Supermarket giants Coles and Woolworths told a Senate inquiry yesterday that they were not trying to increase sales on cheaper private label products at the expense of branded competitors.
Coles merchandise director John Durkan told the Senate inquiry into Australia’s food processing sector that sales for home brand products had risen strongly over the last four years.
He said “customer choice” was behind the popularity of home brands rather than a deliberate strategy by Coles to increase sales margins by acting as both a retailer and producer.
Durkan rejected claims previously put to the Senate inquiry about Coles’ private label strategy, ranging decisions and product sourcing.
“We have seen claims that supermarkets are actively deleting branded products to replace them with private label brands. That is simply not the case in Coles’ supermarkets,” he said.
“Branded products continue to represent over 75 % of overall sales in Coles, and our strong view is that customers will ultimately decide what level of private label products they will buy.
“Shelf space ranging decisions are made on the basis of sophisticated customer preference modelling, not on any strategy to replace branded products with private label.”
Coles also dismissed claims that private label products are increasingly being sourced from overseas suppliers and said Coles’ private label contracts had helped to create almost 10,000 new jobs in the Australian food manufacturing sector in the last four years.
“Again, the facts do not support the claims. Nearly 100% of our fresh produce is grown in Australia, and nearly 90% of our private label grocery products are made in Australia, and we are committed to keeping it that way,” Durkan said.
“Our strategy involves increasing all of our sales, of which home brands is just one part.”
He claimed home brand products, like milk and bread, weren’t being given better positions on supermarket shelves or being oversupplied.
“The way we apportion our space is based on how much volume we sell of a particular product,” Durkan said.
“As you can imagine, our whole aim is to be in stock for our customers. We don’t have enough room to over-space products.”
The supermarket also took the unusual step of releasing diagrams of its shelf plans to dispute claims that it was promoting private label goods at the expense of branded products.
Durkan said even though home brands had seen “double-digit” growth over the last few years, branded products still represent over 75% of overall Coles sales.
“Our strong view is that customers will ultimately decide what level of private label products they will buy.”
Woolworths was criticised for not making a submission to the inquiry, although the supermarket did attend the hearing in Canberra.
“I do want to express my disappointment about your engagement with the inquiry,” committee chair and Liberal senator Richard Colbeck said.
“I don’t think you’ve done yourselves any favours at all, to be honest.”
Ian Dunn, Woolworths head of trade relations, acknowledged that there was “no doubt” that “some sectors” of the food processing industry were facing challenges.
Dunn claimed Woolworths dealt “fairly and honestly” with suppliers and said the supermarket’s relationships with both large and small suppliers were excellent.
He defended the increasing dominance of Woolworth’s own private label ranges and said that these ranges supported Australian suppliers.
“Woolworths invests heavily in co-operating with suppliers on new product development. We have a strong bias of support for Australian supply of our Own Brand ranges – Homebrand, Select and Macro – for which we willingly pay a premium, and which has seen considerable investment by us in small- and medium-sized manufacturing around Australia,” said Dunn.
Dunn said the Macro range was made up of 350 products, more than 80% of which were sourced from Australian suppliers.
“This range is experiencing growth eight times the rest of the market and new products are added to the range largely where there are no other products like it in the Australian market.”
However, Dunn admitted just 6% to 7% of all frozen vegetables sold in its stores were Australian-grown.
He said, of the rest, 30% came from New Zealand, 30% Chinese and 30% from “the rest of the world”.
Cara Waters is the editor of SmartCompany. Cara was previously a senior reporter at the Financial Times website FT Adviser in London and has also worked for The Sunday Times.
