Sep 11, 2026 | retail, Strategy
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.
Mar 2, 2026 | Governance, retail
As a kid Mum used to make a Christmas pudding and claim that the fairies had magically stuck in a bunch of threepences and sixpences into it. (yes, I am that old)
The possibility of finding a couple of weeks pocket money in the pudding created intense sibling rivalry around who could sneak the biggest piece, and thus have a greater chance of finding some magic.
Coles and Woolies in their most recent results announced in the last fortnight have delivered the Australian community a magic pudding.
Times are tough, there is a cost of living crisis happening around us, yet their recently released year end results hide magic for shareholders. (to be fair, most of us are now shareholders via superannuation)
The domination of these two chains is fuelling inflation.
This is a perspective not covered in any of the commentary I have seen so far.
The logic is as follows:
Margin expansion.
Coles and Woolworths have been able to preserve, and in Coles’ case expand, healthy margins over the past year. Together, they control roughly 60–65% of the supermarket sector, with Aldi and various independents supplied by wholesalers (usually Metcash) making up most of the rest. This means that for most packaged food and grocery suppliers, the path to survival runs through the trading terms imposed by just two buyers.
The latest financials show that Coles has widened its supermarket margins from 26.6 % to 27.4% and its EBIT margin edged up from 5.0% to 5.3%. Woolworths’ Australian Food division reported a gross margin of 28.6% and EBIT margin 5.4% in FY25, only slightly down from the previous year after a period of “price investment”. In other words, the duopoly has not absorbed the inflation shock through lower profits; it has kept margins high and, in Coles’ case, increased them.
The cost of living crisis has not dampened the margins of Colesworth during the tough times.
Retail real estate.
Coles and Woolies dominate shelf space and therefore set the ‘reference prices’ that other retailers follow. As a result they influence price inflation far beyond their own stores.
Woolworths and Coles use their buyer power to squeeze suppliers via terms demands, rebates, expensive promotional deals, and all the other tricks they have in their magic pudding. The power suppliers are able to exert in these pricing negotiations is extremely limited. This applies even for major key suppliers in major categories for whom supermarket volumes are essential to covering operating overheads. Colesworth are then able to set shelf prices with no reference to any competitor beyond the other gorilla. Suppliers must accept lower margins and/or push up prices in other channels just to survive.
Smaller independents, convenience outlets, foodservice and export customers then face higher input costs, which in turn pushes their retail prices closer to and usually way above the duopoly’s. They rely on ‘convenience’ and stores in population centres below the cut-off for the gorillas to invest in outlets.
The more the big two protect or expand their margins under the cover of “inflation”, the more this cost‑shifting machine drives price rises right across the grocery market.
‘Colesworth’ market share sets prices and terms across two thirds of Australia’s FMCG market.
Scale delivers price immunity to Colesworth
Oligopoly economics.
This is an oligopoly at work. They are taking advantage of a general inflationary environment to widen or protect margins, and establishing a sticky price level that will persist when inflationary pressures ease. That will be a nice windfall!
In a genuinely competitive market, we would expect that at least some of the pain of higher energy, labour and logistics costs shows up in thinner supermarket margins.
In Australia’s hyper‑concentrated grocery sector, the evidence points the other way. Without Aldi as an anchor, we would be in real trouble at the checkout.
Increasing costs are not impacting on Colesworth margins. Their scale enables them to push EBIT above 5% by pushing price up faster than the cost increases.
Medicine unavailable.
Unfortunately, I see no short-term measures that will reverse the concentration it has taken the 45 years I have been observing, to evolve. Politicians can have all the enquiries, reports, and ‘band-aid’ measures they can dream up, but none will get at the core problem other than breaking up the oligopoly. Forced divestiture.
I have written elsewhere that this is a really stupid idea. A legislated breakup would only increase costs significantly in the supply chain that would be felt at the checkout. It is therefore only a brainfart of those who will never see government, but which persists as a policy option.
The horse has not just bolted, it is over the hill. It will take another 20 years for changes in the retail environment to deliver a more genuinely competitive sector.
Header: My thanks to Scott Adams. The single Dilbert panel says it all.
