Supermarket Industry Insiders Reveal How Coles and Woolworths Profit off Rising Prices

LUrMumsOnlyFan on 19/02/2024 - 08:42
Last edited 19/02/2024 - 08:43

ABC News - Supermarket Industry Insiders Reveal How Coles and Woolworths Profit off Rising Prices

  • In short: Emails show how Coles increases the prices you pay for products in return for one-off payments from its suppliers.
  • The supermarket giant's CEO denies a supplier's claim that this practice amounts to price gouging.
  • Another insider has detailed how Woolworths seeks rebates from its suppliers when hiking prices — increasing its margins as customers pay more.

Coles:-

The emails show Coles received a one-off payment from a multinational supplier for allowing a price increase, then passed on this cost to customers.
The price increase of around 5 per cent, which the supplier sought to cover its rising costs, was initially dismissed by the Coles buyer based on "customer needs" and the "competitive environment".
… The Coles buyer said the price increase would cost the supermarket hundreds of thousands of dollars, and that if the supplier wished to proceed, the supermarket would need compensation to close this so-called "gap".
… The supplier was expected to bridge some of this "gap". Typically, this involves the supplier accepting a lower margin or making a one-off payment to the supermarket.
The emails show the supplier opted for a $25,000 one-off payment, to be put towards online promotions.
… The source said not only did Coles take the $25,000 in promotion money, but it passed on the full price increase to customers.

Woolworths:-

Another industry insider told Four Corners that about 18 months ago, Woolworths began trying to increase its own profit margins, using economy-wide inflation as cover.
The person, who had direct knowledge of the situation, said Woolworths asked to share in any price increases granted to its suppliers.
It would do this by requesting the supplier pay some of this price increase back to Woolworths.
That meant consumers ended up paying more, suppliers did not get the full price increase, but Woolworths increased its profit margins.

Food & Grocery

Related Stores

Coles
Coles
Woolworths
Woolworths

Comments

  • original15 on 19/02/2024 - 08:56
    +17

    Shocked

    • UrMumsOnlyFan on 19/02/2024 - 08:57
      +1

      Quite.

      I've had to lay down for a bit.

    • HeWhoKnows on 20/02/2024 - 23:09

      Always price check against Aldi

      eg 800g pasta salad, Coleslaw, or Potato salad is $7 at Woolworths and Coles but only $5.49 at Aldi
      We are talking about an identical product in all 3 supermarkets.

      It clearly demonstrates both price gouging and price collusion by the big two, especially as they would have much better buying power!
      Like we wouldnt notice ????

  • singingwolf on 19/02/2024 - 09:26

    As with anything, as inflation goes up, if WOW/Coles were making 10% margin on a $10 item, and that item increases in cost (and therefore price) by $1, they now make 10c more per item. But, when you look at what they have increased prices by, it far exceeds inflation (WOW brand tissues went from $1 to $1.70). They along with all big business used inflation as a cover to increase prices, permanently making us worse off no matter how low interest rates get to, or wages increase.

    ACCC should of mandated that no prices could increase more than inflation. And they should also come down after inflation drops.

    • dtc on 19/02/2024 - 10:15
      +9

      I dont want to be a super market apologist, but when you say 'they have increased the prices by', it could well have been the supplier (WOW do not own a tissue factory, they buy from a supplier). The supplier may be paying higher transport costs or wages or the pulp mill may be charging a higher price or may be paying more for wood pulp or transport or fuel or whatever. Sure the price at the end of the day is the one at the supermarket, but you dont know where the price increase comes from - there are 100s of steps in every supply chain, if everyone adds 4% to their pricing then it adds up a lot at the end and the supermarket could well be paying 70c more per box from its supplier and passing on without any mark up.

    • freefall101 on 19/02/2024 - 10:46
      +7

      I'm not quite sure you understand what inflation is, it is the cost of things increasing across the economy. You can't cap prices rising at inflation because prices rising is inflation itself and we only report inflation after the fact. Some things will grow at more than inflation, some less, total amount being inflation itself.

