Coles and Woolworths are splitting the fruits of the supplier squeeze between shareholders and customers. Photo: Louie Douvis
Allow me a little background: an employer's defamation lawyers have only twice insisted I offer an on-air apology. One of those two times was the result a story involving what I regarded as Woolworths' unconscionable treatment of its suppliers.
While the apology was made through somewhat gritted teeth, no supercilious sneer was permitted – it wasn't Media Watch. I had made a careless but potentially very costly mistake in not delineating the difference between a criminal and civil legal matter, saying “committed a crime” instead of the correct “broke the law”. There's a very big difference in defamation terms.
Australian suppliers are not particularly low cost and the supermarket duopoly is driving them to become so.
If that wasn't last century, it was close to it, so I have some history on this matter as the Business Sunday program campaigned about the extraordinary pressure Woolworths was putting on suppliers, long before the current crop of interest.
It is not impossible that our campaign had some influence in the ACCC tackling Woolworths over the particular issues that had incensed us, pressure that had led suppliers to themselves breach the Trade Practices Act.
The man running Woolworths at the time was Roger Corbett, who now chairs Fairfax, the publisher of this article. Things do go around.
Roger fought the ACCC case all the way to the High Court – and lost. When you've been on the wrong side of a defo action, there is at least some comfort in consequently being proven right about the real substance of the matter.
But despite that history and confidence that our two supermarket giants still squeeze suppliers until the pips are squeakless, I think much of the current political grandstanding and supposed consumer outrage is either misplaced or phoney.
Consumers vote every time they go shopping and they consistently elect their supermarkets of choice to cut costs wherever possible so that prices can be kept low or lowered.
The track record of Woolworths (and Wesfarmers' Coles is catching up) is that it splits the fruits of the supplier squeeze between shareholders and customers.
There are exceptions to the generalisation, including some egregious ones, but Australian suppliers are not particularly low cost and the supermarket duopoly is driving them to become so.
Some farmers can make money out of fresh milk that is sold for $1 a litre. If consumers care about those farmers who can't, they sure as hell aren't showing it when they go shopping.
Our food and grocery market does not function perfectly and becomes less perfect again as two players increase their market share, but it still functions, there is choice and the choice most consumers consistently make is to seek out the most convenient and low-cost method of satisfying their wants and needs.
There traditionally has been a lot of fat in the Australian supply chain and comfortable margins for the many players who took a feed from it along the way. The reality is that we don't need so many players, that the days of wholesalers having a nice business are numbered, if not over, and that the most efficient and productive suppliers survive while the least efficient fail.
To use another staple as an example – beer – Australia's two major brewers used to enjoy the second-highest profit margins of any brewers on earth. Coles and Woolworths set out to relieve them of a large whack of that margin, splitting it between consumers and shareholders. There was no particular reason for or good achieved by corporate life remaining easy for the beer makers.
That is part of Darwinian nature of productivity growth, the “creative destruction”. And, as it turns out, the local beer market has never offered so much diversity.
There is a difference between ensuring fair practice in preventing the gorillas selfishly smashing the chimps, and restricting robust and productive market forces to play out. There might be some easy votes to pick up by rattling the gorillas' cage right now, but curtailing the most efficient operators eventually means consumers will pay for it.
As for the suppliers who are hurting, there's little comfort in knowing that they are not alone. Pretty much all Australian businesses are being forced to become incrementally more efficient, leaner and smarter. Nothing less than world's best practice will finally do. Those that can achieve it have little to fear from the big apes.
Some of us – journalists for example – are caught up in industries undergoing much more painful structural change than being squeezed by Woolworths and Coles, change that isn't resolved by simply becoming one of the top decile producers.
Suppliers at least have the chance to run their businesses with full knowledge of Woolworths' and Coles' intent. You'd be made to become dependent on either of them, you have to be prepared to not do business with them if it's uneconomic. That's much easier said than done when the weight of many jobs and large debts are on your shoulders. But that is the way it is.
For consumers who care to look, there are plenty of alternatives to the duopoly. It's your choice to make.
For what it's worth, I probably split my fresh food and meat shopping 50/50 between the gorillas and independents. And the Pascoe family super fund happily holds shares in both Woolworths and Wesfarmers. And Roger Corbett is still squeezing – you'd be surprised how little he's paying me for this.
Michael Pascoe is a BusinessDay contributing editor – at least for now.