The future of Australia’s iconic retail and grocery suppliers is in doubt, according to one of the country’s leading industry executives, who says Coles and Woolworths are at the strongest the pair have ever been.
As a consequence, PacBrands chairman Peter Bush has said it is entirely likely smaller companies will begin to disappear as the duopoly move into new segments of business.
Pacific Brands was contacted by SmartCompany this morning, but no reply was available prior to publication.
“We are going to probably see in the next 10 years some quite iconic local brands just disappear off the face of the earth,” Bush told The Australian.
Pacific Brands has been affected by the supermarkets’ push into new categories such as clothing, although Bush says the impact will be felt in a range of industries such as groceries.
“If you are a small supplier and you want to have your product listed with the major chains – anywhere, whether it is in liquor, apparel or on the supermarket shelf – it’s going to cost a lot of money. It is pretty tough.”
The warning comes after some brands, such as Rosella, have already been put under pressure by the push to private labels.
IBISWorld senior analyst Naren Sivasailam told SmartCompany this morning while it’s unlikely larger brands will disappear overnight, smaller suppliers will feel the pinch much sooner.
“This bodes quite badly for smaller suppliers,” he says, emphasising the concentration of market power in the two supermarkets.”
“At the moment the majority of those private label sales are coming from staples such as flour and dairy products, but they could move into new categories.”
Coles and Woolworths have attempted to calm fears their private label push is harming suppliers. Both have recently signed deals with dairy farmers to source milk directly to the stores themselves.
The pair are also working on a new code of conduct for use among suppliers and themselves, while the Australian Competition and Consumer Commission watches closely for any sign of abusing market power.
However, Coles has warned inefficient suppliers they may not be given new business.
The ACCC was contacted by SmartCompany this morning, but declined to comment. The Australian Food and Grocery Council did not respond to a request for comment before publication.
Assistant Treasurer David Bradbury has also said the government is watching closely to spy any abuse of market power.
While these strategies are in place, says Sivasailam, there is still a major trend towards private labels which will not be easy for grocery suppliers to endure.
“I know for a fact Myer is increasing private label offerings, because the margins are better and they can effectively compete with online retailers,” he says.
“It would be interesting to see the extent and the speed to which suppliers respond, and if the ACCC will have an effect, and if they do deem any supermarkets to be anticompetitive.”
Several suppliers have been put under pressure due to the move towards private label goods, with several having collapsed.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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