17/02/2017 - 12:36

Consumer choice can limit our options

17/02/2017 - 12:36


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OPINION: Modern commerce that places cheap and convenient at the head of the queue comes at a cost to other measures of value.

Product quality is a challenge for the big chains. Photo: Attila Csaszar

OPINION: Modern commerce that places cheap and convenient at the head of the queue comes at a cost to other measures of value.

These are tough times to be a middleman or woman.

The friendly go-between has morphed into the enemy of efficiency, just another ticket clipper pushing up the final price for consumers.

Retailers such as Wesfarmers’ Kmart have slashed their costs and supported strong profit growth by negotiating directly with offshore suppliers for a smaller, more carefully considered range.

Distributors in every industry, from transportation to education, have watched their operations hollowed out by digital disruptors, who have harnessed online platforms to connect directly with consumers and clients.

And transformative platforms like blockchain are likely to super-charge this shift; but at what cost?

We consumers have proved to be flawed masters of our own destiny, choosing cheap and convenient over just about every other measure.

It is a process that has ultimately delivered some dubious outcomes and left consumers with less choice rather than more.

The decision by infant formula operation Bellamy’s to target the go-betweens in its Chinese market has proved a piece of very flawed thinking.

Sales plummeted after Bellamy’s tried to cut out the ‘daigous’, the organised go-betweens that supply the product to the Chinese market.

These shopping agents source and supply sought-after products including long-life milk and infant formula to the Chinese market, often selling branded products at a significant mark-up.

The attempt by Bellamy’s to cut out the daigous, which in theory sounds like a really good business strategy, backfired when the agents boycotted its product, switching to other in-demand brands such as a2.

Responding to a slide in its sales, Bellamy’s cut the price of its infant formula for the Chinese market, compounding concerns over its product, and further hurting sales and its all-important brand profile.

The decision to sideline the shopping agents has cost Bellamy’s dearly, not just in terms of its share price but also its management, with chief executive Laura McBain exiting last month.

The future of the business is still uncertain despite the brand’s strong position in Australia and overseas. Chinese analysts claim the business could easily rebuild its position in China with some help of the powerful daigous.

The role of the distributors looks less certain in mature retail markets like Australia, and yet in some parts of the grocery market they still play a very powerful role.

Some experienced supermarket players suggest the rise of agents in the fresh food space has helped cultivate the industry’s thriving independent sector.

The local butcher, baker and greengrocer can only survive thanks to the poor quality fresh range in the big supermarket chains, one insider said.

There are powerful agents in the fruit and vegetable sector, cutting deals with growers and market agents to supply the supermarkets – distancing Coles and Woolworths buyers from the actual product.

Woolworths has introduced some new measures to try and combat what one analyst referred to as the ‘indifferent’ quality of fresh produce in the supermarkets by empowering floor staff to send back sub-standard product.

Getting buyers back into the fresh food markets in the early hours of the morning, picking over stock and choosing the best product each day is the only way Coles and Woolworths will compete with the independents, according to one experienced retailer.

The logistics of this approach are mind-bogging when you’re talking about widespread, national chains.

But this is the sort of different thinking market watchers claim the supermarket sector desperately needs to cut loose from its hard discounting culture.

Another approach might be to set up its own independent fresh providores, or turn over its in-store fruit and vegetable departments to independent operators, supported by the might of a national brand.

The recipe box business is another niche part of the fresh food puzzle, with a number of small (but growing) operators now delivering all the ingredients for your evening meal in a box to your front door.

It is the rise of a new middleman, but also a go-between putting one and one together to make three.

And I imagine it’s only a matter of time before a major retailer buys one of these businesses, providing it with the scale and creativity to become into a seriously successful player.


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