Supermarket giant Woolworths is seeking to soothe suppliers anxious over a recent court ruling that it did not act unconscionably in demanding as much as $60 million from suppliers to plug a profit shortfall.
Martin Smith, the boss of Woolworths' liquor division, and several of its wine buyers will soon visit South Australia's Coonawarra region to meet with winemakers and industry leaders.
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Supermarket results: Woolworths could win sales race
Fairfax's Catie Low explains predictions that Woolworths will shake off its 29-quarter losing streak to win the second quarter sales race.
Woolworths and Coles are estimated to account for three-quarters of Australia's alcohol sales.
A Woolworths spokeswoman said the visit was "part of our regular ongoing commitment to support and partner with the Australian wine sector", and not connected to the December ruling on its treatment of suppliers.
Federal Court judge David Yates ruled he was not satisfied Woolworths had contravened Australian Consumer Law when it demanded cash from suppliers in 2014 to plug a $50 million hole in its half-year profits.
"I accept Woolworths' submission that a party's 'legitimate interests' will extend to include its interest in pursuing its lawful business in a profitable way and in a manner that minimises its costs," Justice Yates said.
But one source said there was "no doubt [Woolworths] is on a charm offensive" after the controversial ruling.
"The general view is that as Woolworths regains momentum they'll be ratcheting up the pressure to claw back margin from suppliers anywhere they can, to repair profitability – charm offensive or not," he said.
$1 billion in price cuts pay-off
Woolworths has shown some momentum after spending about $1 billion on cutting prices to win back momentum from Coles and German discounter Aldi.
Richard Goyder, the chief executive of Coles' owner Wesfarmers, has been "softening up" investors ahead of Coles' half-year result next month.
Investment bank Morgan Stanley has tipped Coles will report a 0.5 per cent increase in same-store sales (a key metric in retail, excluding new stores), compared with 1.5 per cent growth from Woolworths.
Room for improvement
Australia's supermarket industry is one of the most concentrated in the developed world, investment bank Morgan Stanley said last year, and profitability among Australia's largest suppliers declined from 2010 to 2015.
Rival investment bank UBS recently shone a spotlight on supermarket-supplier dealings and concluded that Woolworths and Coles both "have an opportunity to improve supplier relationships".
UBS this month interviewed 45 fast-moving consumer goods industry players – mostly suppliers – about the two major chains. The respondents gave Woolworths an improved score for its dealings with suppliers, albeit to just 5.2 out of 10. Coles' rating remained steady at 6.2 out of 10. Coles and Woolworths were rated equally (5.5 out of 10) for sharing data with suppliers.
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