Suppliers prefer Aldi to Coles, Woolies because it pays invoices faster and is easier to deal with

Suppliers prefer Aldi to Coles, Woolies

March 6, 2013

Lucy Battersby

Easier to deal with: Suppliers say Aldi pays faster than the big two supermarket chains. Photo: Peter Braig

A number of suppliers producing a range of groceries have spoken out against the dominant supermarket chains, Woolworths and Coles, saying they prefer dealing with German-owned rival Aldi.

BusinessDay has revealed Woolworths produced a dossier that claims Aldi’s arrival in Australia has led to a rise in private label products and a tough competitive environment.

Several suppliers have spoken out about their experience supplying Australian supermarkets on the condition of anonymity, fearing contracts would be cancelled in retribution. They say they prefer dealing with Aldi because it pays invoices faster and is easier to deal with. One said it was ”so much better and much more stable to do business with”. Another said Coles and Woolworths reduced supplier prices and took an extra 3 er cent to cover marketing costs when products go on sale, where Aldi would absorb the losses sales into its own profit margin.

Woolworths enjoys some of the best profit margins in the world, according to Bank of America Merrill Lynch analyst David Errington. ‘Within its Australian food and liquor business, Woolworths currently enjoys the highest margins of any retailer globally, at … 9.3 per cent (lease adjusted), compared to its nearest global competitor at 7.9 per cent,” Mr Errington wrote in a note to clients.In its dossier, Woolworths claims Aldi has forced it to introduce a range of private-label products to be competitive. But suppliers say Aldi’s private label policy still buys from local suppliers and ”even pays a premium to buy Australian”, and only asks them compete against other Australian suppliers. The other supermarkets ask them to compete against suppliers from other countries.

A spokesman for Coles said it was standard retail practice for competitive tenders to include domestic and overseas suppliers.

”However, Coles has an Australian-first sourcing policy and we will stock an Australian product before we import.”

He also said it was standard practice for suppliers to contribute to in-store promotions and that Coles absorbs the cost of lower retail prices from its own profit margin.

Fresh fruit and vegetable suppliers complained that their produce was often rejected from all the big supermarkets for being the wrong size or shape. However, sources said that Coles’ and Woolworths’ pattern of rejection was inconsistent and suppliers suspect it had more to do with getting a better price than the quality of their produce. The fruit and vegetables were then returned to the supplier, without any money changing hands. The supplier then has to find a new buyer for fresh produce that was several days older.

The federal government has been helping the supermarkets and their suppliers create a new industry code of conduct to improve relations.

The suppliers hope this new code would be mandated and enforceable by the competition watchdog, unlike existing codes.

The ACCC chairman, Rod Sims, recently told a Senate estimates committee that existing Consumer Law, formerly the Trade Practices Act, was sufficient to deal with complaints and there was no need to introduce more regulation. ”I think, by and large, we are satisfied with the framework.”

He also confirmed the regulator was investigating potential breaches of the law after about 50 suppliers came forward with allegations the supermarkets demand additional payments, impose penalties that were not part of contracts, failed to pay the agreed price and discriminate in favour of private labels.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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