Coles and Woolworths annual reports are boring, self-serving documents, unless you are an engaged shareholder. However, behind the fluff there are hints of the rules suppliers must understand if they are to prosper.
Aldi being a private company is not required to release the level of detail of their public rivals, but by observation, while still well behind the two gorillas, the race is now a three horse race. Aldi uses a different business model tacked onto the same universal drivers of Supermarket retail that drives Woolies and Coles.
Australian supermarkets are not free markets. They are tightly controlled ecosystems, choreographed by Coles and Woolworths. Suppliers are not selling to consumers, they are they are selling to gatekeepers who own access to consumers and therefore set the rules of the game. A supplier must play by their rules, or choose not to play, and there is no middle ground.
Few supplier hopefuls who do not understand the hidden rules of engagement until too late escape with their capital intact. However, this does not stop them trying, as the allure of all that volume is powerful. Tactically the rules have evolved over time, exclusively in favour of the retailers, but the foundations remain the same as they have been for decades.
Shelf space isn’t earned. It’s rented.
Retailers are not merchants there to provide easy access to consumers. They are retail real estate agents monetising every square centimetre of space. If your product doesn’t deliver a stronger return per centimetre than the one next to it, it will be replaced by an alternative.
You get a limited window of time to prove your worth. There is no elasticity in supermarket aisles, so it is generally one SKU in, one out.
You’re not just competing with other suppliers, you are also competing for shelf space with the retailer’s own label. Increasingly these are pushing out proprietary brands as the retailers can dictate prices and terms to the supplier, capturing at least part of the proprietary margin.
Buyer thought-bubbles are not R&D.
Your account manager returns from a meeting with a buyer and says, “They’re keen on a new lime and chilli variant in a smaller pack.”
Sounds like an opportunity, but most often it is a mirage.
Buyers like to speculate. They float ideas. They riff off competitor activity. Suppliers, chasing hope, redeploy R&D and tie up production resources on a buyers thought bubble. By the time the product is ready, it has consumed resources, created opportunity costs, and the buyer has had another thought bubble. Generally speaking, ‘buyer innovation’ is a total oxymoron.
Suppliers under-write logistics costs.
Retailers want frequent deliveries in smaller volumes, as it saves them money. Suppliers want the opposite for the same reason.
Suppliers however, do not get to choose. Miss a time slot, get fined. Deliver too often, lose margin. Fail to meet targets, risk delisting.
Driver shortages, fuel price volatility, traffic congestion, and demanding delivery windows, all combine to drive the costs to suppliers up. Meanwhile, the retailers book margin increases labelled in the annual reports labelled as ‘logistics efficiency’ or some other metaphor for pushing costs off their P&L, onto those of suppliers.
Exactly the same comment can be made about many costs incurred in the retailers domain. Suppliers fund category management costs, hold ‘safety’ stock to cover demand planning shortcomings, shelf management, promotional ticketing and stock display, and more. Retailers have squeezed out costs, but have been more successful in moving them to their suppliers
Their tech stack is your problem.
Everyone wants digital transformation. Few want to pay for it.
Most supermarket systems are legacy beasts—clunky, siloed, and allergic to integration. You’ll be asked to plug into their portals, match their EDI specs, and sync to their promotional calendars.
When it fails, and it often does, suppliers cover the costs.
Cash is always king, and suppliers are last in line.
Retailers pay their bills slowly. Always have. Meanwhile, you’re expected to pay your suppliers fast. That gap in timing is stretching working capital requirements of all FMCG suppliers. As interest rates rise, that pressure just increases.
SKUs tend to breed, chewing up supplier margins.
To chase growth, suppliers add SKUs, channel or retailer specific variants, seasonal specials and promotional darlings pushed by buyers.
Each one adds operational complexity, forecasting risk, warehouse clutter, and production cost. The volume gains are often marginal, but the margin losses are not.
SKU creep is a slow-moving death, and while it is tough to delete your own products, doing so makes listing a new one easier, and beyond changeover costs like excess packaging, does not increase the costs of complexity.
When your brand leaves the shelf, private label steps in.
Retailers are brand agnostic. They want control, exclusivity, and margin.
If your brand underperforms, it’s replaced. The space doesn’t sit idle, it is quickly filled by something cheaper, more compliant, and often owned by the retailer themselves.
To survive, you need more than a barcode. You need a story consumers understand and are prepared to actively choose, and you need the funds to get the message out. Working with buyers is a two edged sword, you need them backing you, while you need to make them look smart for backing you.
Forecasting is now a guessing game.
Retailers want tight service levels, lower order quantities, and increased frequency. These expectations contradict each other.
You can’t run efficient production with small, unpredictable orders. You can’t plan logistics around moving targets.
Every delivery window missed is a cost. Every forecast error is a stockout or a write-off.
Digital is your hedge, not your saviour.
Everyone talks about Direct to customer, E-commerce, digital platforms, marketplaces, and other descriptions. Yes, they matter. But they don’t pay today’s wages. Building digital capability takes time, capital, and clarity, and most second tier suppliers are burning all three just to stay afloat.
Digital is a long game. If you don’t survive the short game, you’ll never get to play it.
Final thoughts: Know the rules, or get buried by them.
Australian FMCG suppliers are not competing in a market. They’re performing in a theatre, with a script written by someone else, who is also the referee.
The shelf is a battleground. The margin is thin. The risks are hidden, and the penalties for ignorance are brutal.
To win, you need more than a good product, retail leverage, and consumer visibility. You also need a map of the minefield and the nerve to cross it.
