Behind the supermarket bargains

ADAM DUDDING
Last updated 09:48 16/02/2014

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Cliffing', 'rogering' and other bully-boy tactics... Have the business practices of Australia's supermarket giants finally arrived in New Zealand?

On Wednesday, Labour MP Shane Jones let rip, accusing the Australian-owned supermarket giant Progressive Enterprises of bullying suppliers and demanding they hand over cash if they wanted to keep their products on the shelves of Countdown supermarkets.

Jones' attack, made under the protection of parliamentary privilege, was full of explosive words such as "blackmail", "extortion" and "Tony Soprano" - and it went off.

Progressive flatly denied the accusations, but Prime Minister John Key said he supported an inquiry and the Commerce Commission said it would look into it.

Jones also played the patriot card, hammering home the idea that a brutish Australian company was importing bully-boy tactics from across the Tasman.

His most damning accusation was that the supermarket's cash demands were intended to compensate retrospectively for past losses.

Whether that detail is proven or not, many Kiwi shoppers may be surprised to learn of the tactics already accepted as normal in the industry.

Progressive's managing director Dave Chambers said negotiations with suppliers were always "robust" but "fair". Yet as one insider put it, when suppliers and supermarkets do deals, it's the big retailer that holds all the cards.

Naturally, supermarkets want to buy goods from suppliers at the lowest possible price, in pursuit of their twin goals of low prices on the shelf and decent margins, but negotiations aren't just about the wholesale price.

If suppliers want their products to feature in the supermarket advertising flyers, or if they want their product in a special bin or at the end of an aisle, they're expected to pay for it.

They also have to cough up if they want to access the data the supermarket has collected from the use of its loyalty cards.

Charging for in-store marketing and data seems reasonable enough, but there's a bigger sting: when supermarkets slash the price of a product to pull customers through the door, it's generally the supplier who takes the hit.

Imagine, for example, that a supplier can sell a can of beans to a supermarket for $1, which gets marked up to, say, $1.26 on the shelf.

If the supermarket wants to put it on special at 76c the supplier's cut will drop from $1 down to 50c, but the supermarket retains the same margin.

Sometimes, suppliers volunteer a price-cut as part of a short-term marketing drive, but according to insiders, it's not uncommon for a supermarket to lure customers inside with a fantastic deal, then bluntly inform the supplier that they'll have to absorb the price-cut themselves.

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If the supplier doesn't like what's offered, supermarkets can start to apply subtle, or not-so-subtle, pressure. A non-compliant supplier might find their product gets moved from a plum spot at eye-level to the relative Siberia of the bottom shelf, or that instead of being stocked five cans wide at the front of the shelf, there might be only two cans visible instead.

They might find that the next time they offer a 50c price-cut, only 20c or 30c is passed on to the customer, and the supermarket pockets the difference. The ultimate sanction, of course, is to banish a product from the store entirely.

Jones' Aussie-bashing in Parliament at times sounded like xenophobic rabble-rousing, but in fact there may be a genuine trans-Tasman culture-clash at play here.

Insiders who spoke to the Star-Times say the culture of Progressive took a sharp turn for the worse late last year, with the arrival of a hard-nosed senior executive from Australia.

Before then, they say, Progressive was no scarier at the negotiating table than its New Zealand-owned rival Foodstuffs, which runs stores including Pak'nSave and New World.

Recently, though, some suppliers have said their interactions with Progressive have been noticeably more intimidating. There are reports of meetings where a supplier was left to sweat alone in a meeting room for half an hour, before being delivered an unsmiling ultimatum.

This, say the sources, just isn't how things are done in New Zealand. Allegations of bullying of suppliers by Australia's two big supermarket chains Coles and Woolworths (owner of Progressive) have made headlines in Australia for years.

In 2011, the Sydney Morning Herald reported that the Coles HQ in Melbourne was known as "Battlestar Galactica", and that suppliers had come to dread being summoned to meetings. Suppliers spoke of a practice at Coles known as "cliffing" - where a supplier would be forced to bid against other suppliers for the right to shelf space.

If they didn't bid high enough, they'd lose their space completely - thrown off the "cliff". There were even more colourful terms for general price negotiations with supermarkets - "rogering" or "assuming the position".

In other words, suppliers were expected to "bend over and take what's coming".

In a kind of worldwide cultural contagion, the Sydney Morning Herald reported Coles' hardball tactics were driven by its manager Ian McLeod, himself a recent import to Australia from the UK, where he had been a senior manager of the low-cost Asda supermarkets.

Tales of bullying of suppliers by supermarkets in the UK have been rife for years, including retailers demanding multimillion-dollar payments, imposing fines for food wasted at no fault of the supplier, and changing contract terms at short notice.

In Australia, the consumer watchdog (ACCC) is mid-way through an investigation into supermarket bullying. In June last year the UK appointed a supermarket "adjudicator" with the power to impose fines and demand public apologies from big chains who trample on suppliers.

It remains to be seen whether New Zealand's relatively genteel supermarket sector is going to need the same sort of treatment.

COUNTDOWN FIGHTS BOOZE-SALES BAN

Countdown has appealed its Takapuna store's seven-day suspension from selling alcohol, imposed after a heavily intoxicated customer was served beer.

The ban had been due to start last week.

The supermarket was handed one of the heaviest off-licence suspensions on record after selling beer to Adam McBride, who was so drunk he could barely stand, in August 2012.

The Alcohol Regulatory and Licensing Authority found it guilty of breaching the Sale of Liquor Act and stripped it of its licence from February 10-17.

An industry insider said the suspension could cost the company a six-figure sum but Countdown was still selling alcohol last week after taking its fight to the High Court.

The penalty has been suspended until the appeal is heard.

A date in the High Court has not yet been set.

The appeal will also cover Countdown Takapuna staff member Paul Tu'ungafasi's 30-day suspension of his general manager's certificate.

- Sunday Star Times

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