Food and grocery suppliers warn on dangers of Coles price cuts

Food and grocery suppliers are growing increasingly nervous about price cut requests from supermarkets, saying labour and energy costs are still high.

The peak industry body representing the $144bn food and grocery manufacturing sector has confirmed renewed pressure from the major supermarket chains to press down on prices, but has warned other costs in the system remain that threaten the profitability and viability of the sector.

Australian Food and Grocery Council chief executive Tanya Barden said that in the wake of reports that Coles was asking its suppliers for cuts of up to 14 per cent, it was seeing similar pressures on its members to cut prices from other supermarkets as well, notably Woolworths.

“While I can understand the pressure to reduce inflation, we need to strike the right balance to ensure the whole supply chain shares risk and reward,” Ms Barden said after The Australian reported on Monday that Coles was asking some of its suppliers for price cuts to mirror recent falls in inflation and key input costs like freight, shipping and raw materials.

Coles is eager to cut its shelf prices in order to ramp up its competition against Woolworths but also be seen to be slashing prices just as a number of public inquiries into the supermarkets and their pricing get underway.

But suppliers are expected to push back against price cut requests as they look to protect their own profitability.

“I’m always concerned when retailers start asking suppliers for money and want to ensure we don’t return to the dark period where manufacturers and suppliers were only able to pass on a small proportion of their costs, and as a result manufacturing investment and jobs suffered,” Ms Barden said.

She said during 2011-2021, costs to food manufacturing rose at double the rate of wholesale prices, leading to declining profitability in the sector from $8bn to $5bn and investment stagnation.

“During this period suppliers adopted substantial efficiencies and there simply isn’t any more buffer in the system.

“Suppliers’ input costs climbed significantly in recent years due to Covid disruptions, weather events and geopolitical tensions, and while some have come down, the industry is still incurring input cost increases particularly in transport, energy, and labour. The result is an industry under pressure.”