The so-called supermarket milk price war is not the only thing heating up. The debate surrounding the future of brand name products on our supermarket shelves is also heating up.
Central to both is the growing power of Coles and Woolworths. Together the supermarket giants operate 87 per cent of full line supermarkets over 2,000 square metres. As we know, they have spread their tentacles to petrol, liquor and banking services.
Like major armies on the march, Coles and Woolworths first establish a beachhead in a particular targeted sector of the economy and then spread out to take more and more territory in that sector until they are either stopped or they march their way to “victory.” Once victorious they can impose their “way” on those they deal with, including suppliers and even consumers.
Take home brand milk for example. First, Coles and Woolworths introduced home brand milk on a small scale. Then they priced the home brand milk a little lower than branded milk. This tactic was designed to initially get consumers used to a comparable product at a lower price. The lower price is aimed at drawing in the price conscious consumer who previously has been loyal to branded milk.
Consumers, believing that milk is all the same, began switching to home brand milk. As more and more consumers switch to the lower priced home brand milk, the future of branded milk starts to be doubtful. With branded milk looking increasingly shaky, the major supermarket chains, this time Coles, goes in for the killer punch by dropping prices on home brand milk with lots of publicity.
As even more consumers then move over to the home branded milk, the days of branded milk are numbered. Once branded milk drops off the supermarket shelf what do you think will happen to the price of Coles and Woolworths home brand milk? Yes, you guessed it, the price of home brand milk is likely to go up!
With the competition offered by branded milk undermined or destroyed by the price cuts on home brand milk, it’s clear that there is little or no incentive for Coles and Woolworths to keep down the price of home brand milk.
Of course, Coles and Woolworths will not stop at milk.
In fact, what’s happening with milk is happening across the Coles and Woolworths supermarket aisles where the march of home brand products is slowly but surely pushing branded products off the shelf to the detriment of suppliers and consumers.
For suppliers on the receiving end of Coles and Woolworths, they are simply not able to reinvest in product innovation or in the business if they are constantly been screwed down on wholesale prices they get from the supermarket giants.
Now this is where the suppliers are seen by some as evil, foreign-owned corporations that are gouging consumers on branded products. Coles, Woolworths and even the ACCC have pointed the finger at the “nasty price gouging” suppliers. Well, that’s all very interesting for a range of reasons.
For starters, Coles and Woolworths have an obvious self interest in blaming suppliers for the price of branded products. The only problem is that Coles and Woolworths will dictate the price at which suppliers sell to the chains. Coles and Woolworths tell the suppliers what to do, not the other way around. Coles and Woolworths control too much of the supermarket sector for any supplier to try and take them on.
Suppliers who do take on Coles and Woolworths are generously sent on a “holiday” by the giants who can simply take the suppliers’ product off the shelf and put more home brand products in its place.
As for the ACCC, it is a bit rich for it to suggest that the suppliers should be taking some of the blame for any price hikes for the simple reason that it was the ACCC that allowed the suppliers to merge or take out their competitors causing some wholesale sectors to become highly concentrated.
Therein lies the central problem facing Australian consumers. The fact is that the ACCC has allowed so many mergers and acquisitions to take place in recent years that we now have some of the most highly concentrated sectors in the world. The harsh reality is that with fewer players in a market following mergers and acquisitions, the remaining players act as a cosy club that drives up prices to the detriment of consumers.
The ultimate danger for consumers is that they will be left with less product choice and higher prices. At a Coles and Woolworths supermarket it’s clear that more and more shelf space is being taken over by home brand products. Branded products get pushed higher or lower on the shelf making it harder to see them or they may even fall off the shelf altogether.
Now, would you miss your favourite branded product if it fell off the shelf? Some may say who cares as they think that home branded products and branded products are really the “same” product. Well, are they? We may think they are, but they can taste different. Try tasting home brand milk and comparing it to branded milk. You tell me if they taste the same!
Yes, ultimately it does depend on the consumer’s taste and preference, but that doesn’t mean that the home brand product is the “same” as the branded product. There will be differences in quality, product sizes and taste. Even Woolworths has publicly stated that home brand products and branded products are not “identical.”
In any event, the quality of a home brand product may today be “comparable” to that of a branded product, but who is to say that the quality of the home brand product will remain the same over time. Once the branded product disappears off the shelf, there won’t be anything with which to compare the home brand product.
More dangerously for consumers, once the branded product falls off the shelf, then what’s stopping Coles and Woolworths from not only raising the price of home brand products, but also cutting their quality?
As they say, be careful what you wish for. If you really don’t care about the future of branded products then you might end up paying the price when the quality of home brand products drops off and their prices keep going up.
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