Peter Bush, the chairman of Pacific Brands (ASX: PBG), has predicted the end of a number of well-known brands in the near future, due to the sheer dominance of Australia's largest retailers. Bush stated that the giants were currently sitting in the strongest position he had seen during his career.
Pacific Brands is the owner of popular brands such as Bonds, Slazenger, Rio, Everlast and Hard Yakka – to name a few. Whilst these brands have been favored by consumers for years, they, like numerous other small retailers, are being pressured by companies such as Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) to lower prices to unsustainably low levels in order to remain on the shelves.
Bush stated "we are going to probably see in the next 10 years some quite iconic local brands just disappear off the face of the earth… Some of them will be brands that we know and love".
As mentioned by The Australian, this risk is exacerbated by the supermarkets' desire to 'double the sales penetration of its stable of house brands', such as Homebrand or Select.
Bush stated that whilst he is "not a big believer in regulation", he also believes something needs to be done to protect smaller suppliers from the power of retail behemoths.
As it happens, both Coles and Woolworths are currently in negotiations with the Australian Food and Grocery Council (AFGC) to agree on a voluntary code of conduct. Should a voluntary code not be reached, the federal government and Australian Competition and Consumer Commission will pursue a mandatory code in order to protect the smaller entities.
To complement Pacific Brand's core business, the company will pursue new retail sales channels including online – just as other companies such as David Jones (ASX: DJS) and Myer Holdings (ASX: MYR) have done successfully.
Foolish takeaway
Pacific Brands is just one of the companies under enormous pressure by Australia's larger retailers to lower their prices, or else be replaced by private-label products. As Bush has suggested, "there needs to be a level playing field" – an outcome that should be reached through a voluntary or prescribed code of conduct.
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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 contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
