Days after Coles agreed to pay $10m in penalties after admitting to unconscionable conduct towards suppliers, Woolworths has been caught up in bullying allegations of its own. The Australian Food and Grocery Council has apparently received complaints from a number of suppliers who have been asked to make payments to Woolworths by the end of the month or risk losing out on shelf space. In turn, the ACCC has invited suppliers to submit any allegations to it, on an anonymous basis if so desired. Leaving aside the legal and moral aspects (both too hard), there are several takeaways for investors from the latest allegations.
- In some senses it’s reassuring to see Woolies going toe-to-toe with its archrival Coles. We wrote last month in Forget the apples, Coles is kicking goals about Coles pushing the boundaries, and investors won’t be concerned to see Woolworths pushing some of its own.
- There’s also the suggestion that Woolworths is taking the fight towards suppliers of premium brands. Woolworths and Coles have said before that they give suppliers the choice: provide what shoppers want at a price they’re prepared to pay or be replaced by private label products that satisfy those objectives, and this latest spat may just be the outward signs of this happening.
- It could also be a sign of Woolworths being more proactive on price, as we said it needed to be in our recent three-part analysis of the company on Intelligent Investor Share Adviser, concluding with What’s Woolworths worth – Part 3.
- The less positive spin is that it’s a sign of the supermarket chain desperately trying to maintain its world-beating 8% operating margin while reviving its sales growth. There are plenty that expect a profit warning from Woolworths at some point over the next few quarters and they could take this as evidence that it will come sooner rather than later.
- Most of all, the latest allegations are yet another demonstration of the power of the Woolworths/Coles duopoly. In a more competitive supermarket sector suppliers could argue that their product might provide an edge over rivals, but they’ll have a tough job in this market with both Woolworths and Coles pushing them hard. For all the talk of tough conditions in grocery retailing, you’d rather be a supermarket than one of their suppliers.
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