A recent report in The Australian gives a fascinating insight into the terms and conditions supermarket duopolist Coles is able to exact from its suppliers.
It also explodes the myth that supermarkets operate on tiny margins across their product range to deliver great value to consumers.
The details are contained in an email from Coles health foods category manager to suppliers, setting out the supermarket giant’s demands prior to the introduction of a Coles-branded line of gluten-free foods. Not only do the benighted suppliers have to cop a drop in margin and lose their branding on Coles shelves, they have to pay all expenses involved in the move to private label.
The email demand of the suppliers:
– Rebates of 7.5 percent on all new Coles-branded products they supply for the first 13 weeks of sales;
– Suppliers have to nominate which of their old products should be removed from shelves to make way for the new Coles-branded lines;
– Suppliers to pay Coles an equivalent amount to what Coles would have received if the deleted products had been sold at full retail price;
– Commitment no to increase in prices on new lines for 2 years.
Failure to deliver the new products to Coles distribution centres by May 17 will see products removed from sale and Coles charging an admin fee of $9650 per product line for each of its distribution centres.
The new Coles-branded ‘Simply Gluten Free’ range will have a minimum sales margin of 46 percent – double analysts’ estimates of Coles overall gross margin.
On February 13, ACCC chairman Rod Sims told Federal senators that since last October the ACCC had been investigating both Coles and Woolworths about ‘persistent demands for additional payments from suppliers, above and beyond that negotiated in their terms of trade’ and ‘the imposition on suppliers of penalties that did not form part of any negotiated terms of trade, and which apparently do not relate to actual costs incurred by the major supermarket chains as a result of the conduct which has led to the penalty being imposed’.
Mr Sims also noted ‘threats to remove products from supermarket shelves or otherwise disadvantage suppliers if claims for extra payments or penalties are not paid . . . failure to pay prices agreed with suppliers’ and ‘conduct discriminating in favour of homebrand products’.
He said at the February hearing that such behaviour, if proved, would be a breach of the law and that the ACCC was now investigating such claims.
Coles passed the leak off as a ‘negotiating ploy’ by the supplier. Unfortunately it emerges that the email went out to three or four suppliers which may see the ‘negotiating ploy’ backfire.
Tracy Lints from Photo Direct, who brought the story to our attention, noted, ‘although photo is tough, we should be glad we are not in food!’