SUPERMARKET MILK DISCOUNTS SUCKING SMALL BUSINESSES DRY

Jeff Rogut
January 9, 2013

As the major supermarkets flex their buying power muscle and heavily discount everyday items, particularly home branded items such as bread and milk, the small business sector continues to feel the pinch. However, according to the Australasian Association of Convenience Stores (AACS), it’s the consumer that could shift from winner to loser if these anti-competitive tactics continue.

The latest example involves Coles Express advertising its own branded two litre milk for $2, a price point small businesses like corner stores and milk deliverers simply can’t compete with.

AACS Executive Director Jeff Rogut said the increasing trend of the major chains subsidising discounts for their home branded products may have significant detrimental consequences on prices in the future.

“These heavily discounted offers on products such as milk, subsidised by the major chains against their many other product categories, might seem to be a win for consumers in the short term, but the long term outcome is a further erosion of competition in the marketplace and increased plight for small retailers,” Mr Rogut said.

“This creates the very real scenario that the already dominant market share of the supermarket duopoly continues to grow, forcing more and more small businesses out of business and robbing consumers of choice.

“This is more than just a retail issue. Using the milk example, it’s the farmers, processors and milk deliverers who will also suffer if supermarkets are permitted to continue to exploit their buying power by subsidising heavy discounts on their own home branded items for the express purpose of crushing smaller competitors.

“Consumers generally accept higher prices in convenience stores and corner shops because of the ability to purchase products around the clock in a convenient location close to home. However the increasing market share of supermarket home branded products means existing well known brands are being squeezed out.

“This in turn may contribute to a wider shift away from smaller retailers as well as well known brands, which in many instances create the awareness and benefits of products such as milk through their marketing campaigns,” he said.

According to Nielsen scan data, when Coles launched its home brand $2 milk in 2011, sales increased by approximately 200%.

Using this data as a guide, and given Coles brand milk accounts for around 12 million litres of volume per year, this volume could potentially increase to 36 million litres annually. The obvious assumption is that this volume will be drawn from other channels, resulting in a significant impact in the profitability of small independent retailers as well as others in the supply chain.

“While these subsidised discounting tactics won’t have an impact on consumption – bread and milk will be consumed in the same scope as always – there will be a further shift towards the purchase of supermarket home branded milk at the expense of other brands, as well as a wider channel shift away from small retailers to the major chains,” Mr Rogut said.

“The negative implications from a competition perspective are clear, while the negative consequences for small businesses could be catastrophic,” he added.