Yahoo Finance Coles and Woolworths’ ‘big secret’ exposed as Aussie growers enter ugly fight
One type of apple costs shoppers double what the supermarkets pay for them, the fruit industry says.
Coles and Woolworths are at the forefront of a massive fight brewing in the fresh produce aisle as the senate inquiry into supermarket pricing heats up.
On one side: the supermarkets and their loyalists. On the other side: disgruntled suppliers and furious customers. The fight is a swirling mess of accusations and low blows but out of the maelstrom pops the occasional truth.
If you’ve ever watched an ugly argument between old friends, you know they can reveal big secrets in a moment of fury. And that’s what the fruit growers have done to the big supermarkets, announcing to all and sundry exactly how apple pricing works.
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At the moment of writing, green apples at my local Woolworths cost $0.86 each. So do Pink Ladies. Royal Galas are $0.62. Pears are $2.30 a kilogram for Odd Bunch (i.e pears with blemishes).
At Coles, Granny Smiths are $0.83, Pink Ladies are $0.98, Royal Galas $0.62 and pears come out at $2.60 a kg for I’mperfect bags, which is Coles’ equivalent branding for pears that aren’t quite right.
Where is the markup highest? On the green apples! They cost shoppers double what they cost the supermarket to buy - so the fruit industry says.
As the next chart shows, the markup on green apples at Woolies is around 100 per cent, sometimes more. That means, if we are being charged $0.86 for an apple, the supermarket is paying around $0.43.
The markups vary over the course of last year, and for different fruit. The lowest recorded was Royal Gala apples in April, a margin of just 20 per cent. That suggests to me a bumper crop that was about to go off and which they were trying hard to sell. Gala markups are much more seasonal, varying from lowest in autumn to highest in spring. Given that apples are picked in autumn, this suggests there is not a huge supply of these apples in storage or imported.
Coles has a slightly different pattern. Pears go on special in May and Granny Smiths deliver big profit in March, as the next chart shows.
Source: Fruit Growers Victoria submission
Fruit growers in Victoria grow 50 per cent of Australia’s apples, and 90 per cent of our pears. While shoppers are mad at supermarkets for high shelf prices, fruit growers are mad about them allegedly ripping off farmers.
“We are concerned that abuse of market power and unfair buying terms is making fruit growing uneconomic, with our members reporting being forced to sell fruit below the cost of production,” the fruit growers say in their submission to the senate inquiry.
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Apples aren’t a branded product, and the family farms that pick apples don’t want them to rot in a shed. When Woolies or Coles tell farmers the buying price, they have to sell, even if they lose money.
Orchardists fear retribution and punishment if they ask for higher prices, the fruit growers say. They want new rules to stop the supermarkets throwing their weight around. And the coming supermarket inquiry is the perfect moment for that to happen.
Coles, meanwhile, says it cares about farmers.
“We highly value our relationships with Australian farmers from around the country, which allow us to bring customers quality produce every day,” Coles told Yahoo Finance in an emailed statement.
“Many of our relationships are multi-generational and, in some cases, extend over 50 years of supplying Coles. There are many factors that contribute to the retail shelf price of produce, including transport, labour, packaging, operating and supply chain costs, which are all considered when determining how we can provide the best value for customers at the checkout.”
Woolies was also approached for comment.
Good times are over
Supermarkets have gone through a period of enjoying very nice profits recently. You might have expected margins to fall as consumers got squeezed and suppliers faced higher prices. It didn’t happen though. Margins are wonderful, from a shareholder perspective.
But such a strong short-term performance won’t come free. Consumers are furious, so are suppliers and, when politicians confront supermarkets at the upcoming senate inquiry, there will be few votes in letting them off easily.
Supermarket inflation has been extreme, with food recently rising in price even faster than average inflation. If supermarkets think they can walk away whistling from their recent exploits, they will be surprised.
Shoppers are already voting with their wallets, going to Aldi and avoiding expensive items. The boss of Woolies is quitting, probably sensing the good times are coming to an end and that what comes next will be hard.
Tough regulation and angry consumers could make running a supermarket much harder than it has been. Hopefully, shoppers and growers will be the beneficiaries.
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