Coles tightens noose on agents
The likely shake-up would touch every grocery item from beer to bread.
A confidential tender document obtained by BusinessDay sets out Coles' plan to restructure the relationship between it, suppliers and field agents - also known as "reps" - and proposes the new arrangements could be implemented at its petrol station network as well as Coles liquor arms Liquorland, First Choice and Vintage Cellars.
BusinessDay has also learnt that Coles is now drawing up a shortlist of interested parties to fill the ranks of its maiden panel of "approved" field agents for its supermarkets after its first tender round under the radical new plan closed last Friday.
Originally it was planned for the new supermarket supply arrangements to be up and running from July 1, but that now looks to have been pushed back to the back end of calendar 2013. Starting with five suppliers in its first two months, it is then intended to be offered to all Coles grocery suppliers by late 2015.
As revealed last month, Coles is seeking to raise its own panel of approved field agents, who, armed with a range of fees negotiated with Coles rather than suppliers as is the case now, would go out to food suppliers to tender for their services. This would turn the relationship between these agents and suppliers on its head and carve out hundreds of millions of dollars in costs from Coles' supply chain.
Under the new system these field agents on the Coles panel will also be required to invest in IT hardware and software as well as pay an as yet unspecified rebate back to Coles.
Coles argues that the new arrangements will drive efficiency and deliver a better service to suppliers.
"Most of our large and medium suppliers maintain a significant field force to visit our stores on a weekly basis," the confidential Coles tender argues. "Up to 30 field reps visit our stores in a day.
"There is a significant difference in the ways of working of the field reps of each of our suppliers and this causes disruption to Coles store operations.
"To resolve all these issues, Coles is exploring options for creating a panel of third-party field force companies that could be used by our suppliers."
Working away in supermarket aisles with the name of the grocery brand on their workwear, these field reps 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. They generally charge a fee of about 5 per cent of sales back to suppliers for being their eyes and ears in the store.
But under the restructure Coles would use its market power to negotiate those fees down substantially, reclaiming much of those fees for itself through agent rebates while at the same time tightening its grip over its own supply chain.
The shake-up has shocked the field agents industry. They believe it will threaten the viability of Australia's 20,000-strong army of independent grocery agents who act on behalf of grocery manufacturers, leading to huge job losses.
An industry representative met Coles merchandise director John Durkin last month to plead field agents' case, but Coles looks to be pushing ahead with the restructure.
Especially worrying to the field agents is the idea that only accredited agents who make up the Coles panel will get access to the supermarket store, sidelining independent agents and rendering them of little use to grocery manufacturers who must have agents in the stores watching over their stock.
Until now that fallout was limited to its supermarkets but the supplier overhaul could soon be extended to 630 Coles Express service stations and roughly 800 branded liquor stores.
However, the confidential tender documents do state that currently there is no plan to expand the restructure to other businesses owned by Wesfarmers, the conglomerate that owns Coles, such as hardware chain Bunnings, Officeworks, Kmart or Target.
Coles has claimed that no field agents will be "pushed" into the new system, though it maintains that any agents who wish to remain outside the system will need to complete a training course and pay an "accreditation" fee to Coles.
The tender document states that once the tendering process is completed, Coles and its selected partners will enter into a commercial agreement and roll out the new service to five suppliers in the first two months, 30 suppliers in six months, 60 suppliers at the first anniversary and offer it to all suppliers within two years.
A spokeswoman for Woolworths said it had no plans to implement a similar policy at its supermarkets.
Frequently Asked Questions about this Article…
Coles is planning a controversial overhaul of its supermarket supply chain that would create a Coles-approved panel of third-party field agents who would be contracted and paid under terms negotiated with Coles. For investors, this matters because Coles says the change will drive efficiency and cut hundreds of millions in supply-chain costs, which could affect margins, supplier relationships and the competitive landscape in grocery retail.
The overhaul could extend beyond Coles supermarkets to Coles Express convenience stores and its liquor brands — Liquorland, First Choice and Vintage Cellars. The article cites roughly 630 Coles Express service stations and about 800 branded liquor stores that could be included, in addition to Coles supermarkets.
Coles plans to create a panel of accredited field-force companies whose fees and commercial terms would be negotiated with Coles rather than individual suppliers. These agents would tender to offer services to food suppliers, and Coles would roll out the service progressively to suppliers — starting with a small group and expanding to all suppliers within about two years.
Under the proposed system, approved agents would need to invest in IT hardware and software, complete Coles training and pay an accreditation fee. The tender documents also indicate agents would be required to pay a yet-unspecified rebate back to Coles.
The rollout has been delayed from an initial July 1 target to the back end of calendar 2013. Coles intends to start with five suppliers in the first two months, expand to about 30 suppliers in six months, reach around 60 suppliers by the first anniversary and offer the system to all suppliers within two years (around late 2015).
Industry participants warn the restructure could threaten the viability of Australia's roughly 20,000 independent grocery agents by sidelining those not accredited on Coles' panel, potentially leading to significant job losses across the field agent sector.
Currently field agents typically charge about 5% of sales to suppliers for in-store services. Coles plans to use its market power to negotiate those fees down substantially and reclaim part of that cost through agent rebates, which could reduce suppliers' outlays but also tighten Coles' control over the supply chain.
According to the article, Coles' confidential tender states there is currently no plan to expand the restructure to other Wesfarmers businesses like Bunnings, Officeworks, Kmart or Target. A Woolworths spokeswoman also said Woolworths had no plans to implement a similar policy at its supermarkets.
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