09/07/2008 - 22:00

Majors hurt margins

09/07/2008 - 22:00


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The growing dominance of the major supermarket chains has had a significant effect on Western Australian food producers.

Majors hurt margins

The growing dominance of the major supermarket chains has had a significant effect on Western Australian food producers.

Many say that, because both Coles and Woolworths are based on the east coast, they are less inclined to purchase WA-produced products, favouring national lines that can be rolled-out across all stores.

Others say their issues have been compounded by the growth in home brands, with generic products often manufactured overseas and sold at cheaper prices.

Ambrosia Quality Foods managing director John Percy said his company no longer supplied the major supermarket chains.

"The majors have gone very generic, they want to have the same product in every store in Australia, and that's made it very difficult for WA manufacturers to do that," he said.

"Our trade was fresh sausages and Coles made the decision to have everything made in Sydney and shipped over here. And that took away the opportunity to do that. We're still able to deal with the local market and the IGA.

"That decision...had major impact on WA manufacturers."

The fresh produce sector has also been affected by the major chains' growing market share.

Pacco Group managing director Leanne Wesche said possible impending changes at one of the majors, which involve reducing the amount of wrapped fruit and vegetables and doing more cutting and wrapping back-of-store, could significantly affect her and other fresh produce businesses.

She believes the regular changing of personnel, which often also involves a change in requirements from suppliers, can make dealing with major supermarkets a challenge.

"It's a constant battle to keep your business in with the major chains, but you need the volume and you need to survive," Ms Wesche said.

Increasing competition within supermarkets, particularly with pricing, also means that it's not always possible to pass labour and transport cost increases on to consumers.

"Every time you open your mail it's a price increase. They all have to be absorbed and that affects your profits," Ms Wesche said.

"It's very difficult to pass that on in a competitive marketplace when you're undercutting each other."

Even national companies with local manufacturing operations are not immune from the highly competitive nature of the major supermarkets.

Fonterra Brands Western Australia managing director Peter Tedesco believes the major supermarkets are making more purchasing decisions from their headquarters, a long way from WA.

"There's been a move away from local ranging of products to a national ranging of production," Mr Tedesco said.

He also believes that the deregulation of shopping hours could have an impact on his business.

While Fonterra WA currently supplies more products into the independent supermarkets than to the majors, Mr Tedesco said allowing Coles and Woolworths to trade on the weekends could have a negative effect on Fonterra product sales.

"As shopping hours change, and Coles and Woolworths are allowed to open on the weekends, we will see a noticeable change in our share," he said.

Mr Tedesco said the food industry's ever-tightening margins would inevitably have an effect on the industry's ability to innovate.

"Low margins stifle innovation. If you haven't got the margins it doesn't necessarily give you funds to invest in innovation," he said.


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