Coles defends its milk price cuts as 'good news for consumers'

COLES national merchandise manager John Durkan has defended the supermarket's decision to slash unbranded milk to $1 a litre, arguing heavy discounting was good news for consumers.

By InvestSMART · 12 Feb 2011

By InvestSMART ·
12 Feb 2011

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COLES national merchandise manager John Durkan has defended the supermarket's decision to slash unbranded milk to $1 a litre, arguing heavy discounting was good news for consumers.

"We are doing it for Australian customers," Mr Durkan told The Saturday Age. "We are in every town, in every location around the country and I see our job to make it affordable for them to do their shopping."

The move on Australia Day to cut milk prices, in some states by as much as 33 per cent, sent shockwaves through the nation's dairy industry, with producers and some politicians claiming it would bankrupt farmers.

Among the most vocal is federal opposition agriculture spokesman John Cobb, who this week demanded the competition watchdog step in immediately. Ratcheting up the rhetoric, he added Coles executives were "quite happy to get their bonuses over the dead bodies of farmers".

He was joined by South Australian senator Nick Xenophon, who won support to make Coles, Woolworths, Aldi and Franklins appear before an economics committee to explain their pricing.

But Mr Durkan has rejected the arguments, saying Coles would absorb all the costs of the milk price cuts.

"I hear what politicians are saying about this but, actually, the way we structure our pricing is whatever the cost at the farm gate is [we pay] and we don't set that, that's set by the milk industry themselves. We have that in our contracts so the farmer can't be disadvantaged from Coles in whatever price we are selling [milk] at retail."

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Frequently Asked Questions about this Article…

What did Coles do to milk prices and when did the change happen?

Coles slashed the price of unbranded milk to $1 a litre on Australia Day, a move that in some states reduced prices by as much as about 33%.

Why is Coles saying it cut milk prices to $1 a litre?

Coles’ national merchandise manager John Durkan said heavy discounting is good news for consumers—Coles wants to make shopping affordable for Australian customers in every town and location around the country.

How did dairy producers and politicians react to Coles’ milk price cut?

The move sent shockwaves through the dairy industry, with some producers and politicians warning it could bankrupt farmers. Federal opposition agriculture spokesman John Cobb demanded the competition watchdog step in, and South Australian senator Nick Xenophon sought to have supermarkets explain their pricing to an economics committee.

Did Coles say the price cut would hurt farmers?

No. John Durkan rejected those claims, saying Coles would absorb all the costs of the milk price cuts and that their pricing structure and contracts mean farm‑gate prices are set by the milk industry, so farmers shouldn’t be disadvantaged by Coles’ retail pricing.

Which other supermarkets were mentioned in the debate over milk pricing?

Senator Nick Xenophon won support to make Coles, Woolworths, Aldi and Franklins appear before an economics committee to explain their pricing practices.

What regulatory or political actions were suggested after the milk price cuts?

The article reports calls for the competition watchdog to step in, and political moves to summon major supermarkets before an economics committee to explain their pricing decisions.

What does Coles say about who sets the price farmers receive for milk?

Coles says the farm‑gate price is set by the milk industry itself and that Coles’ contracts reflect that arrangement, meaning Coles does not set the amount paid at farm level.

What should everyday investors take away from the Coles milk price cut story?

From the article’s coverage, investors should note the potential for margin pressure if Coles absorbs the cost of deep discounts, plus increased political and regulatory scrutiny and reputational debate—all factors that can matter when assessing supermarket risk, even though Coles has defended the move as consumer‑focussed and contractually protective of farmers.