Coca-Cola Amatil (ASX: CCL) chief executive Terry Davis has blasted supermarkets for selling products below cost, as "loss leaders" to get shoppers into their stores.
Mr Davis has also called for a national debate over aggressive supermarket practices, urging the government to do more to protect Australian manufacturers. Mr Davis also told the Australian Financial Review (AFR) that the price crisis in the food manufacturing sector was not totally caused by the big two Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES).
Woolies and Coles account for around 70-80% of food and grocery sales, with the remainder split between Metcash Limited (ASX: MTS) supplied IGA stores, Aldi, Costco and other small independents.
"There is certainly room for debate [about] customers with such market power – and it's indisputable that Coles and Woolworths have market power," Mr Davis said.
Mr Davis said that he his own business had seen tremendous damage to its Shepparton fruit growing community through the rise of private label imported product. Up to 90% of packaged fruit and vegetables is now imported, squeezing the margins of food processors like Coca-Cola's SPC Ardmona.
Mr Davis suggested that it wasn't all the retailers fault, and rather than attacking them, it would be better to find ways to keep Australian manufacturing from closing down and not to move offshore.
The Australian Competition and Consumer Commission (ACCC) has recently escalated an investigation into Coles and Woolies over anti-competitive behaviour, with 50 suppliers coming forward with complaints against the two giant retailers.
The Foolish bottom line
We've already seen the effect $1 milk has had on our dairy industry, with evidence that many dairy farmers are leaving the industry and others borrowing from banks to stay in the game. There are many other examples where Australian food manufacturers and suppliers face significant headwinds. Many more could become extinct if current conditions continue.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.