      And when inflation comes down, it's the growth of prices coming down, not an actual drop in prices. You'd need deflation for prices to start coming down again, all low inflation means is that prices are growing slowly again. When inflation goes from 9% to 2% it doesn't mean prices should drop.

      It's true that Colesworth used inflation as a cover to increase their prices too, it's a big reason why inflation got so high - initially it was caused by overseas events and economic shocks but eventually came down to domestic price gouging. But price controls aren't an answer, what should be happening is the government and RBA should step forward and name and shame these companies rather than try cover for them.

      • MechEng on 20/02/2024 - 08:43
        +1

        Isn't the inflation number you refer to as only the average of all increases across the economy?
        So when you say it should be capped to the inflation, what number are you referring to?
        Also the inflation is a laggard metric, so it is measured after has already eventuated.
        If ACCC will cap increases to inflation it will be capping then to an arbitrary number.
        ACCC should be doing their role without needing parliament to tell them to look at stuff.
        If the supermarkets co-ordinate efforts or act in a very similar way that would be Cartel, isn't?

        • freefall101 on 20/02/2024 - 10:42

          Is your response in reply to mine or the one above? I already said you can't cap anything to inflation and it's laggard metric.

          In response to the ACCC, yes, they should comment as well. However they don't have the power to stop raises in prices. It is very unlikely Colesworth acted together on this, simply because they don't need to. It's an oligopoly market, if one raises prices the other can either decide to win more market share or to increase profits, no need to coordinate anything.

          • MechEng on 20/02/2024 - 13:26
            +1

            @freefall101: Sorry was to DTC.
            I know it is not likely that they acted together but they did not really engage in competition. They probably look at the other side's prices and see an increase and just match it… Which we can argue is like a bespoken cartel.

  • MrThing on 19/02/2024 - 09:41
    +2

    "I am shocked"

    said no one

    • FoxJump on 19/02/2024 - 11:44
      +4

      literally the first reply said "Shocked"

  • rambutann on 19/02/2024 - 09:56
    +8

    I used to be a Buyer in this industry, not surprised by this.

    The issue with having a duopoly is that Colesworths can pretty much request anything from their suppliers - where else are they going to turn?
    They aren't going to get the same amount of revenue from anywhere else in this country. Colesworth suppliers essentially have to cop whatever is thrown at them or exit the industry.

    Until there's more competition in this space, this country is going to continue to suffer.
    One might argue that coles and woolies battle it out to keep prices down, I would argue that's far from the truth.
    Both parties know that they are going to react to competitor pricing changes, so why go down when everyone is going to lose?

    If coles go down from $2 to $1 on a key product, so too will woolies. This wont increase demand, it will simply decrease revenue and margin $$'s.

    • Nugs on 19/02/2024 - 17:10

      "I used to be a Buyer in this industry, not surprised by this."
      how many bribes did you take?
      .

      • rambutann on 19/02/2024 - 19:08

        No bribes in my days. Couldnt even accept a pen.

        This whole scenario has vibes of ‘the shareholder is number one’ - says middle management.

        Buyers are often forced to do things they dont want to due to other peoples thought patterns (middle management).

  • Fredfloresjr on 19/02/2024 - 09:58
    -8

    By the end of the day, people have choices where to shop.

    Both have the best CEO.

    • AustriaBargain on 19/02/2024 - 14:21
      -1

      I do as much shopping from Amazon as I can because they are often at least as cheap as Colesworth specials. But they won't deliver frozen stuff, fridged stuff, or fresh vegetables.

      • Nugs on 19/02/2024 - 17:11
        +4

        so hoping for a monopoly rather than the duopoly?
        .

        • AustriaBargain on 19/02/2024 - 17:16
          -2

          Can't hurt to give it a try.

    • subywagon on 19/02/2024 - 16:19
      -1

      Aren't you guys supposed to lick the boot, not deep throat it?

      • Fredfloresjr on 19/02/2024 - 17:00
        -7

        People really think woolies and coles are charity 🤣🤣🤣

        Go (profanity) yourself, and find other shops if you hate the business. You all complain everything in life.

        • subywagon on 19/02/2024 - 18:02
          +6

          No, they're a duopoly that take advantage of dominating the market and rip people off due to the government being soft on them and ignoring the growing problem over the last 20 years.

