Grocers come out in support of Coles and Woolworths

Blair Speedy
The Australian
March 30, 2012

AUSTRALIAN grocery manufacturers have come out in support of supermarkets’ in-house brands, saying they have hired hundreds of extra staff to meet surging demand from Coles and Woolworths.

Coles chief executive Ian McLeod this week hit back at manufacturers such as soap maker Cussons, which have blamed foreign sourcing, private-label groceries and unsustainably low prices for their decision to close Australian manufacturing facilities, saying they should blame their own inefficient practices.

Cussons this week said it would close its Victorian plant at a cost of 92 jobs.

Australian Food and Grocery Council acting chief Geoffrey Annison yesterday agreed the supermarket chains were making life impossible for local manufacturers. Heinz, SPC Ardmona, frozen food producer McCain and dairy processor Murray Goulburn have all announcing plant closures in recent months.

“The issue is whether the short-term benefit to consumers is offset by a long-term detriment — we don’t want consumers to pay more than they have to, but the supermarkets are funding these low prices by squeezing the margins of manufacturers,” he said.

Entrepreneur Dick Smith claimed discount supermarket chain Aldi was selling tinned beetroot at “below the cost of viable production” after he was unable to shift a load of the purple vegetable to supermarkets, adding that such low prices would kill Australian farming and manufacturing.

But several local manufacturers have leapt to the supermarkets’ defence, saying they were encouraging innovation and allowing them to expand to employ more staff.

Manufacturer Yarra Valley Snack Foods said its sales to Woolworths, for which it produces items sold under the Macro health food label, were growing by 70 per cent a year after winning a private-label supply contract three years ago.

Company owner Andre Blain said he had almost doubled staff numbers at his plant in Victoria’s Lilydale to 50, while the security of the Woolworths sales had allowed him to invest in equipment to produce new lines and develop his own brands.

“We source all our potatoes, corn and other vegetables from Australian farmers, and we’re Australian-owned,” he said, noting that his biggest competitor was Smith’s Snackfoods, which is owned by US-based PepsiCo.

Mr Blain said Woolies had never engaged in heavy-handed negotiation tactics for lower prices.

Aidan Coleman, chief executive at the market-listed Bega Cheese, said his firm had added 200 new staff in the past four years to meet demand for private-label products, including 25 since the start of the year when a new contract was signed with Coles.

“Because of that contract, we’ve bought another 70 million litres of milk from Australian farmers that was previously being imported from New Zealand,” he said.

Coles previously sourced its private-label cheese from kiwi dairy giant Fonterra.

Deyrick Upton, chief executive with Coles supplier Bread Solutions, said Coles was encouraging small firms to innovate to compete with what he described as the “fat and lazy” manufacturers who dominated food manufacturing.

Until 2008 we were a very small company with eight people — now we have 170, and that’s all down to Coles,” he said.