Coles is reviewing the way it deals with requests for price rises as inflation forces its food and grocery suppliers to make multiple and urgent requests for cost increases.
A major focus of the review is how suppliers will prove to Coles the size and scope of their own cost increases without compromising commercially sensitive information.
The independent reviewer appointed to govern the Food and Grocery Code of Conduct, Chris Leptos, this month met with the country’s largest supermarkets, Woolworths and Coles, to discuss supplier concerns amid the highly volatile economic climate.
The Coles pricing review will be crucial in setting the groundwork for what is expected to be an unprecedented round of pricing increase appeals over the next 12 months from the nation’s food and grocery manufacturers.
The cost of doing business for grocery suppliers has risen significantly since the outbreak of Covid-19.
Those costs have escalated this year in the wake of the war in Ukraine and other global disruptions which combined have triggered soaring prices for commodities – especially those used in food, including energy, labour, shipping and logistics.
Suppliers have been requesting price increases from Coles to counter their own ballooning costs. Earlier this month at The Australian’s Global Food Forum, Coles chief executive Steven Cain revealed that the number of grocery suppliers knocking on his door petitioning for price rises was up five times compared to last year.
In the last few months this has translated into booming food inflation, particularly fresh food, as Woolworths and Coles wave through price rises and in turn feed into a headline inflation rate pushing more than 5 per cent.
Following a recent review of all supermarket performances under the industry’s Food and Grocery Code of Conduct, Mr Cain has written to Mr Leptos, the independent reviewer of the code, to confirm that the retailer will improve its processes including dealing with suppliers when discussing agreed price rises.
“Coles is also in the process of reviewing its cost price increase process to identify ways to improve this process for suppliers,” Mr Cain said in his letter to Mr Leptos, who is a senior adviser to Collins Street corporate advisory firm Flagstaff Partners.
“As part of this review, we will work on ways to ensure that our suppliers understand that any confidential information provided during this process is provided voluntarily and with appropriate safeguards in place to protect any disclosure from misuse, and that such information will assist in providing a deeper understanding of price increase impacts.”
This aspect is likely to become a point of friction between suppliers and supermarkets as grocery and food manufacturers attempt to justify their requests for price increases by pointing to their own soaring input costs, and the retailers ask for evidence and breakdowns of those higher costs of doing business.
A spokesman for Coles said that, as part of his review of the operation of the Food and Grocery Code, Mr Leptos requested meetings with all code signatories including Coles to discuss the findings of a supplier survey he had conducted across all retailers.
“As part of that discussion, Coles undertook to ensure that our suppliers understand that any confidential information suppliers choose to provide in support of a cost price increase request is provided voluntarily and with appropriate safeguards in place. We are currently reviewing our process to assess any changes that could be made to help suppliers understand these safeguards.”
Mr Leptos met with Mr Cain at Coles’s head office in early May.
Coles understood that many suppliers were experiencing increases in their costs and that it was entirely legitimate for them to seek to raise their prices to cover this, the spokesman said.
The Food and Grocery Code of Conduct was launched in 2015 and reviewed last year. It aims to help combat improper and harmful behaviour by the supermarket giants in their treatment of suppliers, covering issues such as pricing, range reviews where products could be booted from the store and other commercially sensitive negotiations.
Following Mr Leptos’s review, Coles has also now agreed to a greater role for its independent arbiter, former Victorian premier Jeff Kennett, in working with supplier complaints about their relationships with buyers.
This would include monitoring behaviours of Coles teams when dealing with suppliers that would see acts of “retribution” dealt with strongly.
“This new process provides, among other enhancements: greater clarity in relation to the confidentiality process for investigations; a clear statement that any retribution will be considered in an assessment of lack of good faith by Coles, which would constitute a breach of the code; and clarity of your role as the independent reviewer,” Mr Cain said.
Coles was the first supermarket to sign up to the part of the code of conduct that called for the supermarket to appoint an independent arbiter, with the appointment of Mr Kennett.
Coles has also agreed with Mr Kennett that he is authorised to speak with suppliers who wish to report any concerning behaviour by Coles team members.
Mr Cain told Mr Leptos that the chief executive for commercial and express, Leah Weckert, would engage more with suppliers. “Leah will be meeting with key suppliers over the coming months (and) develop a culture where issues can be raised directly at a senior level,” he wrote.
Extracted from The Australian