Oct 24, 2025 | Customers, retail
I’ve been marketing to consumers for 50 years. Success seems to become more illusionary every day. The process has become complex beyond the ability of any mortal to fully grasp, yet it is us that have made it so in the search for some ‘differentiator’.
In reality, it is very simple.
The value chain has evolved to a small number of strategic choices that need to be made. After all, there are only two gorillas and a strongly growing chimp between you, the marketer, and them, the consumer.
It is the complexity of the available tactical choices that consume most of the time, energy, and money.
My advice is to step back and consider the few factors that will make a real difference and save the money on the rest. Recognise the things you can control and control them. Acknowledge the things you cannot control and prepare for both surprises and disappointments.
Weight of distribution.
Supermarkets control the point of consumer purchase. Your task is to generate as much weight of distribution as you can for a given investment. It doesn’t matter how great the ad might be, how many ‘influencers’ you might employ, and how many channels you pay for the messages to be carried, if it’s not on shelf a consumer cannot buy it.
Consider your WOD in two dimensions: depth and breadth, and never compromise breadth for depth. 100% weight of distribution in Sydney only will always be better than 50% in NSW. It is not just the number of potential customers you may reach, but the availability when they are in a store, pushing a trolley, that counts
Consumers do not care.
The consumer is not interested in your beautifully crafted brand strategy, the sales deck you recite to the buyers, or the research that tells you the new pack design will clean up in the market. They simply do not care.
Consumers are just looking for the product that solves the problem, delivers a desired outcome. Yours will be one of many products claiming to deliver value, in which case yours must solve the problem better than any alternative in some way, on the day the consumer is in front of the shelf, contemplating a purchase.
Brand awareness is a red herring.
Having high brand awareness is useless unless it is relevant. Everybody is aware of Coca Cola, but not everybody is in the market for Coca Cola when they are in a supermarket. What is important is that when a consumer is in the market for a particular type of product, yours is the one that comes to mind that is most relevant to the current situation. Academics call it ‘mental availability’. What it really means is that when that illusionary consumer is contemplating buying a tub of margarine, a bottle of hot sauce, a box of washing powder, or a soft drink, your brand is the one that jumps to the front of their mind as the best option.
Focus kills wide frontal.
Focus trumps general every time. Spreading your marketing budget across multiple channels and many types of content might feel good but it is a waste of most of the money. Understanding your customer well enough to focus your resources to generate that vital mental availability in the right context is far more efficient.
It is the difference between the trench warfare of the western front, and the blitzkrieg in the identical locations a generation later.
Social proof.
Word of mouth has always been, and will always be, the most powerful form of marketing. People trust other people, particularly people they know (sometimes knowing works in the opposite direction) much more than they trust any form of paid communication. The conversation over the back fence will convert to a purchase much more often than a glossy ad. It takes longer, it takes patience, and a solid strategy, but it ‘sticks’. Robert Cialdini coined the term Social Proof 45 years ago. It is now more critical to success that it has ever been, living as we do in a world suffering from a tsunami off AI generated slop. genuine social proof is where the marketing gold lies hidden.
Get those five things right, and you will have a good chance of winning. Four out of five, and you are on borrowed time.
Jun 4, 2025 | Category, Customers, Demand chains, Marketing, retail
Mass market retailers all use the same, or very similar metric to measure store performance: Dollars revenue and/or margin per square foot, or linear shelf metre. In addition, they track the size and content of the customer ‘basket’ to optimise product range against those key performance measures.
This leads to a mindset of short term profit maximisation in the buying office, at the expense of everything else. Only senior levels talk about strategy, and then in most cases, they fail to grasp the qualitative reality of ‘strategy’ and fall back on the numbers.
Shoppers do not care about your margins/sq metre, irrespective of how you generate it (price, stock turn, or supplier ‘shelf rentals’) they care about range convenience, on shelf availability, and of course, price.
But price is only one of the considerations, an important one, but only one.
Ignoring the others is asking for trouble in the medium term
Trouble is what the Australian gorillas now have.
Their domestic supplier base has been brutalised, and the leverage they can exert on international suppliers is way more limited, simply because they do not have the scale to apply the pressure. Now in the absence of a high $A, they are suffering, and that suffering is unlikely to ease any time soon as the economy is likely to flatten in the wake of the ‘stupidity blanket’ being thrown over world trade by the US administration.
