Empty Shelves !

It is a fact of life that about eighty percent of this nation's grocery sales pass through the checkouts at Woolworths or Coles.   The buying power of this duopoly is enormous, but the rules of commerce are still supposed to apply.

Customers of Woolworths are encountering empty shelves in the breakfast food aisles.  Uncle Tobys products are missing and this includes all the high volume brands marketed by the giant Nestle corporation.  The reason given for those empty shelves is " a price dispute " !

Earlier in the week a similar situation existed in the pet food aisles of both Woolworths and Coles. This time the missing products were from Mars Petcare and the brands included Whiskas, Pedigree, My Dog, Dine and Chum.  Stock has been restored at Coles and they are advertising heavily to gain a sale advantaged at Woolworths expense.

We have been suffering a record drought and everything from grain to meat products have risen in price.  The giant food companies are finding their profit margins shrinking and they need a price rise to restore their profitability level.  Such is the buying power of Coles and Woolworths that they refuse to negotiate any level of a price increase and their suppliers refuse to supply at the old unprofitable price level.

This dictatorial purchasing power is slowly decimating the dairy industry in New South Wales. Coles and Woolworths decided they would sell milk at a dollar a litre and this dictated the price they would buy their milk from the dairy industry. It has cut any profit from the people who milk cows to the bone and herds are decreasing as people leaved the industry. Now the duopoly is proposing to add ten cents a litre as a benevolent gesture with that stipend going to the milk farmers.

Whatever happened to the first rule of commerce.   That stipulated that the manufacturer of a product recovered the cost to produce and added a profit margin in setting the price it would be offered to retailers.  The retailer then added a margin to cover store costs, plus profit margin and that established the retail rice it was offered to the public.   Both the manufacturer and the retailer shaved their profit margins to increase sales.  Thus began the era of " Big turnover - small profit " of the retail wars.

The danger is that world food production is in the hands of international companies and we are fast heading into a world food shortage.  Uncle Tobys and Mars sell their products on a world wide basis and if they can't get a reasonable profit in Australia they will seek outlets elsewhere.  The fact that this duopoly has cornered eighty percent of the retail trade has the capacity to restrict the choice of what is offered to the public.

A healthy competition keeps prices low but what is happening to the dairy industry is to Australia's disadvantage.  If lack of a reasonable profit causes this industry to collapse we may find ourselves buying milk from overseas - at whatever price it is available.  A retail price of a dollar a litre for milk is probably unrealistic and it may take government intervention to save the dairy industry. Similar price intervention is needed to ensure that our giant food processing companies are not starved of a reasonable margin and driven offshore.

Purchasing power used wisely keeps prices low.  When it spins out of control it can become a very destructive force.