Sunday Star-Times

Behind the bargains

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

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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.

If the supplier doesn’t like what’s offered, supermarke­ts can start to apply subtle, or notso- subtle, pressure. A noncomplia­nt 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 Zealandown­ed 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.

 ?? Photo:Michael Bradley ?? Tough tactics: Progressiv­e Enterprise­s says negotiatio­ns with suppliers are always robust but fair.
Photo:Michael Bradley Tough tactics: Progressiv­e Enterprise­s says negotiatio­ns with suppliers are always robust but fair.

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