Supermarket profiteering and price gouging

There has been much talk about what to do regarding the behaviour of supermarket chains in Australia. There is speculation of profiteering and price gouging.

There is not much substance to this claim: both Coles and Woolworths enjoy a net after-tax profit margin of 2.7%. i.e. for every 100 dollars the consumer spends in their stores, they make a profit of $2.70. This is approximately the same as supermarkets in Britain, Canada and the USA, which average a net profit after tax of between 2% and 3%.

I am not a big fan of how the chain stores deal with their suppliers. It is worth noting however that the supermarkets who run an on-line business here in Australia, generally run that business at a loss. This is hardly profiteering and is a great service for their customers.

As a supplier, I have had extensive dealings with supermarkets and other chain stores in Britain, South Africa and Australia.

All of them, without exception, tried to take 'unfair' commercial advantage of their size.

I will provide one example: In Australia, I was the newly appointed managing director of a medium-sized book publishing company that had, before my time, unwisely set up their own distribution operation, dealing directly with all the chain stores and other customers. Books are normally sold on a 'sale or return' basis, ie unsold books are returned to the publisher. This creates an opportunity for innumerable disputes, real or otherwise. The net result of this is that we had a great deal of difficulty in getting paid at all, never mind on time. We rapidly contracted a magazine distributor to distribute our books along with all the other products they distributed. They had no such difficulties with getting payment since part of their arrangement with all customers was that they paid on time and as invoiced, or the customer would not receive the next delivery. At the time, there were several high-selling magazines also distributed by this distributor, which were critical to the supermarkets and, indeed, all the other chain stores.

The very few real disputes that arose were dealt with later.

Once the new arrangements were in place, we employed six people who took twelve months to reconcile and agree on all the previous disputes with the various chains.

Was what the various chain stores did fair? Of course not.

It should be noted that issues with chain stores arise constantly, often at regular scheduled meetings. So the situation described above was not a 'one off'. With all the products I have dealt with as a supplier to supermarkets and chain stores, which apart from books included grocery products we were met with demands which many would think were unreasonable.

Would it have helped in the case mentioned above, if there had been a Government department to which we could refer the dispute?

NO! We just dealt with the matter as we saw fit. If we had waited for some sort of Government intervention, in the case mentioned above, we would have gone broke waiting. Conceivably on the one hand we would have been trying to deal with chain store complaints and on the other trying to inform a Government department what the issue was. As with most other commercial disputes, businesses will find a way of dealing with any issues that arise.

The point of all of the above is that all chain stores, and not only the supermarkets, will use their market power to try to gain something from a supplier.

Have the people who designed the current proposal for a 'code of conduct' ever dealt directly with chain stores? Probably not.

Does the Federal Government proposal apply to supermarkets only (Coles, Woolworths, Aldi, IGA), or does it also apply to other chains (Target, BigW, Kmart) all of whom behave in much the same way as supermarkets do as far as suppliers are concerned?

One possible solution to perceived supermarket overpricing is, of course, the lack of competition in Australia, and the solution to that, mentioned by both the MD of Aldi and The MD of IGA in recent senate hearings, is the availability of suitable supermarket sites. It seems probable that both Coles and Woolworths own many such sites across Australia, with the objective of minimising the risk of enabling a competitor to emerge.

I think the government would be far better served by trying to attract a suitable competitor, perhaps by ensuring there are suitable sites available for supermarket development, throughout Australia, which would help reduce or eliminate voter unease.

Surely there are more important issues as far as the Australian governments (both federal and state) are concerned than trying to create a scapegoat of the supermarket chains.

Ah, but I almost forgot, there is an election due in a year or so and it helps to have another party or parties to blame for high prices.