Coke boss returns fire after spat with Coles over costs
Coles boss Ian McLeod recently accused CCA of charging local consumers up to three times what Indonesians pay for equivalent products. It follows similar allegations from Woolworths in what appears to be a concerted campaign in the lead-up to negotiations with the representative body for grocery suppliers - the Australian Food and Grocery Council - to develop a voluntary code of conduct to curb the power of the supermarkets.
The message from Mr Davis was simple. We don't pay Australian workers $1.50 an hour, and neither do you. "Do we actually want to pay our workers $1.50 and $2.50 an hour? Of course they are cheaper in Indonesia," Mr Davis told reporters on Tuesday.
He said that while some of its costs, such as aluminium and sugar, are the same globally, CCA in Australia pays "15 to 20 times per hour more for labour, and we pay significantly more for rent, and we pay significantly more to have a social security backdrop, which doesn't happen in many of these other countries."
He said the same applies for Coles, including the higher rent it pays for Westfield shopping centres. Mr Davis said there is no consumer goods business in Australia that has invested more in reducing its costs than CCA.
"And if that's not good enough well I'm not sure what happens to the rest of Australian industry because it's a very dour outlook if that's the case," he said.
The issue of imports versus local production is a sensitive point for CCA, which was forced to downgrade earnings on Tuesday, in part due to its packaged fruit business, SPC Ardmona, which has continued to see earnings decline against cheap imports used in supermarket private label products. CCA said SPC Ardmona has lost half of its local market share to these imports over the past five years.
Mr Davis said the company remains committed to local manufacture for both SPC Ardmona and its core beverage business.
"Yes, I can bring in [Coke] cans from Indonesia cheaper than I could produce them in Australia," Mr Davis said. "I am not going to do that, because I am fervently a believer that we have to have a manufacturing industry in this country, because if we don't, we do it at our peril."
Despite the strong words, he said that talk of a falling out between Coles and CCA have been overstated. " I think it's been blown out of proportion," Mr Davis said.
"We would believe our relationship with Coles is very, very strong. In fact, I'm not sure that it's ever been stronger.
"[Mr McLeod] is absolutely entitled to his point of view. My point of view is that labour cost in Australia is demonstrably higher than what it is in Asian countries, and yes, of course it will be cheaper in Asia ... just as a whole range of goods and services are."
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Coles boss Ian McLeod accused CCA of charging Australian consumers up to three times what people pay in Indonesia for equivalent products. The claims came amid similar allegations from Woolworths and in the lead‑up to talks about a voluntary code of conduct to curb supermarket power.
Terry Davis rejected the claims, saying higher prices in Australia reflect much higher local costs — notably labour, rent and social security — and that some inputs like aluminium and sugar are globally priced. He also emphasised CCA’s investment in cost‑reduction efforts.
Davis pointed out that labour in Australia can cost 15 to 20 times more per hour than in some Asian countries, plus Australia has higher rents and social security costs. He used those differences to explain why imported goods can be cheaper than locally produced ones.
Davis acknowledged he could bring cans from Indonesia cheaper than producing them in Australia, but said he would not do so because CCA is committed to maintaining a domestic manufacturing industry.
CCA said SPC Ardmona has lost half of its local market share to cheap imports used in supermarket private‑label products over the past five years, and that this competitive pressure contributed to an earnings downgrade.
The voluntary code is a proposed framework being negotiated with the Australian Food and Grocery Council intended to curb some of the supermarkets’ bargaining power. The price allegations surfaced during the lead‑up to those discussions.
Davis said reports of a falling out have been overstated and described the relationship with Coles as "very, very strong," even suggesting it may be stronger than ever, while acknowledging Coles’ CEO is entitled to his view.
Investors should note CCA has publicly defended its pricing by citing higher Australian operating costs, confirmed a commitment to local manufacturing (despite cheaper import options), and reported pressures on earnings driven in part by cheap imports affecting SPC Ardmona’s market share.
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