Hopes among food, grocery SMEs go “down, down” as Coles expands discounts for private labels

The push to private labels will cause more pain among SMEs in the food and grocery industries, experts have warned, as Coles announced it will yet again expand its price campaign and reduce costs on about 100 of its own in-house products.

The move has been pilloried by the Australian Food and Grocery Council, which says the supermarket is reducing choice and increasing the market power of Coles.

Small businesses are well aware of the trouble in the food and grocery market, with several businesses having collapsed due to the pressures sparked by the supermarkets’ grocery war. But IBISWorld analyst Naren Sivasailam told SmartCompany this morning they can expect the pain to continue.

“Coles and Woolworths have really broken the traditional idea that private label foods are inferior products,” he says. “There really isn’t a huge difference now between private label products and others.”

As a result, lower prices means the success of even more food businesses will be placed in jeopardy. Sivasailam points out sales have increased significantly for private label foods – home brand butter now accounts for 70% of sales, he says, compared to 24% a decade ago.

The supermarkets’ own bread now accounts for 56%, compared to 18% in that same time period.

“Certainly in 2013, the private label market is going to grow. We estimate that by 2017-18, sales of private labels will account for about a third of all transactions.”

“They don’t really show any sign of stopping,” he says.

Coles announced yesterday 100 extra products would receive the discounts, including an 8% reduction in bread prices, 13% for juice, 27% on meat pies and 32% for vegetable oil. Prices which were discounted last year will continue to be sold at cheaper prices.

These new discounts are guaranteed for six months, although the company could extend the discounts beyond then. More than 1,000 products are now part of the overall campaign.

Sivasailam said the continued campaign will have “obvious implications” for SMEs.

The Australian Food and Grocery Council has already made a stand against the announcement, with chief executive Gary Dawson citing research showing thousands of branded products have already disappeared.

“These figures confirm what shoppers report anecdotally – that they often can’t find their favourite products on the shelves any more when they go to the major supermarkets”, Dawson said.

“The latest aggressive campaign by Coles to promote their private label products is a sign that this trend will continue.”

The research in question was conducted by Deloitte, which found that the product range in Coles supermarkets has dropped by 11% from 62,000 products to 55,000. Sivasailam quoted the same research in his own comments.

The Australian Dairy Farmers group has also raised its voice in the fray – dairy producers have been one of the groups most affected by the move to private labels, and Coles intends to keep costs low for dairy products.

Neil Campbell, head of the Australian Dairy Farmers, told the ABC this morning the industry has been hit hard.

“Certainly, the change to generic milk away from branded milk has had a significant impact,” he said.

That pressure has led to several collapses in the food and grocery industry, including wholesale distributor Victoria Foods, dried fruit processor Clyne Foods, and even one of the country’s largest tomato growers. The iconic brand Rosella also entered receivership last year.

While these collapses cannot necessarily all be attributed to a growing discount campaign, experts say the pressure will no doubt be felt among the SME community.

“The thousands of suppliers that make up Australia’s $110bn per annum food and grocery manufacturing industry rely heavily on the major supermarkets to get their products to consumers,” said Dawson.

Coles intends to pursue its discount strategy for better or worse. It recently decided not to continue its My5 discount program, although its “prices are down” campaign has continued.