What is abuse of market power by a retailer?
Retailers in Australia play God. They have so much power and dictate to everyone, especially those who supply products to them. It is virtually impossible for suppliers to stand up to retailers or there are likely to be serious commercial consequences.
In the dairy industry, Coles purchases milk directly from farmers in most states except Queensland and Northern NSW. Woolworths purchases milk directly from farmers in all states for their Farmers Own brand.
All retailers set retail prices for all products in their stores, which sounds fair and reasonable. Coles sets the retail price for Coles branded milk which they own and all other milk products on their shelves. Woolworths sets price for Woolworths and Farmers Own brands they own as well as all other brands on the shelf. Is this fair? Definitely not.
Retailers are able to dictate to all processors who have little choice but to do as they are told or fear losing shelf space, product lines or have the price of their product set higher than their competitors by the retailer regardless of the wholesale price, thus reducing sales. If this isn’t abuse of market power what is?
And now Coles wants to purchase 2 milk plants off Saputo Dairy Australia which are used to bottle Coles milk. This will give Coles complete control of the supply chain and give them further power against other brands. Surely this will not be allowed? It is up to the ACCC to decide whether it will be allowed based on whether it will reduce competition. Blind Freddy can see that this move will reduce competition. We can never forget the fiasco of $1 a litre milk and the damage it caused to the entire dairy supply chain and in particular farmers.
Rather than allow retailers to increase their market power and dictate more to its suppliers, the ACCC and the Federal Government should find ways to reduce their market power. A starting point must be stopping retailers setting retail prices differently for their own brands compared to others. Retailers should not be able to put a small margin on their own brands and then add a margin that is 5 times higher on brands they do not own for their own commercial gain, which is what they do now.
This problem of retailers dictating to suppliers is not just a problem for the dairy industry. It is a problem for every industry and company that supplies retailers. So, the ACCC and the Federal Government must acknowledge this and do something about it.
Eric Danzi, CEO eastAUSmilk