Coles targets supplier agent cuts

Coles is set to carve out savings worth hundreds of millions of dollars and dramatically cut Australia's 20,000 strong army of independent grocery agents if it proceeds with a radical plan to shake up the way fees are charged to the food manufacturing sector.

Coles is set to carve out savings worth hundreds of millions of dollars and dramatically cut Australia's 20,000 strong army of independent grocery agents if it proceeds with a radical plan to shake up the way fees are charged to the food manufacturing sector.

The supermarket group is considering wielding its market power to transform the way grocery brands are placed and promoted on its shelves by sidelining independent field agents and creating its own panel of agents to deal with suppliers.

This would make Coles - for the first time - the arbiter of the fees that are charged to suppliers by field agents, while also allowing it to pocket a lucrative rebate in the process.

The plan being considered by Coles management has sent shocks through agent ranks, also known as merchandising reps, whose daily job it is to watch over product on behalf of suppliers inside the store including everything from restocking to replacing price tags.

Field agents are believed to generate about $500 million a year in turnover. This is mostly from fees paid to them by suppliers, with Coles eyeing further cost savings in the supply chain.

Often seen working away in the supermarket aisles with the name of the brand on their workwear, these field reps also typically replace perishable food stock, such as bread, and negotiate deals with supermarket store managers over special promotions such as in-store demonstrations and end-of-aisle displays known in the industry as "gondolas". They charge a fee of around 5 per cent of sales to suppliers.

Under the proposal from Coles, detailed in a confidential tender issued last month, the company would raise its own panel of "approved" field agents who, armed with a range of fees negotiated with Coles, would then go out to food suppliers to tender for their services.

By pushing down the fee, well below the 5 per cent industry standard, and then also charging a rebate on top of that, it could allow Coles to seize hundreds of millions of dollars from these middlemen and channel it back into its own revenue stream. It also would mark a radical departure from current supply relationships and is another step in the wider push by Coles to rationalise its supply chain and cut costs.

Any field agent not part of the Coles panel could find themselves shut out of its stores unless they become accredited by Coles and undergo a "training course" for an as yet unknown fee.

It is believed Coles toyed with a similar proposal in 2006 but was blocked by the competition regulator. The scheme apparently was deemed to be "third-line forcing", a breach of competition legislation that blocks a company from making a customer acquire goods or services of a particular type from a third person nominated by it.

The carrot being waved under suppliers' noses by Coles is that it could use its muscle to squeeze preferential and cheaper rates from field agents, stripping out as much as $200 million in costs from the supply chain.

Coles would use its panel of third-party field agents to simplify and standardise the duties performed by the reps so that they deliver better value for suppliers and work smarter with Coles store teams.

A spokesman for Coles confirmed it was considering the restructure. He said it was a proposal that was partly "supplier driven".

"One area suppliers tell us we could improve is how we work with their field force teams - reps they employ to support their brand in-store," the spokesman said.

He said no decisions had been taken, nor would they without consulting suppliers.

It is believed any field agent or agency company that declined to operate under Coles' new regime would be effectively shut out of the supermarket store, making it impossible for them to do their job, until they paid an "accreditation" fee to Coles and underwent a training course.

Field agents rely on access to store management, facilities and sales data to carry out their work for suppliers and promote grocery brands under their control. The Coles spokesman said once accredited and undergoing training, any field agents not on the Coles panel would get the same access to Coles stores and staff as those on the panel.

The chairman of the Association of Sales and Merchandising Companies Australasia, Paul Meyer, said the peak body representing field agents had not been approached by Coles in regard to changes to its merchandising rules.

"We understand that a private tender process has been undertaken, but we were not privy to the tender document," Mr Meyer said. "The members of our association would be particularly concerned about, if correct, the implications of these rumoured changes to the current system."

Mr Meyer said the association would organise a meeting with Coles management to discuss any potential changes.

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