          Instead of telling people to go F themselves, why don't you go get educated?

          • MechEng on 20/02/2024 - 08:45

            @subywagon: Duopoly= Cartel

            • subywagon on 20/02/2024 - 19:52

              @MechEng: Absolutely. Colesworth need to be dismantled and broken up.

              • Ughhh on 22/02/2024 - 12:24
                -2

                @subywagon: Is there a reason why you haven't taken the initiative to start a supernarket/grocery business to dismantle them?

                • subywagon on 22/02/2024 - 15:08
                  -1

                  @Ughhh: Your name says my reaction to that inane comment.

                  • Ughhh on 22/02/2024 - 15:12
                    -2

                    @subywagon: Yawn. All talk no walk. How many clouds have you yelled at today.

                    • subywagon on 22/02/2024 - 15:24
                      -1

                      @Ughhh: Not as many randoms like you I guess? So you think the supermarkets are doing a top job do you? lol At least the CEO of Woolies knows when to self checkout…

                      • Ughhh on 22/02/2024 - 15:40
                        -2

                        @subywagon: Lol yeh, my first comment was definitely a yelling comment 🙄. strange guy you are.

                        You have comprehension issues. I never said such things.

                        I thought you were gonna help us all here and show Woolies how to do it. How Disappointing

                        • subywagon on 22/02/2024 - 16:38

                          @Ughhh: I can really see why you call yourself ughhh…I'm sure you incite that reaction with almost every interaction you participate in 🥱 very boring guy you are.

                          I thought you were gonna help us all here and show Woolies how to do it.

                          I think it is you who has comprehension issues, as I never stated that I'd "show Woolies how to do it." Do what exactly? Overcharge? Rip off customers? They're doing a great job of it already I reckon. I'm not sure you even comprehend what you are talking about, urghhh.

                          I am sure with your trolling sure you think you are oh so intelligent, or amusing but honestly, unfortunately, your trolling is just really bland and boring. At least be funny, urghhh.

                          If you had any knowledge of the issue you'd know that due to government inactivity and lack of oversight through the last couple of decades, us consumers have very little power to do much to challenge it. If you really are so intrigued by how I am helping to combat price gouging by supermarkets, here's my very boring list of activities that would probably interest you, seeing how sad and boring you are:

                          • I've signed various petitions with the aim of putting supermarkets under more scrutiny
                          • I've contacted various members of government asking them what action they are taking and requesting them to take more
                          • I boycott colesworth as much as I can
                          • I spread awareness online and through social media and am part of a social media group that watches local supermarket pricing and finds alternatives to supermarkets to help boycott them as much as possible.

                          So there you have it ughhh a boring list to suit a very boring and disappointed fellow.

                          Have fun with your disappointment and dribbling onto your keyboard Ughhh.

                          Good bye.

                          • Ughhh on 08/03/2024 - 19:58
                            -2

                            @subywagon: Wow, what an original comeback re user name.

                            Lol I really made you angry. Yeh I'm so disappointed… Brb while I write a 1000 word essay response.
                            Weird fella 🙄

                            • subywagon on 08/03/2024 - 20:07

                              @Ughhh: Sure mate… I can tell reading is not a strong point for you. Good luck.

          • jimbo jones on 24/02/2024 - 00:54

            @subywagon: Buy shares in both Woollies and Coles. Get your "super high" 2-2.5% margins back as dividends or share-buy-backs.

            They don't make hand-over fist, return on equity is middling. They are duopoly. Go across to New Zealand and the concentration is even higher. UK, not as much. This is econ 101 and you can play dupology strategy/simulator games at Uni to try to play running these types of businesses.

            They have done the real-estate game well and bought up, or invested in the right locations.

            if you want to keep up and muscle in, you need super deep pockets and go for a long game - buy up very expensive real-estate and land-bank on being able to leverage convenience. Kauffman / Lidl didn't want to throw money down the drain.

            Coles was a very crappy company before Wesfarmers bought them (anyone had coles-myer shares in the day, or david jones shares?). They got fixed by foreign management and then spun out again.

