Grocery hard line threatens food bills

The price of a weekly food shop will go up and jobs will be threatened because of hardball tactics by the new Australian owners of Woolworths and Foodtown supermarkets, say food and beverage companies.

Suppliers say Woolworths Australia has threatened to ban their products or downgrade their position on shelves unless it gets discounts of 10 to 15 per cent.

Suppliers, who spoke on condition of anonymity, say the usual terms are around 5 per cent.

Rather than risk losing 43 per cent of the grocery market, suppliers say they accepted the demand. But many warned their margins were so tight they would have to put up prices to cover Woolworths' demands.

"They're treating New Zealand like a state of Australia," said one small food company.

Woolworths was demanding standard product prices from both New Zealand and Australian suppliers, whatever the brand.

The company said it would have to put its prices up in response, and might have to shed jobs.

But several big suppliers told the Weekend Herald that Woolworths' pressure tactics included not accepting price increases from suppliers.

The Food and Grocery Council said Woolworths was treating New Zealand and Australia as one market, wanting one net price and one set of trading terms common to each grocery category.

Commercial director Lindsay Davidson confirmed supplier claims that while Foodstuffs and Progressive in the past had used rebates and discounts to lower consumer prices, Woolworths' practice was to put some into its pockets.

"There's nothing illegal in what they are doing, they are playing very hard ball," Mr Davidson said.

"I've had a lot of phone calls with smaller companies under real grief. They just don't have the ability to find 10 margin points."

Woolworths came into New Zealand late last year with a $2.6 billion takeover of Progressive Enterprises, owner of Foodtown, Woolworths and Countdown supermarkets. It is still trading under the Progressive name.

The takeover caused public concern because Woolworths, with annual revenues of about $32 billion, would dwarf its only rival in New Zealand, Foodstuffs, which has turnover of about $6 billion.

The Consumers' Institute welcomed Woolworths' aggressive pricing, but was concerned that brand choice could be reduced because of the company's hard line on suppliers.

The takeover was approved by the Commerce Commission, creating Australasia's biggest food operator, with revenues of around $37 billion a year.

Foodstuffs Wellington managing director Tony McNeill said he would complain about Woolworths' tactics to the Commerce Commission, and to politicians.

Progressive managing director Marty Hamnett would not discuss trading terms with suppliers. He said the claim that New Zealand was being treated like a state of Australia was "mischievous and absolute nonsense".

The company recognised that New Zealand and Australia were different markets, which was why it had a Kiwi buying team.

Mr Hamnett said the great majority of suppliers had signed new trade agreements with Progressive.

Some transtasman suppliers claimed Woolworths had threatened to make their Australian business more difficult if they did not accept the new trading terms.

Mr Hamnett dismissed the claims as misinformed and inaccurate.

"Negotiations are negotiations. As far as Woolworths is concerned we have been very fair and very scrupulous," he said.

On the claim that Woolworths' practice was to pocket some of the rebates and discounts, Mr Hamnett said the benefits of the scale of the new business would lead to "passing benefits of lower prices to our customers".

Two big suppliers said Woolworths and Foodstuffs were almost equally tough on suppliers, but as a local co-operative Foodstuffs was more committed to New Zealand businesses.

But Mr Davidson said: "I can't see how consumers will win. If the smaller companies can't survive, that's an issue.

"It depends on how much stamina suppliers have."