The Australian Competition and Consumer Commission (ACCC) announced last week that they are going to investigate "unconscionable conduct" by the supermarket giants and since then a bunch of suppliers have come forward to complain about Woolies and Coles bully tactics on pricing.
But Woolworths chief Grant O'Brien yesterday blamed the pricing pressures on suppliers on the entry of global rivals such as Aldi into the market.
"Welcome to the real world – it's competition my old sons"
One major Sydney-based manufacturer who has supplied the supermarket giants for 30 years says it is fair game.
He said that consumers will be the ultimate winners in this spread of house brands and the losers will be the big international brands.
"There's nothing that can be done about it and they're doing nothing outside the law," said the manufacturer. "It's a free market and what Coles and Woolies are ultimately doing is making products cheaper for the consumer. What is the ACCC going to do? Ask Coles and Woolies to put their prices up?"
The comments come as the ACCC vowed to protect suppliers who came forward with information about bullying tactics from the big supermarket chains, which control more than 70 per cent of grocery spending in Australia.
The Sydney-based manufacturer said however that the market domination of Coles and Woolies and their buying power only transcends into cheaper products for the consumer as they have worked out how to take the power out of the brands.
"What Coles and Woolies have done is taken the profit out of the word "brand" and they're fully within their rights to do that," he said. "Coles and Woolies have to compete with Aldi, which entered the market in 2001 and stock no brands at all. Now they also have to compete with Costco."
"If brands like Heinz for example want to open their own store and stock Heinz beans throughout the store they can do that.
The customers will decide
This is backed up by research released today by Nielsen which shows Australian shoppers are choosing home labels rather than well known brands to save money.
More than 11,600 Australian household shoppers were surveyed to identify the key attitudes and behaviours when it comes to shopping.
It found that Australian shoppers are choosing home brands and allowing discounts to influence their purchase decisions.
About 70 per cent said they often compare prices of private labels with manufacturer goods and many (60 per cent) believe supermarkets offer similar quality.
It will come right in the end
"It will come to an end when there is nothing left to squeeze out of the manufacturers and it will be back to an even playing field again," he said. "It's simply a period in history where it is better to be a supermarket than a manufacturer. I've been in the game 30 years and if I had my time again I would have bought shares in Coles and Woolies rather than go down the path I did. But that was my choice."
"Manufacturers are being screwed to the wall but it's a free market and will eventually come to an end when there is nothing left to squeeze out of them," he said.
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"Manufacturers will have to adjust their investment decisions in Australia - lower - as recognition that the manufacturers profit margins, previously enjoyed, will not return," he said. "The current over supply of manufacturing capacity will, in time, diminish which in turn will lead to better pricing and result in better ROI [return on investment] for the manufacturers."
"The prices of some products are the same as they were 10 years ago. If it's arising in cheaper products for the consumer - isn't that what Coles and Woolies are supposed to do?"
The medium-sized manufacturer also said that it is a bad time for manufacturers but consumers are the winners in the war between the supermarkets and manufacturers and the only losers are the brands.
Coles and Woolies domination of grocery and fresh food market gives them the buying power which transcends into cheaper products for the consumer.
"Isn't that the end game? To make things cheaper for the customer?" he asked.
"I've been on the receiving end of the supermarket negotiation tactics all my life - it's a game of poker, it's not much fun but it has to be done."
He said that manufacturers need to be smarter with their costings and not send weak sales people into the field.
"Eventually the prices will go back up because manufacturing will be too tough a game to enter and there will be less players in the market," he said.
"Competition is being brought into areas like milk and bread – but the customers aren't complaining because they can get bread for a dollar a loaf. The farmers are crying poor but – ‘welcome to the real world - it's competition my old sons."
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