The Foster’s versus Coles and Woolworths story has generated more free publicity for Foster’s brands than anything else it has tried for years.
The media loves the story, as the reports and comments in the past two days testify with some truly amazing things being written and said.
One is Senator Nick Xenophon who reckons it’s another example of why competition is bad for us, without really saying anything clever except it could ruin future competition?
Senator Xenophon applauded Foster’s move and hopes to grill Coles and Woolworths executives at a Senate hearing into milk pricing. ”This indicates a pattern of ruthless behaviour that will ultimately squeeze competition and put up prices in the long term,” he said.
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Alan Fels, the former head of the ACCC thought in a similar fashion:
He said he was concerned at the impact of the supermarket wars. Coles and Woolworths control about 50% of the liquor retail outlets. ”Historically, Australian retail competition has been seriously lacking, but as Coles has started reasserting itself, this is changing,” he said. ”However, the concern remains that consumers will witness some benefits from a short-term war and eventually some stable equilibrium will return with less intense price competition aided by some side effects on competition from independent retailers who have been driven out of the market.”
Despite these claims, none of the critics have been able to supply or point to a situation in Australia where this has happened. They and others all claim to have examples (petrol, retailing, banks, newspapers, TV, the media generally, concrete, airlines, anywhere where the number of competitors has declined in recent years, has seen these claims made without substantiation).
Shouldn’t it be a case of put up or shut up? And Foster’s isn’t immune from trying to screw grape growers either, as several stories pointed out this morning.
But perhaps the strangest comment came from The Australian Financial Review’s Chanticleer columnist today who bemoaned the fact that consumers could “lose in brand wars” because as Coles and Woolworths raise the range and number of house brands on their shelves, “the result for consumers is less choice”. That sounds like the sort of guff manufacturers say to justify their high marketing spends. Much of the so-called development work these days on new products is on extending existing brands into new shapes, tastes or sizes.
And if too little choice is bad for consumers, could Chanticleer explain why hard discounters such as Aldi are increasingly popular in Australia, the UK, the US and dominate the German supermarket sector? In fact Aldi is a high-priced operation in Germany and the UK compared to an even tougher competitor called Lidl (which also has a nasty employment record, while Aldi is hard-nosed, but improving).
Lidl has 7200 stores around the world, Aldi has 8300 in its two groups, Aldi Sud and Aldi Nord. Aldi and Lidl consciously limit the number of products available to consumers in their stores.
The average sized Woolies or Coles supermarket has 22,000-25,000 product lines. Aldi has an average of 800 and is as clean and better laid out than many of the Coles and Woolies stores because they are newer.
Aldi has small stores with small selection of products, most home brands, (but well known brands such as Vegemite are stocked) which, like the home brands of Coles and Woolies, are quite often made by brand name manufacturers.
In Australia, Aldi now has 200 outlets in the eastern states and its market share is about 10% in the very competitive NSW market (more than 3% nationally) where it has more than 100 outlets. Its profits are approaching $100 million a year.
Aldi takes credit cards, unlike many of its offshore stores and there is no sign of consumers being restricted by the restricted number of products and lack of brand names on sale.
So much for choice, and yet Aldi is growing faster than any of its competitors in Australia. It started in 2001 and a decade later is now viable and profitable, but consciously limiting the choice of consumers. What would Chanticleer think of that?
And house brands are not new or dangerous, despite all the current publicity. Flemings Food stores had the Black and Gold range of products from the late 1970s when Coles and Woolies introduced their own brands. Commentaries such as today’s effort from the AFR have been around for decades, and have all been wrong.
Franklins introduced the No Frills house brand in 1978 when it was locally owned and run by Paul Simons, the man who later revived Woolworths after years of neglect by dumb management and a insular board.
And petrol is sold by the likes of Caltex, Shell and BP, and is also often sold to independent service stations (such as 7-Eleven), with the same stuff in it, without any loss of power or value for consumers except that it’s a cheaper price.
Much of the media and other comments keep rabbiting on about a retail duopoly in Australia, but that assumes there’s decreasing competition. There isn’t. Metcash is a viable third player (and has just run rings around the oddly run ACCC on its Franklins purchase in NSW). Aldi is growing and Costco of the US (a giant warehouse grocery club) is in Melbourne and about to open in Sydney.
And in the irony of ironies, on the the inside back page (one page from Chanticleer) in today’s AFR was an op-ed piece by a Sydney health academic, associate professor Philip Clarke, which was headlined: “Time to clash cost of generics”. In other words, time to cut the costs of house brand or no frills drugs.
Now all the talk about the importance of brands, etc, in the packaged groceries businesses pales beside the guff from the drug companies about the need to spend heavily on their brands, and the need to keep prices high, not to mention the need to curb generics.
No one trusts the drugs companies when it comes to these claims, so why then do politicians, journalists and academics treat the grocery and food business any differently? Producers in this area have the same desire as the drug companies, to beat competition (to limit it if they can) and to make as much money as they can by whatever (mostly legal) strategy.
So on the back page of the AFR this morning, competition in retailing and the rise of house brands (which are the grocery version of drug generics) is bad and threatens consumer choice, on the inside back page a cogent argument for greater price cuts in generic drugs. The latter was someone’s opinion, so what was the Chanticleer column’s opinion?
No one is standing up for the rights of the consumers in this except groups such as Choice. Certainly not Senator Xenophon, who seems to have more in common with the National Party than consumers.
In fact, the rapid growth of Aldi and the expansion of Costco in Australia tells us that Australian consumers are smarter than the AFR’s Chanticleer claims they are, smarter than Xenophon and the rest of Parliament, and prepared to back that choice with their money, every week.
And remember, you don’t have to shop at Coles or Woolies or Metcash or Aldi or other stores. You can shop local and patronise smaller chains or outlets. You might pay more, but you are keeping these small businesses going and alive as competition. And shopping local can often limit your use of carbon (via cars), so it can be greener, and save you money by using less high-priced petrol like now.
It’s your choice, the likes of Senator Xenophon and the AFR failed to acknowledge that. They claim to know what consumers want. They don’t.