Coles and Woolworths's battle with global food giant Heinz may have subsided, but the two Australian supermarket giants are facing another war this time. Not another price war between the two competitors, but public perception which at this time is not kind towards the use of cheap, foreign labour.
Customers shop for groceries in a supermarket in London October 18, 2011. Inflation in Britain hit a three-year high in September driven by soaring gas and electricity bills, further eroding living standards and piling more pressure on the government to help struggling consumers.
Amid reports of Aussie banks offshoring some of their tasks to India and the federal government allowing billionaire Gina Rinehart to bring into the country skilled workers to help build her Roy Hill mine, The Age reports that Coles and Woolworths are tapping cheap labour in South Africa and Thailand to make available to Aussie consumers lower-priced house brand items.
Due to the two supermarket giants' practice of issuing global tenders to produce cheaper house brands that has been the subject of complaints by other brand manufacturers, one in every four grocery items sold in the country is a supermarket-branded item. The list includes frozen berries, pasta sauces, canned spaghetti and canned tuna.
Business parlance for that practice is globalisation, but with hundreds of jobs being lost daily in Australia due to offshoring, outsourcing and similar moves, Aussies may not fully appreciate the fact that cheap foreign labour again took their jobs away.
Large overseas processors that specialise in manufacturing private-label products for supermarket chains in Europe and North America are the same ones which fill the global tenders offered by Aussie supermarkets.
The Age report is based on an Australian National University study, which has yet to be published. The report tracked the supermarkets' house-brand supply chain which led the university researchers to fruit processing plants in South Africa and canned pineapple facilities in Thailand. Researcher Libby Hattersley, who followed the labels in South Africa, disclosed that one of the canning factories manufactured private-label products for more than 100 supermarkets.
Woolworths and Coles said that while it prefers to source the contents of their private-label brands locally, it had to rely heavily on imports when local produce such as tomatoes and pineapples were damaged by the floods and drought. However, the natural calamities had ended but the supermarket giants retained the contracts due to the cheap labour and strong Australian dollar which makes overseas production a better option for Aussie shoppers in terms of more affordable grocery items vis-à-vis other branded products.
Coles insisted that 90 per cent of its house-brand sales are still from Australian-made produce, while about half of items sold under Woolworths's Select brand are imported. But 85 per cent of Macro items, Woolworths' premium brand, are Aussie produce.
Gordon Duncan, the head of Woolworths's own brand, said many times the supermarket does not get any response from local suppliers when it invites them to supply the grocer. However, industry association Ausveg debunked Mr Duncan's claim.
As the supermarkets aim for higher sales of private-label items, which research firm Nielsen forecast would comprise 40 per cent of wares on grocery aisles within the next five years, consumers are expecting more price war not only between Coles and Woolworths, but also with major food manufacturers.
The Age report came out at about the same time that Christopher Warmoth, the Asia-Pacific vice president of Heinz, noted an improvement in the past eight months of relationship with Aussie retailers. In June 2011, Heinz Chairman and Chief Executive Bill Johnson described Australia's food market as the worst in the world after he announced plans to shutter three manufacturing facilities in Australia.
To cut cost in its Australian operations, Heinz downsized three and closed one of five factories which improved the manufacturer's supply-chain productivity.
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