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Battle of the giants: Are consumers the real casualties?

In recent weeks, some of Australia’s favourite pet food brands like Whiskas, Pedigree, My Dog and Dine vanished from shelves around the country. Then more recently, Uncle Toby’s cereals disappeared from some Woolworths stores.

It would appear the supermarkets’ drive to increase private label ranges, while pursuing an ongoing price war, which has led to food price deflation, has finally irritated the big brands so much that they have finally run out of options and begun to withhold supply.

Who are the players?

MasterFoods brand was an Australian family run company before becoming part of Mars Food Australia in 1966. MasterFoods owns some of Australia leading supermarket brands, from pet food, meal solution to confectionary, like Mars.

The Swiss company Nestlé has been rated as the world’s largest fast moving consumer goods company, in terms of revenue amounting to a staggering US$90.8 billion in 2017. They own brands across cereal, bottle water, dairy and baby food.

Why are brands finally revolting?

Australia’s retail industry is amongst the most concentrated in the world with Coles and Woolworths locked in a fierce battle for market dominance. Despite the entry of German supermarket giants Aldi and Lidl, the Coles/Woolworths duopoly survives. Retaining a 70 per cent market share comes at a cost, most notably to suppliers to the two big chains.

Coles and Woolworths both have ‘history’ with the Australian Competition and Consumer Commission (ACCC) for engaging in unethical and ‘unconscionable’ behaviour in dealing with their suppliers. The treatment of suppliers by supermarkets has a direct influence on the type and quantity of products available for sale and also serves to drive up prices and limit the range of products available for consumers.

Freeman’s Stakeholder Theory proposes that in order for an organisation to be successful (and sustainable) it must create value for its stakeholders. But what makes an individual or group a stakeholder? Stakeholders are defined as ‘any group or individual who can affect or is affected by the achievement of the organisation’s objectives’ and in addition, urgency, legitimacy and power are three attributes that ensure that a particular stakeholder or stakeholder group, receives attention from the organisation. In particular, power, is the ability of one agent within a relationship to have another agent do something they might not otherwise do.

In the context of the current price standoff it appears that suppliers are currently wielding the power by withholding supply of many popular branded products. It would appear, the worm has turned. And customers aren’t happy.

Who will blink first?

Historically supermarkets have controlled the relationship between supplier and retailer, but it appears that suppliers have had enough of the one-sided relationship and are finally revolting by withholding supply of major brands across a range of product categories.

Perhaps the latest move by big brands is not surprising. Suppliers have long faced significant challenges in getting their products on supermarket shelves. Supermarkets carefully control which
products we see on the shelves and suppliers must pay premiums, slotting fees and promotional incentive allowances before being allowed precious shelf space.

You don’t need to go back to far to see where a global brand has finally had enough with arguably one-way negotiation and threatened to pull their products. Coles ended up in a staring competition with Arnott’s back in 2015. Herein, Arnott’s sought a 10 per cent increase in prices for 54 biscuit product, Coles refused to accept price, demanding an explanation. Accordingly, Arnott’s withheld supply and as shelves ran low, Coles blinked first. Eventually, Coles accepted the rise on 44 biscuit product in their range.

It’s not just food and groceries. Australia’s biggest brewer Foster’s stopped its beer shipments to Coles and Woolworths for a few days in 2015 because the two major retailers had resorted to selling the product at below cost. We have done so to protect the brand equity – the image of our brands.

The growth of private and phantom brands

Another factor that has frustrated national and global brands is the growth of private label brands. Store brands, developed and owned by the supermarkets, continue to take valuable shelf space away from manufacturer brands with increasing speed. Once maligned as lower quality products, consumers are increasingly embracing private label products which are being marketed as good quality but cheaper alternatives to the big brands. This is making it even harder for suppliers to get their products in front of supermarket shoppers

The real losers in supply chain war

Shoppers detest empty shelves, and given the majority of Australians shop at a Coles or Woolworths supermarket every week, the absence of many popular branded products will soon come to a head.

At the moment it is customers who are losing in the supply chain war. By not being able to access products or facing increased prices, it is Australian shoppers who are powerless stakeholders in the supply chain war.

Dr Louise Grimmer, lecturer in marketing and retail researcher, University of Tasmania; Gary Mortimer, associate professor in marketing and consumer behaviour, Queensland University of Technology.

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