Suppliers prefer Aldi to Coles, Woolies

A number of suppliers producing a range of groceries have spoken out against the dominant supermarket chains, Woolworths and Coles, saying they prefer dealing with German-owned rival Aldi.

BusinessDay has revealed Woolworths produced a dossier that claims Aldi's arrival in Australia has led to a rise in private label products and a tough competitive environment.

Several suppliers have spoken out about their experience supplying Australian supermarkets on the condition of anonymity, fearing contracts would be cancelled in retribution. They say they prefer dealing with Aldi because it pays invoices faster and is easier to deal with. One said it was "so much better and much more stable to do business with". Another said Coles and Woolworths reduced supplier prices and took an extra 3 er cent to cover marketing costs when products go on sale, where Aldi would absorb the losses sales into its own profit margin.

Woolworths enjoys some of the best profit margins in the world, according to Bank of America Merrill Lynch analyst David Errington.

"Within its Australian food and liquor business, Woolworths currently enjoys the highest margins of any retailer globally, at ... 9.3 per cent (lease adjusted), compared to its nearest global competitor at 7.9 per cent," Mr Errington wrote in a note to clients.

In its dossier, Woolworths claims Aldi has forced it to introduce a range of private-label products to be competitive. But suppliers say Aldi's private label policy still buys from local suppliers and "even pays a premium to buy Australian", and only asks them compete against other Australian suppliers. The other supermarkets ask them to compete against suppliers from other countries.

A spokesman for Coles said it was standard retail practice for competitive tenders to include domestic and overseas suppliers.

"However, Coles has an Australian-first sourcing policy and we will stock an Australian product before we import."

He also said it was standard practice for suppliers to contribute to in-store promotions and that Coles absorbs the cost of lower retail prices from its own profit margin.

Fresh fruit and vegetable suppliers complained that their produce was often rejected from all the big supermarkets for being the wrong size or shape. However, sources said that Coles' and Woolworths' pattern of rejection was inconsistent and suppliers suspect it had more to do with getting a better price than the quality of their produce. The fruit and vegetables were then returned to the supplier, without any money changing hands. The supplier then has to find a new buyer for fresh produce that was several days older.

The federal government has been helping the supermarkets and their suppliers create a new industry code of conduct to improve relations.

The suppliers hope this new code would be mandated and enforceable by the competition watchdog, unlike existing codes.

The ACCC chairman, Rod Sims, recently told a Senate estimates committee that existing Consumer Law, formerly the Trade Practices Act, was sufficient to deal with complaints and there was no need to introduce more regulation. "I think, by and large, we are satisfied with the framework."

He also confirmed the regulator was investigating potential breaches of the law after about 50 suppliers came forward with allegations the supermarkets demand additional payments, impose penalties that were not part of contracts, failed to pay the agreed price and discriminate in favour of private labels.