            If you are a consumer don't value your time, spend time waiting in queues finding stock outages in your 'cheap store', driving longer to a more inconvenient location, etc. Consumers have a choice and they tend to choose convenience -> hence the small market share of Aldi, IGA, etc.

            IGA /MetCash is close to us in the North shore, about 10-25% more expensive, okay if we need something last minute and couldn't be bothered driving to Woolworths. Can ride bike or walk to IGA. Independent butcher went out of business.

            These are not a tech company or SAAS providers, with super high margins and have very low marginal costs.

            And if you want to break them up, how would go about breaking it up and compensating existing share holders?
            And how would they run effectively?

            Or do you nationalize all supermarkets and let various new oligarchs 'own' the assets like Russia?

  • dtc on 19/02/2024 - 10:11
    +4

    … The source said not only did Coles take the $25,000 in promotion money, but it passed on the full price increase to customers.

    I mean, Coles said 'if we increase the price we will lose money, so compensate us for the lost profits'. They were paid $25k and passed on the price increase and presumably lost profits. Not sure where the confusion lies, this was exactly the deal.

    Taking rebates, supplier discounts etc is how supermarkets work and it has been the case since forever. End of the day it generally benefits the consumer as it reduces prices, but reduces supplier profits (the supermarkets maintain their profits). If you want lower prices, someone has to pay for that - I get that the supermarkets are today's and always whipping child to take that burden but lets not pretend lower prices just magically appear without someone bearing the cost.

    • JimmyF on 19/02/2024 - 10:24

      Not sure where the confusion lies, this was exactly the deal.

      Without knowing the product, I pretty much doubt their claim that a 5% price rise would cost them "hundreds of thousands of dollars" as Coles was claiming.

      The confusion is, Coles claimed it would cost hundreds of thousands of dollars but seemed to settle for $25k. Seems strange, to me, give up $100k+ for $25k. They also passed on the full price rise too. So I'm guessing they didn't lose the sales they claimed and was a supplier shake down.

      Also in the food price increase world of 20220/2024, a 5% price rise is basically a nothing compared to lots of other things.

  • payless69 on 19/02/2024 - 10:48

    Hey it is all based on loathing the dumb!

    See that nice Endeavour store ?

    Woolies is also using the same name justifying their cover for being the largest drug dealers…

  • brad1-8tsi on 19/02/2024 - 13:51
    +1

    Why do you think this is new?

    They mentioned on the news this morning the $25k payment to Woolworths and my partner who used to be a brand manager and dealt with Woolies all the time says "they must have been a really small business. That's small change."

    She hasn't been in the business for 14 years.

  • AustriaBargain on 19/02/2024 - 14:20
    +5

    Did you see the Woolworth's CEO shit himself on ABC over a very basic question? "Can we edit that out. I didn't mean to say that. Can we cut that from the tape", then just walks off.

    • original15 on 21/02/2024 - 08:32

      Amazing watching
      Incredibly poor behaviour from someone meant to be at the top. Imagine what goes on when there’s no cameras

    • original15 on 21/02/2024 - 08:41
      +1

      Just announced he is stepping down

      • UrMumsOnlyFan on 21/02/2024 - 09:17

        It may have been a disastrous moment but that seems a bit excessive.

        Meanwhile politicians be like …

        • JennyTeoFunGirl on 21/02/2024 - 09:30

          It's not really excessive when you think about what it actually mean. i.e. what his freudian slip meant in light of what Bill Gates meant he when said "Oh well he's dead" referring to Epstein.

          It's one of the same thing. That's why he walked out the door, otherwise it would be a nothingburger. He had something to hide and he basically showed it himself.

          No offence, the first time I saw it, thought nothing of it; but then the reality set in about why he was nervous.

          I probably expect his salary will be reclawed back retrospectively for the damage he caused if it gets proven at a later stage.

          • UrMumsOnlyFan on 22/02/2024 - 08:10

            @JennyTeoFunGirl: Erm right …

            Anyhow, it's now patently obvious that his exit wasn't solely because of that one event, though it obviously contributed.

