A Few Comments On The Latest Round Of Progressive Bashing

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It must be election year. And – the Aussie/Kiwi relationship has had some bad press in recent weeks in relation to New Zealanders living in Australia not being able to access certain state services. Then we allegedly had Coles and Woolworths discriminating against non-Australian FMCG products as part of their “Buy Australia” campaigns.

A good time then for Labour’s Shane Jones to kick off a debate on supermarket business practices – particularly that supermarket chain that happens to be owned by one of those Australian behemoths.  And which incidentally, used to be owned by the other one of those two in the late eighties and early nineties. In the interval between Coles selling Progressive and Woolworths buying it, a third Australian group, FAL,  owned Progressive. As a nation, we are therefore used to having about 50% of our grocery retail capacity owned by the cuzzy bros from across the ditch. That lengthy period of general acquaintance and the fact that I spent some ten years working for Progressive leads me to adding my tuppence worth to the discussion in progress.

So here are a few facts from my perspective:

  1. Supermarkets are a social phenomenon. Once mankind decided to congregate in towns and cities, we stopped hunting and gathering in the forests and on the prairies, shifting our attention to merchants, markets, stores, supermarkets and now, the worldwide web.
  2. Like it or not, supermarkets have for decades been the gatekeeper to the consumer for anyone who is commercially marketing food products beyond a minimum volume level.
  3. Supermarket operators are not stupid. Of course they are interested in increasing market share, income and profits. In that they do not differ from any other business.
  4. Supermarket net margins are slim in percentage terms. It costs a lot of money to acquire land, build stores and maintain them.
  5. Demand outstrips supply in terms of shelf space availability in-store and new products  promoted by manufacturers are competing vigorously  for that shelf space.
  6. It therefore makes perfect business sense for supermarkets to sit their prospective and current suppliers down to ask them three questions;
    • How are you going to support your products through consumer marketing campaigns, so that we gain some comfort in justifying the shelf space we are about to make available to you?
    • What is your specific marketing strategy in relation to selling your product through our stores network?
    • What trading terms do you offer us?
  7. Yes, we no longer seem to have this neat separation between manufacturer and retailer with each focusing on their core competency and letting the other one getting on with his business without interference…but hey, we also have machines in our offices that combine in one device functions previously carried out by four separate devices, i.e.; photocopier, scanner, fax and email programme. In other words, business evolves. It is not static. Things change. The traditional supermarket business model is being challenged from all directions. In the US,  Amazon is becoming a fresh food fulfillment centre… Here in New Zealand, Nappies Direct turned itself into Supermarket Online
  8. Supermarkets and their operators typically know they are under  the constant spotlight in terms of compliance with the regulators whilst consumers are scarce with their praise and brutal with their criticism. And politicians are prone to comment prematurely on anything without having all the facts…
  9. Let’s not muddle up all the issues involved here as that only skews matters further. Each of the following has its own dynamics:
    • supplier negotiations between buyers and sellers. Market forces will prevail and in a market economy there is no room for political interference.
    • marketing strategies built around “Buy Australia/New Zealand/Upper Volta” campaigns. Every country has these. They are economically flawed, don’t fit into today’s WTO based thinking, are ultimately not sustainable but have good resonance with consumers.
    • supermarket private label or own brand philosophies which are a reflection of the fact that the skill sets bundled within the global supermarket operators are such these days that these companies have an obligation to their shareholders to optimise their revenue opportunities beyond the traditional grocery model.
  10. We could, of course, nationalize the entire food supply chain and subsidize food prices for the entire population.  If that approach had been a workable proposition, the Soviet Union would still be alive and well today.

My closing comment is this:

Dave Chambers, the Managing Director of Progressive/Countdown, is an ethical operator. He learned the grocery trade from the bottom up, having gone through the old Foodtown Management Trainee programme. I first came across him when he was store manager of Foodtown Kelston in West Auckland in the early nineties. He was a smart cookie then, a very personable guy and a rational thinker –  and he retained and built upon all these qualities.  With all due respect, the same qualities did not apply to many of his then store manager colleagues – which explains how Dave managed to rise to the top of the pile. Dave stayed his entire career in the store operations area – in other words he was never a buyer or category manager negotiating with suppliers but always focused on serving the customer.  Yes, he reports to Australia, but Dave Chambers comes with a high level of personal integrity and a reputation he has built over decades. So when Dave  says that the recently made allegations about retrospective supplier payments are incorrect, I am inclined to accept this.