Supermarket giants to set up forum to settle disputes with food manufacturers

Blair Speedy
June 17, 2013
The Australian

SUPERMARKET giants Woolworths and Coles are setting up a dispute resolution body with the Australian Food and Grocery Council in a move that will allow them to avoid attracting regulatory and political attention.

The move comes as Woolies, Coles and the AFGC near the final stages of negotiation on a voluntary code of conduct that will govern their interactions.

In an exclusive interview with The Australian at the Consumer Goods Forum conference in Tokyo, Woolworths chief executive Grant O’Brien said the bulk of the code had been agreed but there were unresolved issues around supermarkets’ in-house brands.

“There’s still work to be done in and around private label, there’s been no movement on that, but there is a determination to make it work,” he said.

Once the code was in place, the stakeholders would create a formal consultative body to resolve disputes before they came to the attention of the competition regulator, which is supposed to be enforcing the application of the code.

“The next step once the code is in place is to have our own roundtable, which will be a forum where retailers and manufacturers can sit down and discuss things,” he said.

“It will mean that the breakdown that there was over the past year can be avoided if the two parties have an ongoing forum in which to discuss things rather than it coming to a head.”

The “breakdown” was a series of complaints by grocery suppliers that the major supermarkets were misusing their market power to demand unsustainably low prices, often with the threat that products would be excluded or replaced with private-label alternatives.

The Australian Competition & Consumer Commission is currently investigating the allegations, and has served dozens of suppliers with compulsory notices to give evidence — a move the suppliers had demanded in order to avoid the perception that they had blown the whistle to the regulator.

The threat of regulatory action led directly to the creation of the code of conduct, in an attempt to placate the ACCC and the federal government which might otherwise have imposed a more draconian and compulsory code.

Mr O’Brien said the roundtable would include Richard Goyder, chief executive of Coles parent Wesfarmers, and AFGC chief Gary Dawson, while other supplier bodies such as the National Farmers Federation would also be invited. The NFF pulled out of negotiations on the code of conduct in March, saying it wanted a compulsory, rather than voluntary, framework.

Terry O’Brien, managing director of food giant Simplot’s Australian business and an AFGC member, said he would also participate in the forum, although the AFGC’s preference was that it be the sole representative of grocery manufacturers in the group.

AFGC chief Gary Dawson said Retailer and Supplier Roundtable had already been registered as a company, with three directors — Mr Dawson and the corporate affairs directors of both Coles and Woolworths.

“The intent is to create a forum that can meet at least a couple of times a year and air industry-wide issues and where possible reach common positions and resolve contentious issues,” he told The Australian.

“It’s consistent with a preference for self-regulatory solutions over legislated intervention, and that’s the preference of both the retailers and the suppliers.”

Mr Dawson said grocery wholesaler Metcash, which supplies independently owned supermarkets including the IGA banner group, would also be invited to join, as would suppliers who were members of the AFGC.

Mr O’Brien said he had met a number of global manufacturers at the Tokyo conference to discuss the Australian market, including the pressure from retailers to cut their prices.

“They’re determined to take advantage of the opportunities in Australia . . . a number of them recognise they’re not focused enough on it. But none of them were wringing their hands and saying they couldn’t make a bob in Australia and would have to source everything out of Asia,” he said.

Gareth Ackerman, chairman of South African retail major Pick n Pay Stores and outgoing co-chair of the CGF, said the concentration of market power in the hands of Coles and Woolies was inevitable.

Pick n Pay owned NSW supermarket chain Franklins before selling out to grocery wholesaler Metcash in 2012 after more than a year of legal wrangling with the ACCC, which objected to the deal.

“We sold because the regeneration of Coles resulted in this huge competitive pressure between them and Woolworths, and meanwhile Aldi is coming from the bottom of the market, so there’s a big squeeze on independent retailers,” he told The Australian.

The ACCC objected to the deal on the grounds that it would reduce competition in the wholesale market, as Franklins also sold wholesale groceries to 10 independently owned franchise stores.

However Metcash argued that the move would increase competition in the retail market, as the company planned to sell off the Franklins-owned stores to independent owners.

“I was flabbergasted at the way the regulator in Australia went for us and tried to stop the sale happening, because what we were doing was increasing the strength of the independents, and ultimately the courts found in our favour,” Mr Ackerman said.

Mr Ackerman said he didn’t think the ACCC could do anything to prevent Coles and Woolworths from dominating the sector. “It was inevitable, if you look at major markets around the world there’s a strong concentration of major retailers because of the economies of scale you need,” he said. “And if you look at Australia there’s a duopoly in just about every industry.”

Meanwhile some of the nation’s largest retailers have banded together to lobby the government to charge online shoppers GST for goods bought from overseas e-tailers. The Australian National Retailers Association wants the GST and duty-free threshold on overseas online purchases to be reduced from $1000 to $20.