Taking on the supermarket giants

Michael Short
February 25, 2013
The Age

A fresh upstart in the food chain has become the champion of local producers.

A FEW months ago, in an article published on The Age’s opinion pages and across Fairfax Media’s national sites and apps, I decried Australia’s supermarket duopoly of Coles and Woolworths as unfair, particularly to farmers and other suppliers.

I also said the dominance of these two colossal supermarket chains diminishes the quality, texture and diversity of neighbourhood life in Australia. They have been allowed to become too big and too powerful. And the rise of home brands is only further squeezing competition and reducing consumers’ choice.

In a response published across Fairfax media the following week, the managing director of Coles Supermarkets, Ian McLeod, accused me of writing ”an emotional diatribe”. As to the notion Coles might force undue or unfair concessions from suppliers, McLeod said: ”Lower retail prices have been funded from internal productivity savings, such as less waste, and not from squeezing margins through the supply chain”.

The competition watchdog, the Australian Competition and Consumer Commission, evidently doubts McLeod’s veracity on this. Earlier this month, ACCC chairman Rod Sims disclosed he has escalated an investigation into Coles and Woolworths over possible anti-competitive behaviour towards suppliers.

The misuse of market power is illegal. Supermarket suppliers have been reticent about criticising Coles and Woolworths for fear of retribution. But Sims is guaranteeing confidentiality this time, and says he has collected consistent and credible allegations of behaviour that, if proven, would transgress laws designed to prevent unconscionable conduct and misuse of market power.

It will be fascinating to see what might come of Sims’ probe. It could mark the beginning of the end of the unfettered reign of Coles and Woolworths; there are laws that can be used to protect the suppliers and we need a national debate about whether to reduce the duopoly’s dominance.

In the meantime, though, if you are concerned about two players having as much as 75 per cent of the market, a competitive, community-based option has emerged.

Today’s guest in The Zone is Braeden Lord, the chief executive of Aussie Farmers Direct, a business founded eight years ago on the idea of resurrecting the milkman. Through a network of franchisees, the company delivers a wide and expanding range of fresh produce directly to the front door, saving the average customer about an hour a week spent in supermarket aisles.

Lord stresses in our interview – the full transcript and a short video are at theage.com.au/opinion/the-zone – that the company is also based on backing Australian farmers and manufacturers and rural communities.

”We started with this underlying principle and philosophy around supporting the Australian farmer, and making a stronger connection between the farm and the urban household and the front doorstep by cutting out the middlemen and looking at the most expedient and efficient way to take great quality Australian produce and deliver it to people’s front doorsteps,” Lord says.

”We fully recognise that we are supporting Australian producers, but we also need to be relevant from a range, quality and pricing point of view – and we have been able to get that sweet spot.”

It is proving an enticing sweet spot. Aussie Farmers Direct has grown from a three-person, one-truck milk delivery outfit to a company with 200 franchisees who provide 130,000 households across the nation with fresh fruit, vegetables, milk, eggs, bread, meat, seafood and more. Along the way, it has become Australia’s largest supplier of organic food.

There is much potential for growth; Aussie Farmers Direct is David to the duopoly’s Goliath. In the areas it operates, including most capital cities and a number of regional centres, the company reaches fewer than 4 per cent of households.

”We are providing something that is fundamentally different to what those guys are providing, and we can quite honestly say that it is a business that is being built on very, very strong moral and ethical foundations, which I think makes us a really strong alternative for consumers and for farmers and manufacturers.”

Such is Aussie Farmers Direct’s commitment to Australian produce that it opted to become a manufacturer, in what Lord describes was one of the hardest things he has ever done. Despite evident financial and operational risk, he recommended to his board that the company buy a dairy plant, mothballed for 12 years, at Camperdown, a Victorian town of 3500.

The company bought the plant in 2011, and now employs 30 people. By mid-year, it will have started producing butter, as well as the 100,000 litres of milk the dairy pumps out each day. When Aussie Farmers Direct was launched, as much as 80 per cent of Australia’s milk was produced by Australian-owned facilities. That has fallen to only 5 per cent; to stay true to its ethos, Aussie Farmers Direct had no choice but the buy the plant.

The company may be harking back to an era of personalisation and community, but it is using modern methods. It is revamping its website and launching an app for smartphones and tablet computers to streamline ordering.

Where Coles and Woolworths stand accused of exploiting their suppliers, Aussie Farmers Direct seems to have a more co-operative approach. Lord says suppliers are seeing Aussie Farmers Direct as ”a credible third option”, which gives them some comfort that they will be able to sell produce should the duopoly dump or squeeze them.

”You have to be able to have a true point of difference, and we like to think that comes in a few ways, not the least of which is the wholehearted relationship manner in which we grow our business. Whether it’s the relationship we have with a farmer or with the manufacturer, or the relationship we have with our franchisees that deliver our product, or the relationship ultimately with customers, it has to be wholehearted.

”With a farmer or a manufacturer, we don’t spend the time telling them what price we need to have. We work with them to get the best possible quality and sustainable pricing levels that provides them with a good return and gives us the ability to compete. That’s what works exceptionally well.

”You end up with all Australian products delivered by a person with a name that is part of the local community with a company that stands behind the person that is ethical and committed to making a difference to the landscape of manufacturing and farming within Australia.”

As we approach the federal election, there is more and more talk of Australia becoming one of Asia’s leading suppliers of food, and Aussie Farmers Direct is positioning itself as the champion of local producers.

”We have gone through the industrial age, we have gone through the internet age, we have gone through the mining age in Australia and I really am convinced now that Australia is going to come back into what it was incredibly well-renowned for – that it is a great agricultural country, a country that can produce exceptionally good products and a country that has the land and resources to do that efficiently and compete on a world platform.”

Aussie Farmers Direct has attractions beyond slashing shopping time: it is environmentally friendly because it reduces the number of car trips to the supermarket. And the goods have a smaller carbon footprint because they are locally sourced.

The company is innovative socially as well as commercially. It has launched the Aussie Farmers Foundation, which supports charities and non-profit organisations across rural and regional Australia.

It all adds up to a compelling solution to a mounting concern about the practices and dominance of the big supermarkets. They may be mighty, but consumer sovereignty is, ultimately, mightier still; a growing number of people are voting with our dollars for Braeden Lord and his team.

Read more: