Supply and distribution channels can exacerbate power relationships, often making conflict a certainty. The relationship between food manufacturers and supermarket retailers can often be an adversarial one, resulting in an uneven distribution of power across channels (Simpson 2003, p750).
As suppliers hold a much higher level of dependency over retailers they often feel manipulated and exploited by retailers. Conversely, retailers do not feel that manufacturers are at all exploitative or manipulative (Simpson, 2003, p752), exacerbating the dyadic channel relationship.
As Coles and Woolworths large hold a duopoly over the food manufacturing market, they can be selective with their supply options and effectively shut out small businesses (Knox, 2014). The YouTube clip below explains the extent to which the supermarket giants hold control over the industry.
Woolworths in trouble
In December 2015, the Australian Competition & Consumer Commission (ACCC, 2015) initiated proceedings in the Federal Court against Woolworths Limited for “unconscionable conduct” in dealings with their suppliers. The ACCC allege that Woolworths used their stronger bargaining power to obtain payment from suppliers to reduce their profit shortfall (ACCC, 2015). The scheme known as “Mind the Gap” is explained in the diagram below. Similarly, Coles have also encountered conflict within its distribution chain, settling a case in 2014 by agreeing to a payment of $10 million in penalties to its suppliers (Ryan, 2016).
Furthermore, Knox (2014) obtains an insight from a Woolworths supplier who wishes to remain anonymous. Although the supplier values the security offered by contracting with the leading provider, the margins earned are small and squeezed by rebates and marketing costs. Furthermore, the supplier is forced to produce high volumes of produce, most of which is destroyed, to satisfy the varying orders of the supermarket and to ensure contract renewal (Knox 2014).
Avoiding conflict within the supply chain
How do we bridge the gap between exploitative retailers and small manufacturers?
The best way to manage the conflict between the food manufactures and major retailers is to enhance trust and understanding through the facilitation of communication (Iacobucci, 2013). Suppliers need to feel as though their needs are being met by the retailers and not exploited, in doing so creating mutual trust, cooperation and understanding.
Furthermore, the involvement of the ACCC as the independent consumer watchdog, aids in the resolution of conflict. The recent involvement of the ACCC in cases against both Coles and Woolworths can reassure suppliers that their interests are protected. Due to the negative publicity surrounding the legal action taken by the ACCC, the supermarket giants should repair their relationship with its suppliers, hopefully restoring some degree of balance in the channel of distribution.
Do you believe the lawsuits brought by ACCC will change the channel relationship between suppliers and retailers? Or will companies like as Coles and Woolworths continue to exert their power over local producers, because quite simply, they can?
A Fettes (216 048 936)
Australia Competitor and Consumer Commission (2015), ‘ACCC takes action against Woolworths for alleged unconscionable conduct toward supermarket suppliers’, 10 December, viewed <https://www.accc.gov.au/media-release/accc-takes-action-against-woolworths-for-alleged-unconscionable-conduct-towards-supermarket-suppliers>
Iacobucci, D (2013) MM4 – Marketing Management (MM), 4th Edition, Cengage Learning, Mason
Knox, M (2014), Supermarket Monsters – Coles, Woolworth and the price we pay for their domination’, The Monthly, viewed 12 May 2016 https://www.themonthly.com.au/issue/2014/august/1406815200/malcolm-knox/supermarket-monsters
Ryan, P (2016), ‘ACCC v Woolworths: Supermarket faces lengthy court battle with regulator’, ABC News, 1 February, viewed 12 May 2016 http://www.abc.net.au/news/2016-02-01/woolworths-v-accc-supermarket-faces-lengthy-court-battle/7129480
Simon, L (2003), ‘Conflict in the manufacturer-retailer relationship: sales promotion in the New Zealand supermarket industry’, Distribution and Logistics in Marketing Track, viewed 12 May 2016 http://www.anzmac.org/conference_archive/2003/papers/DL04_simpsonl.pdf
Photo Source 2: https://www.google.com.au/search?q=woolworths+ACCC&espv=2&biw=1680&bih=949&tbm=isch&source=lnms&sa=X&ved=0ahUKEwiKxquHk93MAhWBMZQKHR90DYQQ_AUICCgD#tbm=isch&q=woolworths+suppliers&imgrc=o5kDbhlCfXfFwM%3A