In addition, they now have become populist targets for a body politic that has no idea of the economics and dynamics of the ‘paddock to plate’ supply chain.
The marketing default has become loyalty cards, an added incentive to shop at the same chain, as they will give you something in return. Trouble is you cannot buy loyalty, you can only earn it. How many do you know with a wallet stuffed with ‘loyalty cards’ who are not in the slightest ‘Loyal’?
Jul 17, 2024 | retail, Strategy
The pile-on to Coles and Woolworths as protagonists in the ‘cost of living crisis’ and accusations of gouging, is somewhat akin to the ‘burning of witches’ in Salem in 1692. (in fact, most of the 16 executed were hanged, but never let a good story get in the way of a fact). The population just needs a victim to blame for their poor fortune, anyone will do, never mind their lack of guilt.
If there was any guilt involved in the lead up to the current ‘crisis’ it would have been allayed by a factual examination of the supply chains in use by retailers, and the drivers of those chains.
It is true that Coles and Woolworths are amongst the most financially successful retailers in the world. This is a position evolved from a long history of take-overs and mergers in the supermarket industry, endorsed by those with the power to stop them. Coles and Woolworths have by this process, as well as their own efforts to attract and keep consumers, have accumulated the scale that enables them to deliver superior returns their shareholders, a group that includes every Australian with superannuation. Had they not performed in this way, the boards of these businesses would have relieved be MD’s of their role. On occasions over the last 40 years I have been watching, there have been a number of MD’s so sent on gardening duty.
So, where should the blame be laid, if there is to be any laid?
None of the various reports have laid bare the mechanics of the supply chains at work. At best they refer to them in passing. However, the antidote to the unreasonable exercising of power back through a supply chain, which is the hypothesis of all the proponents of the gouging story, is transparency.
It is true that Coles and Woolworths can be brutal with their suppliers. Not every supplier is treated equally, and dumb, insensitive, and even discriminatory choices are made, but that situation exists in every walk of life. You do not address these shortcomings by regulation, you address them with transparency.
I used the two dimensional scale in the header to score Coles and Woolworths based on my experiences over 45 years. Despite the current voluntary code of conduct, seemingly about to be made mandatory, the transparency scores for both retailers are concentrated on the bottom left of the scale.
The first three ‘transparency milestones’ get a tick, as 1 or 2 out of five. They are present but only to ensure some level of quality and to protect the retailers from litigation.
The ‘supply chain scope’ measures for both give solid scores in the internal operations, a pass for direct suppliers, but nothing beyond a passing interest in the final two.
Divestiture will not change any of that. It would simply add cost to the supply chains previously wrung out by scale.
A break-up requires a party willing and able to stump up the capital to complete a transaction. To generate a return on that investment it would be necessary to rise prices to accommodate the increased costs. It is unlikely any domestic group would be a buyer, which just leaves an international chain being handed a stepping stone, which is equally unlikely to reduce process in any way.
If the authorities were really interested in adjusting the profitability of the retailers in favour of their suppliers, who have been scrambling for scale for as long as the retailers have, they need to throw the divestiture story into the bin marked ‘stupid idea’ and consider mechanisms that address the core of the problem: measures that favour those with capital at the expense of those who do not.
Divestiture makes a good headline in populist press, but like many good headlines, has absolutely no substance.
Header: courtesy of HBR ‘How transparent is your supply chain ‘ August 2019 Bateman & Bonanni
Jul 5, 2024 | Change, Governance, retail
The undertaking by Opposition leader Dutton, supported by the Nationals leader Littleproud, to break up the retail gorillas Woolworths and Coles is absurd. It is a gross example of stupid, short term populism and fear mongering that exhibit either utter ignorance of the current and proposed laws, how the supermarket supply chains work, or scary levels of ignorance.
Perhaps it is all of these mixed up in a broth of complete ‘short-termism’.
It seems to me that facts and long-term benefit to the economy and communities play no role in this ill-conceived appeal to populist, thoughtless ‘policy’.
