Coles chief executive Steven Cain has lifted the curtain on the food supplier pressures currently running rampant through the nation’s $100bn supermarket sector by revealing the level of grocery suppliers knocking on his door petitioning for price rises is up five times compared to last year.
The boss of the country’s second biggest supermarket chain also said Australia was facing a labour crisis as staff rosters were hollowed out by a potent combination of Covid-19 and the flu, with Coles’ absenteeism rates twice the normal rate.
Speaking at The Australian’s Global Food Forum on Wednesday, Mr Cain said Australia was struggling to find able workers.
“We do have a labour crisis in Australia, across many, many sectors. It has been compounded by what’s going on with Covid and the flu, our absenteeism today is twice normal with Covid, flu and the churn rate in most industries is increasing,” he said.
“I was talking to one of our store managers last week and asked him what the greatest challenge was.
“He said it was definitely trying to find the right people with the right skills, and he’s lost one on the shopfloor who is going to be an $80,000 a year dishwasher.”
And as the upward pressure on fresh food prices continued, outpacing price gains for packaged or dry goods, Coles was expecting many budget-conscious shoppers to turn away from more expensive fresh food and opt for traditionally cheaper frozen or canned foods.
Mr Cain said a number of factors outside of labour costs and higher wages was driving up prices across the supermarket aisle with suppliers having their hand out more than ever before to discuss pricing.
And it wasn’t small, incremental changes in price these suppliers were looking for but significant hikes.
“The prices we are seeing at the moment are being driven by things that are not particularly linked to labour costs … the labour cost increases at the end flow through the system obviously, so that’s something that will come over the next 12 months.
“But as I sit here today, we have got five times as many requests for price increases as we had last year. Five times,” Mr Cain said.
“And they’re not small amounts. It’s not 2 per cent or 3 per cent being asked for either so there is, you know, the usual ‘pig in the python’ trying to work its way through the system, whether things plateau or whether they come down slowly remains to be seen.”
Mirroring his comments, earlier this year Woolworths boss Brad Banducci warned his supermarkets had already witnessed price lifts of 2 to 3 per cent and that inflation was a “live and real” issue.
He said some of the biggest grocery suppliers that fill his aisles were preparing to knock on his door for a second round of price increases.
The inflated cost base for many manufacturers of dried, packaged and fresh groceries – flowing from higher staff costs, staff shortages, Covid-19 rules and rising commodity and energy prices – is causing headaches for the sector as supermarkets such as Coles and Woolworths try to balance the economic sustainability of suppliers with the responsibility to provide affordable food to shoppers but also maintain profit margins for shareholders.
Recently the nation’s peak body for food and grocery manufacturers warned they were facing increases in costs of up to 700 per cent since the pandemic began and have warned some of that will flow through to the price shoppers pay at the checkout.
“It has now gotten to a point where the level of costs coming through now are just astronomical and businesses really are not able to contain that themselves anymore and are in negotiations with retailers to pass some of that through,” Australian Food and Grocery Council chief executive Tanya Barden said.
Mr Cain on Wednesday did provide some good news to the Global Food Forum on pricing however, saying some supermarket staples should start to moderate in price.
“We are expecting that some parts of the meat industry will start to eventually soften after years and years of increases and obviously once this next round of produce is planted we are hoping that it is going to be a bumper year for the farming community because there‘s a lot more moisture around and then we will see those prices starting to moderate as well.”
In the meantime as households face rising food prices and their budgets are stretched, Mr Cain said it is possible this could encourage a switch by consumers from expensive fresh fruits and vegetables to frozen and canned foods.
“Yes it could. We recently got our frozen food supply back up to a good standard, that is one of the things that was impacted by Covid-19, so if fresh food is too expensive or not available people will switch into frozen.
“What we are expecting is what‘s happened everywhere else, we keep a close eye on what’s going on in America and Europe and so on and I was listening to a dial in cost of living show in the UK last week and there were people talking about how are they facing cost of living pressures which are more significant there at the moment than they are here.
“But they were saying they’re putting extra jumpers on around the house to save energy and they’re eating rice, and by rice they don’t mean the rice is replacing something else, that is the meal they are eating is rice.”
Mr Cain said Coles was expecting those types of cheaper staple foods to lift sales in Australia as consumers become more price conscious heading into the current cycle of elevated food inflation.
“And we will see people shifting out of food service (restaurants, cafes etc) and into supermarkets, and we will see people move into own-brand products and promotional items.”
In terms of getting produce from the farmgate to his supermarkets, which has been greatly disrupted by poor weather conditions which has constricted supply, Mr Cain said it was improving at the moment.
“Every week we have got more products on the shelves.
“There are still issues obviously, particularly with international freight and … farming particularly in New South Wales and southern Queensland.
“Today, it’s very difficult to get hold of lettuce, it’s very difficult to get a hold of truss tomatoes … and then you get other products like bananas, grapes where there’s more plentiful supply and the prices are down in the last year.
“So it is a bit hit and miss but on average every week it is getting better. But it is fragile.”
Extracted from The Australian