RETAILING: by Peter WestmoreNews Weekly
Dick Smith blasts Coles' "extreme capitalism"
, October 15, 2011
The decision by one of Australia’s largest retailers, Target, to unilaterally cut the price it pays its suppliers by 5 per cent has prompted one of Australia’s best-known businessmen, Dick Smith, to denounce the action as “thuggery”, and has challenged Target’s parent company, Coles, over its treatment of suppliers, including farmers and food manufacturers.
Mr Smith accused Coles management team of “extreme capitalism”, in its dealings with its suppliers.
Interviewed on the ABC Lateline Business program, he criticised the massive salary paid to Coles CEO, Ian McLeod, which is expected to be $15.6 million this year, while Coles suppliers were being driven out of business.
He described McLeod’s salary as “outrageous, especially when Australian processors and Australian farmers are closing down, going broke; country towns are closing”. He added, “It’s just not fair; it’s not a fair go.”
He said he was aware of other unilateral changes to payments to Coles’ suppliers, and added that suppliers were afraid that, if they spoke out, the major retailers would punish them by cancelling future purchases. “This is straight thuggery,” he declared.
He said that the retailers’ actions were “triggered by this extreme capitalism”. He went on: “Look, we’ve got an economic system which is built on perpetual growth. That’s impossible; you can’t have perpetual growth all the time.
“It’s hitting the boundaries now; so people are doing unethical things, and they bully people, the small operator, the small processor … even the big ones! Heinz have just given up in Australia, sacked all their workers and they have moved to New Zealand to save 20 per cent.”
Dick Smith said that the discount campaigns run by the large supermarket chains gave consumers only small benefits, but at high social cost. He continued, “What have Coles saved us? They have saved us 1.7 cents in the dollar. It’s virtually nothing.
“What is the economic cost? Our taxes will go up because we will end up paying social services for our farmers and our processors [and] the people who have worked in the country towns who have lost their jobs.”
He said, “It’s extreme capitalism. It’s dangerous. It’s going to wreck our way of life.”
Dick Smith said that Australia used to have a system where people were given a fair go. “But these days, retailers — and especially Coles — say, ‘We don’t care if you make a dollar, as long as we maximise the return for our shareholders’.”
An examination of the Coles’ website offered no response to Mr Smith’s criticism. However, it featured Coles’ community benefit programs.
Under the heading, “Caring for our Communities”, it proclaimed, “With over 750 stores across Australia, our supermarkets are at the heart of many local communities. We aim to help them through our community initiatives such as our Local Community Support Program and National Charity Partnerships.”
Its website also has a section devoted to its relations with suppliers. It says, “Coles is committed to the strong, loyal and rewarding relationships we maintain with our valued suppliers, so that together we can provide our customers with the best products and service possible.”
Coles has previously been attacked by dairy farmers in several states, because of the effect of the cost-cutting campaign on their incomes.
When Coles inaugurated the milk price war last January, it claimedß there would be no effect on dairy farmers.
In a media release last January, Coles said, “In the same way that Coles is absorbing the higher costs of hormone growth-promotant-free beef, Coles is not reducing the price it pays to its milk-processors either so this move will not impact them or the dairy farmers who supply them.”
It added, “In fact both farm-gate milk prices and contract prices with processors recently increased. Coles is fully absorbing the price cut, bringing great value to customers whilst supporting Australian dairy farmers.”
However the price cut only applied to home-brand milk, which dairy farmers sell at or near cost. The viability of dairy farms depends on premium milk, which is sold at a significantly higher price.
The effect of the price war has been to shift consumption patterns radically away from the premium milk towards generics, cutting dairy farmers’ incomes.
The Queensland Dairyfarmers Organisation (QDO) recently estimated that the price war had taken $36 million from the industry.
In a submission to a Senate inquiry into supermarket pricing, the Australian Dairy Industry Council said, “Processors and dairy farmers who supply the drinking milk market rely on the margin from branded milk sales for their profitability.
“Competition from unsustainably priced Coles private label (home brand) milk is taking market share away from branded products.
“This reduces the amount farmers receive from processors as an increased share of Coles private label (home brand) milk is being sold at little or no margin and less of the more sustainably priced branded milk is being sold.”