Such a breakup is far more likely to increase retail prices to consumers, it will certainly not result in any reduction.
Let me be clear about the failures of this proposal, at least as I see them.
Supply chain mechanics.
- The current voluntary code of practice, and the proposed mandatory standards relate to the chains and their suppliers. In a minority of cases are these suppliers also the manufacturers of the consumer product, as well as being the farmer, and all the associated and necessary middlemen that provide the supply chain with the ‘Oil’ that makes it work. Therefore, the policy if implemented would do nothing for the small scale ‘farmers’ who are often held up as victims of retailer power.
- Scale breeds scale. Suppliers of fruit and veg have over time, built scale to squeeze out transaction costs from the supply chain. The Australian Fresh Produce Alliance is a small group of very large ‘consolidators’ that between them control roughly half the $9 billion fresh fruit and vegetable market. These businesses are farmers only in the sense that they might own, contract, or represent hundreds of individual farming locations. Several of the major players are owned overseas. A breakup of Coles and Woollies would only encourage them to increase prices, as the suppliers would then have greater scale than the chains, and would use it.
- The small, independent farmers of commodity fruit and veg is a part of the past. Believing otherwise is fantasy. Where those who choose to farm a small holding have opportunities are in specialty produce sold through channels other than chain retailers.
Legal considerations.
- Any breakup would involve legal action, probably to the high court. I doubt the retailers would take a breakup order as anything other than an order to self-destruct. This would be resisted fiercely.
- The mandatory Code recommended by Dr Emerson, and widely accepted is only marginally more useful than the current voluntary code. It still requires that suppliers lodge complaints. Whilst there are now to be penalties applicable by arbitration, the likelihood of complaints remains low, despite the ‘protections’ articulated in recommendations 3, 4 and 5.
- The scale of penalties proposed by Dr Emerson is absurd. If the threat of implementation was real, nobody in their right mind would invest in retail of any scale. Imposition of the maximum penalty would send the retailer concerned broke. Assuming they are just ‘regulatory scarecrows’ with little legally independent investigation and enforcement power, they represent little of any real deterrent value, while adding friction to the supply chain. Friction generates costs, which will be recovered from consumers.
Competition falsehood.
- Coles and Woolworths do currently have somewhere around 65% market share of retail FMCG sales. That percentage is being eroded by Aldi, as it opens more stores and successfully takes market share.
- In regional areas of NSW and Vic particularly, but also SA and WA, there are a number of strong independent retailers. Drakes, Ritchie’s, IGA, and others are all competing successfully against Coles and Woollies. None would be able to buy disassembled bits of the gorillas, and even if they were, what would that do to the objective of decreasing retail prices? It would more likely put upward pressure on prices as the purchaser sought a return on the investment.
- It you were to breakup either of the retail gorillas, who is a likely buyer? I cannot think of any, except perhaps Walmart, who are also smart enough to assess the sovereign risk as being considerable, so they would not put anything like the expected value of the broken up businesses on the table.
- Some time ago, under Graham Samuel, the ACCC forced the removal of contractual exclusivity of Coles and Woollies in shopping centres under Section 47 of the Competition and Consumer act 2010. That move was a very sensible one, and has resulted in Aldi opening a number of stores in shopping centres in opposition to Coles and Woollies. (An extension to cover ‘land-banking’ might be a useful consideration.)
- While Coles and Woolworths are immensely powerful, they are far from the only distribution channel that exists. In a court they would point out the multibillion dollar and still fragmented food service channel, as well as the independent specialist retailers who continue to provide opportunities for small scale farming.
A final thought. Every Australian with a superannuation fund: i.e. most of us, would have Woollies and Coles in their portfolio, knowingly or otherwise. These shares have been good investments in terms of capital gain, and throw decent tax effective dividends. A breakup would threaten those investments.
For the Opposition leader to propose legislation, should they be elected to government, to break up Woolworths and Coles is nothing but an idiotic, populist, ill-considered appeal to voters without the knowledge to dismiss it with the contempt it deserves.
It is also an astonishing dismissal of one of the cores of the conservative parties: to limit the intervention of government in the workings of the economy.
We Australians deserve better from our ‘leaders’ than opportunistic and destructive policy statements.
