Brands ‘at risk from big retailers’

Damon Kitney
May 06, 2013
The Australian

THE chairman of the company that makes and markets some of the nation’s best-known apparel brands has warned of the “all pervasive” power of Coles and Woolworths in the retail sector, predicting the disappearance of a number of well-known local and international brands in the coming years.

Pacific Brands chairman Peter Bush, who is also a former chief executive of McDonald’s Australia and has run or helped manage leading brands such as Arnott’s, Johnson & Johnson and Schwarzkopf in Australia, said the retailers were now in the strongest position he had seen during his career.

“I am not a big believer in regulation. I am a big believer in self-regulation. But I am also someone who believes everyone should have a fair go. And I think the important thing in this process is that there needs to be a level playing field,” he told The Australian.

Asked if he believed there was one now, he replied: “I am certainly not convinced there is.

“If you are a small supplier and you want to have your product listed with the major chains — anywhere, whether it is in liquor, apparel or on the supermarket shelf — it’s going to cost a lot of money. It is pretty tough.”

His comments come as Coles and Woolworths are negotiating the final details of a voluntary code of conduct for the $85 billion grocery sector with food and grocery manufacturers.

Assistant Treasurer David Bradbury has warned that the government would pursue a mandatory code of conduct if negotiations between the major retailers and the Australian Food and Grocery Council fail to produce a “meaningful” outcome.

The Australian Competition & Consumer Commission is also examining the impact of private-label groceries on competition in the supermarket sector, particularly the potential for supermarkets to threaten suppliers with having their goods replaced with in-house brands unless they cut prices.

Woolworths managing director of Australian supermarkets, Tjeerd Jegen, said recently that the retailer’s private label brands were growing two to three times faster than national and international brands.
The retailer wants to double the sales penetration of its stable of house brands — Homebrand, Select, Gold and Macro.

Mr Bush said the power of the retailers, coupled with the rise of social media and online retailing, was “going to create quite a remarkable set of circumstances for brands to be able to survive”.

“We are going to probably see in the next 10 years some quite iconic local brands just disappear off the face of the earth. I think that will be quite tragic. Some of them will be brands that we know and love,” he said.

“It is that old frog in boiling water thing. A lot of this stuff happens by osmosis. One of the great misunderstandings at the moment is that you see how much stuff is quoted as being sold on the internet. If they are saying it is 10 per cent, I reckon it is three times that. It is enormous. I can count the courier trucks going up and down my street.”

Mr Bush took over as chairman of PacBrands — the company behind Bonds underwear, Yakka workwear and Dunlop trainers — a year ago and has since appointed former Foster’s Group chief executive John Pollaers as chief executive.

PacBrands has been under pressure as its major customers have replaced its branded products with their own private-label offerings.

Mr Pollaers is pursuing new retail sales channels, including online and offshore markets such as Asia, the US and Britain, to complement the group’s core business as a wholesaler to department stores and supermarkets. The company has 120 Sheridan concessions in Chinese department stores and a further 56 in Britain.

“Our challenge now is to grow this business in what are, at the moment, pretty tough circumstances,” Mr Bush said.

“My focus is very much working with John and looking towards growth strategies. I don’t think the environment has really changed from when (former chair James) McKenzie was chairman to Bush being chair for a year. Retail is tough. It is tough for suppliers. I think there is a lot going on between internet sales, house brand growth, and other things.”

But Mr Bush stressed there would be no “wholesale march into retail”. “Retail is part of our portfolio. We will have to choose carefully where the sites go. Around the board table I say you have to have the Maccas strategy for our sites — it has to be on the corner of main and main,” he said.