Sydney Morning Herald’s report.

National Policy Adviser Ken Henrick of Master Grocers Australia trade group, which represents independent grocers and liquor retailers, said that more than 50 suppliers have confidentially discussed the details of their relationships with the nation’s largest supermarket chains with the Australian Competition and Consumer Commission (ACCC). Combined, Australia’s largest supermarkets have an 80% market share.

Suppliers’ problem is that number of entities that supply branded products has dwindled, making them easier to identify, Henrick added.

Woolworths claimed that its operations were continuing as normal, and stressed that any negotiations would have to be mutually agreed upon, according to The Sydney Morning Herald.

Queensland Member of Parliament Bob Katter has introduced a private member's bill that would prohibit any supermarket from have a market share in excess of 20%.

Independent senator Nick Xenophon, who has called for Woolworths to testify before a food production Senate committee, reiterated his calls for major supermarkets to be forced to divest.

According to a 2008 study by the ACCC, the Australian grocery market is “workably competitive,” meaning that even though it is somewhat competitive, the level of completion should be greater. In terms of the grocery supply chain, there were no across the board problems uncovered by the report, The Sydney Morning Herald noted.

Schwob’s Swiss Bakery stopped selling its products at Coles and Woolworths in April, citing the “difficult trading conditions” and rising utility and raw materials costs.

The primary source of this article is The Sydney Morning Herald, Sydney, Australia, on July 7, 2012.

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