Articles

Dobbing On Woolworths & Coles.

So the ACCC is calling for ‘anonymous’ claims of Woolworths and Coles using “unconscionable behavior” in their treatment of suppliers in negotiations. What a monumental waste of time. While nobody would support anything other than punishment to the full extent of the law should Woolworths, Coles or any retailer be found guilty of doing anything illegal, I would be very surprised if either of the two retail giants of Australia went anywhere near legal breaches in supplier negotiations.

Do they go hard in negotiations? Absolutely. Do they leverage every advantage they believe they have to get the upper hand? You bet they do. While you can argue the morality of their negotiating position if you are a supplier, there is little doubt that – from a shareholder and consumer standpoint – both these retail leaders play by the book and deliver results.

It has been fascinating to read the ill informed and, in some instances, dangerous comments left on the social media strings of the major online publications in Australia. Many calling for legislative changes to either curtail the growth of the two dominant players or worse – break them up.

At this moment in time, one of the few aspects of the economy that is keeping interest rates from rising is food deflation led by Woolworths and Coles. They do a textbook job of negotiating with suppliers to maintain lower prices to consumers and profit for shareholders. While it can be argued that suppliers – notably primary industry producers in Australia – are struggling to make profit growth, it is naive to assign responsibility to the supermarkets for the profits of producers, wholesalers and manufacturers.

The free enterprise system that the majority of the world exploits as an economic model is brutal and combative. The system relies on survival of the fittest and a lack of intervention to maintain its efficiency. While some experts believe that the open market model employed globally is flawed, almost every problem ever created with the domestic and the global economy can be traced back to ham fisted intervention.

Any government move to intervene in the supplier-retailer negotiation runs the risk of opening a massive can of worms. Everything from World Trade Organisation agreements, to consumer pricing, to shareholder returns, to interest rates, to the fundamental performance of the economy would be affected.

For a country the size of Australia – with the population of greater New York spread across the continental land mass of the United States – we have a very efficient and productive supermarket model delivering (at the current point in the cycle) deflation and good value to consumers within our locational and competitive context.

While they may be intimidating, the supermarket giants in this country exercise the same relative negotiating advantage that Wal-Mart does in the USA or Tesco does in the United Kingdom. The ACCC call to suppliers may allow people to let off steam, but it will do nothing to add to a more productive working relationship between retailers and suppliers in the supermarket industry in Australia.