Coles 'embarrassing' suppliers in new high-risk strategy
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Coles has launched a high-risk strategy in an attempt to pressure a baby formula supplier to cut its prices.
Is Bellamy's baby formula disappearing?
The supermarket titan is embroiled in a fresh supplier stoush and has put signs up on its shelves, saying popular infant formula maker Bellamy's threatened to pull its product if the grocer didn't accept its price rises.
While the new campaign is smart, it could backfire.The breakdown in negotiations comes just weeks after Arnotts held its Tim Tam biscuits hostage after a breakdown in negotiations over similar price increases.
"It's quite an aggressive and overarching strategy aimed at embarrassing their suppliers in one way or another.
One chief executive of a prominent food brand, who declined to be named, said Coles' behaviour was unprecedented.
Mr Allen said while the new campaign was smart, it could backfire if one of Coles' big suppliers exposed its side of the negotiations, which might put the supermarket in a negative light.
In December last year the Federal Court fined Coles $10 million for "serious, deliberate and repeated" misconduct towards suppliers that were in some cases in financial trouble. A compensation process followed, including up to 220 suppliers with combined sales of $660 million.
The Australian Competition and Consumer Commission (ACCC) has been closely watching the big supermarkets' relationships with suppliers. Earlier this month the ACCC launched legal action against Woolworths for unconscionable conduct over its dealings with suppliers to urgently reduce its half-year profit shortfall after discovering a $50 million hole in its books.
Chinese demandColes would not comment on this latest spat with Bellamy's but the major supermarket chains, including Woolworths and the Metcash-supplied independents, are all benefiting from the unprecedented Chinese demand for Australian milk formula.
Shares in trans-Tasman dairy company a2 Milk surged as much as 38 per cent to $1.43, a record high, on Friday after it said it expected earnings before interest, tax, depreciation and amortisation to rise up to $NZ37 million ($34.8 million) this financial year, citing stronger-than-expected sales of its Platinum infant formula.
The earnings forecast was well ahead of its previous guidance, released in November, of $NZ22 million.
A2 chief executive Geoff Babidge said the company had capacity to further increase production, through its contractor Synlait in New Zealand, and sales. He said a2 ramped up production following unprecedented demand from China's biggest online sale, Singles Day, last month.
A2 and Bellamy's branded formula sold out across many supermarkets during the sale and remain scarce on shelves.
One supermarket insider suggested Bellamy's decision to supply direct to China was to blame for the recent shortages but the lucrative grey market in infant formula is the likely explanation.
A Bellamy's spokesman said international sales accounted for 15 per cent of its revenue, while Australia comprised 85 per cent.
"Australia is still a very important market for us," he said.
Fairfax revealed on Monday that half the formula sold from Australian supermarket shelves made its way to China, delivering more than $200 million to the major grocery chains.
Bellamy's increased prices, some more
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