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Published 22 February 2013 12:29, Updated 22 February 2013 13:02
Woolworth’s chief Grant O’Brien’s criticism of rival supermarket Aldi is wide of the mark Photo: Fairfax Media
The familiar refrain between warring children – “He started it!” – cuts no ice with grown-ups, but that hasn’t stopped prominent Woolworths chief executive Grant O’Brien from resorting to the desperate plea. In a manner of speaking – or spinning – that is the tenor of O’Brien’s response to the latest criticism that Australia’s largest retailer is misusing its market power to put the squeeze on suppliers.
O’Brien argues that new competitors, notably German discount supermarket chain Aldi, have transformed competition in the grocery sector and “we should be allowed to meet it”. Woolworths, and its arch rival Coles, do this through aggressive discounting, which is a boon for consumers but places enormous pressure on suppliers.
Blaming Aldi is O’Brien’s presumably considered response to increased scrutiny from the Australian Competition and Consumer Commission and its chairman Rod Sims, who has announced that the supermarket sector will be a “specific area of focus” in 2013. Sims is particularly interested in allegations of misuse of market power and unconscionable conduct by the supermarket giants, which control 70 to 80 per cent of the food and grocery market, as well as the growth in label brands.
Aldi, which entered the Australian market in 2001, has 7 per cent of the national grocery market. Blaming Aldi for the deep discounting – typified by $1 a litre milk on sale at both supermarket chains – and the rise of private label brands is the corporate equivalent of “he started it”.
Blaming Aldi for the deep discounting – typified by $1 a litre milk on sale at both supermarket chains – and the rise of private label brands is the corporate equivalent of ‘he started it’
Both Woolworths and Coles have for years strenuously denied reports of bullying suppliers and compelling them to lower their prices to unsustainable levels on threat of expulsion from their shelves. Given the market might of the two supermarket giants, it is hardly surprising that the overwhelming majority of suppliers are reluctant to go public with their grievances.
The attempt by O’Brien to explain Woolworths’ aggressive discounting by pointing the finger at Aldi and others is to absolve his company of its obligations as an ethical business partner and good corporate citizen.
Woolworths and Coles are working with the Australian Food and Grocery Council and the National Farmers’ Federation on a voluntary code of conduct, but that has more to do with staving off mandatory government regulation and the appointment of an industry ombudsman – both of which are anathemas to the two biggest supermarkets.
This view is based on the precious little that the supermarkets have done to date to address the grievances of struggling suppliers, as well as would-be suppliers who feel they are being locked out of the big supermarkets. (Even hopeful suppliers who have heard other suppliers’ supermarket war stories want a crack at those gold-paved aisles and their heavy shopper traffic.)
Woolworths’ stubbornness when it comes to responding to external concerns about its corporate citizenship is best illustrated by its insistence on retaining its gaming operations, despite the overwhelming evidence of the damage that poker machines inflict on our communities.
Woolworths, in majority partnership with Bruce Mathieson’s ALH Group, operates 13,000 poker machines nationally through its hotel interests. It is estimated that these generate annual earnings of $140 million and Woolworths has no interest in waving those easy winnings goodbye, no matter what their impact on the community.
Woolworths is fond of pointing out that it accounts for just 6 per cent of poker machines in Australia and just 2 per cent of all gambling activity. The pernicious affect of those poker machines on the community is well documented; there can be no “just” when it comes to the scourge of poker machines.
For Woolworths – whose corporate logo is the wholesome green apple – to absolve itself from its responsibilities to the community on the basis of minimum impact is weak. A responsible company, especially one as prosperous and influential as Woolworths, should take a leadership position on gaming.
It is is neither here nor there that Woolworths remains a player in the gaming business with the almost total concurrence of its shareholders. Nor is its duty as a corporate citizen mitigated by the fact that Wesfarmers, owner of Coles, has about 1300 poker machines.
Whether it’s doing the right thing by its suppliers, or by the communities which have been blighted by the retailer’s poker machines, the onus is on Woolworths and its leadership to do the right thing. Crying “he started it”, or “he’s doing it too”, is simply not good enough.