Coles writes to suppliers asking them to cut costs

Coles, one of the nation’s largest supermarkets, is privately urging suppliers to cut costs rather than request price rises as it deals with a surge in demands to raise the price of products on shelves.

In new correspondence with suppliers obtained by The Australian, the company says every business should “turn its mind” to reducing costs and notes it will not take into account higher marketing costs or other increases when adjudicating price rise requests.

Coles has told its suppliers it will also reserve the right to negotiate price rise requests – or block them completely – if the supermarket feared a higher shelf price would have a negative effect on shoppers or cause a slide in sales.

“All businesses will incur impacts to the cost of doing business at some point,” a note sent to suppliers reads. “Every business needs to turn its mind to how it can remove costs from its operations. This is something that Coles continually does and is a fundamental part of our strategy.”

The note continues: “Even where you can substantiate increases to cost of doing business including rising cost of inputs, Coles may not accept your request for a cost increase in full or at all. Coles must balance customer needs, Coles value proposition and the competitive environment. Your organisation needs to be continually reviewing how you operate to offset costs.”

Early this month, a report prepared by analysts at investment bank UBS concluded food inflation for the three months to September 30 had accelerated to 8.3 per cent at Woolworths and 8 per cent at Coles. That was up sharply from 5.6 per cent in the previous three months for Woolworths and 5.5 per cent for Coles.

Coles, in its note, warns that it expects suppliers to lower prices if commodity prices fall. “Coles considers that where there have been decreases in commodity input costs for suppliers, these should generally be reflected in cost reductions to Coles,” it reads, adding the company would be contacting individual suppliers on the matter.

A surge in consumer ­prices to a 32-year high has raised fears of slower growth, with Jim Chalmers last week declaring inflation “public enemy No.1” after delivering his first federal budget.

The hotter-than-anticipated consumer price data, showing inflation running at 7.3 per cent, raised expectations it would now ­exceed the Reserve Bank and Treasury’s forecast for a peak of 7.75 per cent by December.

Food inflation at Coles is running at more than 7 per cent, with Woolworths facing similar price rises, and food and grocery suppliers desperate to raise prices further to counter rising input costs. Picture: NCA NewsWire / Andrew Henshaw
Food inflation at Coles is running at more than 7 per cent, with Woolworths facing similar price rises, and food and grocery suppliers desperate to raise prices further to counter rising input costs. Picture: NCA NewsWire / Andrew Henshaw


Last week, Coles revealed as part of its first-quarter trading update that inflation was particularly strong in fresh food with prices up 8.8 per cent for the period, driven by key food items across wheat, bakery and fruit. Total supermarket price inflation of 7.1 per cent was recorded for the first quarter at Coles, compared with 4.3 per cent in the fourth quarter, while Woolworths is tipped to report similarly high food inflation when it reports its sales on Thursday.

Meanwhile both Coles and Woolworths are being mobbed by suppliers for price rise requests, putting pressure on the chains to raise shelf prices to maintain the economic sustainability of food and grocery suppliers but at the same time posing the challenge of passing on price rises to shoppers.

Last week Coles suppliers were informed that the chain would be putting on more staff to deal with the high volumes of supplier requests.

“As we continue to work in an inflationary environment, we are receiving a high number of cost price review requests. To process this very high volume, to support you and respond to you in a timely manner, we have put in several measures,” the supplier note said.

“We have supported our category managers with additional resources to help review cost requests as well as additional administrative support to further assist with processing … While these measures will help, given the continued high volume of requests, our category team members will remain very busy. We therefore also want to reiterate our cost price alteration policy to ensure your request can be actioned in a timely manner and enable collective focus on collaborative discussions to develop a strong customer offer.”

A Coles spokeswoman said it had a well-established process to manage supplier requests for price increases and consider the merits of such requests.

“We assess all requests on a case-by-case basis, if there is merit in the request and it’s based on raw material or packaging ­increases for example, we will ­accept it,” she said.

“We appreciate the way our suppliers have been working with us to navigate the challenges around inflation together.”


Extracted from The Australian

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