            Net loss of $781 million, $1.7 billion in charges for writedowns, and he's an enormously useful scapegoat to be shown the door to be seen to be doing something and to partly avoid future stages of inquiries and grilling.

  • thesilverstarman on 19/02/2024 - 15:24
    +4

    Unless you have been a buyer you wouldn't understand how complicated it can be. It is not just negotiating a price and then ordering something, then setting a sell price. When you are dealing with perishable goods, there will always be waste. That has to be factored in. Some goods are delivered to warehouses, and others directly to stores. Prices can vary by state or city for a variety of reasons, which all need to be factored in. Shelf position is very important to sales, and if a supplier wants their product to be the one that customers see, they can buy that space to ensure better sales. If a product is advertised, it will sell more that week. Suppliers pay the costs of the advertising. The ends of the isles are also where items will sell better, so suppliers will pay to have products placed there. Then there are other factors like sizes, labels, weights etc that have to be worked out. If an item is new then there will often be an incentive paid by the supplier to try it, sometimes with credits for unsold stock. If an item is increased in price or decreased, then this leads to all sorts of issues. How does the retailer maintain profits? Is the product now priced too high or too low, and is there a better alternative that should be promoted? Will the price change increase or decrease sales? Each square meter of a store has to meet certain sales and profit levels. A half-a-cent price difference can make a product no longer worth selling. And it's not just groceries but all large retailers that work this way.

    • jimbo jones on 24/02/2024 - 00:59

      Yes, had friends on both sides / three sides.

      People that worked at AcNielsen and category managers, so they knew the volume of goods and prices on both supermarkets (this is in the days before the supermarkets brought data analytics in house).

      People that worked as brand managers for the fmcg and paid for the promotions in super markets and used the data to try to 'compete' against other brands and try to maximise their profits via the retailers.

      Buyers in the supermarket(s) and retailers (like petrol stations and department stores (may be wrong about them using the data).

      It's a complicated game wherever is trying to locally maximize their 'profits' / slice of the pie.

  • KaTst3R on 19/02/2024 - 15:31
    +2

    So let's all shop at Aldi?

    • hazzad on 20/02/2024 - 16:57
      +1

      Except they really arent that cheap anymore anyway. Not to mention stuff out of stock regularly enough to be annoying.

  • subywagon on 19/02/2024 - 16:19

    Break them up.

  • monky on 19/02/2024 - 17:57

    Restitutions and profit cap, or 10 minutes in the sarlacc pit.

    Make your choice, Banducci and Weckert.

  • Noblejoker on 20/02/2024 - 10:19
    +1

    I have this theory that it is in fact the 4 tier banking policy in Aust that drives this behaviour
    The WW CEO last night on 4C said "our rate of Gross Profit is around the middle of the ASX 100" Or something similar

    See I think Banks rape profits and set an expectation that is way too high for shareholder return
    Aussies have enormous wealth in super (good) but the super trusts job is to maximise returns
    Thus the sharemarkets aren't satisfied with Coles/WW making 'average' returns - they want above average - but that average is screwed

    I don't own many share and don't trade but I just think the system is fundamentally flawed and the CEOs of all the big companies are always under pressure to catch the Big 4
    When I become PM this will be the first thing I got to the Banks with to get a very large campaign donation lol

  • milkabuck on 21/02/2024 - 09:37

    Lol this is small change. The haggling that goes on in the bigger players (ie. Simplot, etc.) and Coles / Woolworths makes this look like someone asked for a free sandwich during a meeting.

    The really nasty aspect of it at the moment is that suppliers are actively trying to get back to some more serious promotions to boost volume (don't know if you've noticed but a lot of things the last few years have been on MUCH tighter promotions - ie. 20% compared to semi-regular half prices pre-covid) because the volume they shift during these promotions is massive and actually offsets the discount to the level where it made sense for both the suppliers and for ColesWorths (they both operate the same on this), but ColesWorth are pushing back on this because they want an ever increasing slice of the pie (during a promotion it's the supplier that funds it, not ColesWorth) during the promotion meaning that the promotion no longer makes sense for the supplier.

    Don't get me wrong, suppliers are after profit as well but remember they compete in a far more competitive market than ColesWorth do.

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