Giant global brands ban supermarket deliveries in price war
Updated
![Woolworths shelves running low on stock Woolworths shelves running low on stock](http://web.archive.org./web/20190604065501im_/https://www.abc.net.au/news/image/11027258-3x2-700x467.jpg)
Empty shelves are a rarity at Coles and Woolworths.
Key points:
- Giant global brands Nestle and Mars pet foods stopped supplying Woolworths and Coles
- Drought and energy prices have driven up food manufacturers' costs and squeezed their margins
- Supermarkets lost the battle against the big brands and will start to raise prices and restock their shelves
But some top brands have been absent in recent weeks because their makers have stopped delivering.
Nestle, maker of Uncle Toby's breakfast cereals, and Mars Pet Foods, which counts Whiskas among its leading products, have been locked in a battle with the supermarket giants over pricing.
Nestle and Mars want higher prices.
"This is not actually the manufacturer deciding on its own not to supply," former Kellogg's managing director Jean-Yves Heude told the ABC.
"It's the consequences of the dispute."
![Jean-Yves Heude - former MD of Kellogg's Australia Jean-Yves Heude - former MD of Kellogg's Australia](http://web.archive.org./web/20190604065501im_/https://www.abc.net.au/news/image/11027216-3x2-700x467.jpg)
Jean-Yves Heude knows first-hand what it's like when Woolworths and Coles play hard ball.
"Every big company, with big brands has got more power, and more leverage versus retailers," he explained.
"Which means obviously, if you are a small supplier, with a small brand, you don't have this leverage."
Nestle and Mars make big brands, and they've been using that power to demand price rises.
Drought and power prices
Nestle says thanks to the drought, in the last nine months the price of grain has jumped 37 per cent, while fruit and nuts are up 10 per cent.
As well, electricity has risen 28 per cent and gas 21 per cent.
"Most suppliers probably haven't put a price increase through to the major retailers in the last two or three years," said food industry consultant Neil Rechlin from Next Gen.
"So, it's a little bit like a pressure cooker. The cost absorption can only go so far."
That pressure cooker has been created by Aldi, with its super low prices which have seen it grab more than 10 per cent of the grocery market in just 15 years.
"That has put enormous commercial pressure on both Woolworths and Coles, which then cascades through to putting enormous pressure on their suppliers," said Mr Rechlin.
Cheap milk is the poster child for that pressure, pressure which has seen many dairy farmers leave the industry.
But now, some suppliers with clout — fed up with being squeezed — are fighting back, with supermarket shelves empty for the first time since Arnott's stopped delivering Tim Tams to Coles in 2015 in a similar dispute over price.
"Growth of very strong global brands means that supermarkets are now faced with clearly no other option but to increase prices and accept those cost increases because there's demand from their publics for those types of brands," said Gary Mortimer from the QUT Business School, who is a former Coles executive.
And the stakes are high for the supermarkets, because they risk their customers walking away.
Which, according to Dr Mortimer, is why they're now restocking their shelves with Nestle and Mars products, at higher prices the companies were demanding.
"If you can't get your favourite brand of flavoured milk or favoured brand of pet food at your supermarket, you're going to go elsewhere to find that brand."
"Now whilst you are elsewhere you may also complete your grocery shopping at a competing supermarket."
Big brands win
The pricing stoushes with Nestle and Mars are a rare black eye for the supermarket giants, who have long histories of using their market power to bully their suppliers.
![Empty cat food shelf Empty cat food shelf](http://web.archive.org./web/20190604065501im_/https://www.abc.net.au/news/image/11027334-3x2-700x467.jpg)
The introduction of a Grocery Code of Conduct in 2015 has reined in the worst excesses, but the big two still apply the blowtorch as hard as they can to try to keep prices down.
"Everything I have seen in my life in many countries in the world, I don't think I have ever seen any process which is that extreme," former Kellogg's boss Jean-Yves Heude said.
"They ask you for every single detail of every ingredient in your product, and you have to justify every single increase in price for each ingredient."
"That's amazing, because they are at the same time your customer, but also your competitor, because, as you know, they make private label."
Peace has broken out for now after a win by two of the big players, with, for example, the price of Uncle Toby's cereals rising by 50 cents a box in some supermarkets.
But small suppliers remain at the mercy of the supermarket giants in the ongoing war over low prices.
Topics: business-economics-and-finance, retail, australia
First posted