Wednesday, October 21, 2015

Are consumers really being given VALUE FOR MONEY?

$1 milk - good deal...or bad deal??

Fascinating isn't it, in a world where almost half the population have dropped below the poverty line, battling starvation on a daily basis - the other half are fighting off the frightening man-made epidemic...OBESITY!! All things being equal, should that not mean that we are enjoying a healthy balance of nutrient intake, and physical body weight...as a global village? You may question the relevance of this statement, in the context of the below article. Happy to explain it straight up, right now.

The global retail industry that is dominating today, is doing so under false pretenses. While appearing to be supportive of your cause, in a financially troubled would - you are going nowhere fast...while they (the retail giants) continue to stack double digit growth figures on top of each other, year after year after year. That is impressive isn't it - considering how all of their valued and loyal customers...YOU, thought they were offering tremendous prices wars and discount specials!! How is that feasible? They make $$ billion profits, while you and I struggle to pay our bills. Yet as a collective society, we blindly maintain the status quo - giving them a big old slap on the back, saying, "Love what you are doing for us...keep up the great work!!" Whether it be Walmart in the USA, Tesco in the UK, Aldi or Lidl in Germany or Coles and Woolies in Australia, we are willingly pouring bucket loads of our hard earned into their coffers. Marketing spin at its very best indeed.


Now it is almost five years since the WAR ON MILK started - Australia Day 2011. The Duopoly rarely maintain a price attack (slickly sold to you the consumer as a price discount) on one product, over such a protracted period of time.

Why milk? Why a sustained attack on the dairy farmer? The answer is simple...greed (y) This has proven to be such a successful 'LOSS LEADER' for the giant retailers, that they have chosen to continue it strategically...whatever the cost :(

The cost to the huge corporations at retail level? It is irrelevant, because of their ability to shuffle margins across many thousands of product lines. While they are knowingly losing money on $1 milk, they could literally be making 1000%, or even 2000% plus profits on imported items (y) Not possible you say!! Well, that toothbrush you paid $2, may have been imported for 20c...that is 1000%. Perhaps the bottle of shampoo for $10, may have been imported for 50c...that is 2000%. Of course I'm just making these numbers up, as I have no idea of the actual costs - but I do understand that's how it works.

Don't be alarmed by the frightening news of their drop in profits this year. As Woolies and Coles hit a pothole in the road, they posted a drop in profits of 12.5% and 9.3%. Does that mean they experienced a loss? NO WAY - Woolies and Coles profits for the 2014/2015 financial year were $2.15 BILLION and $2.44 BILLION respectively! That represents the fourth consecutive financial year while selling $1 milk that they have both exceeded $1.5 billion profits...yes profits not revenue!!

Just remember, while Woolies and Coles knowingly and deliberately lose money on fresh milk (they have told us so publicly), they made a combined PROFIT of $4.59 BILLION for the 2014/2015 financial year!!! Back in 2011 Coles stated this would not hurt the dairy farmer...but industry figures show the average dairy farmer, across the entire state of Queensland...posted a LOSS for the same financial year.

You see, most dairy farmers I know don't have 10,000+ products to shuffle margins - they have ONE. It is called milk, and if they lose money on milk...they make a LOSS. The war on milk, compliments of retailers, has dragged the farm gate milk price back to the where it was in the 90's. Hard to believe, but the Queensland dairy farmer today, is being paid 1990's milk prices by their big milk company. It has not only given the consumer a new point of reference as to the perceived 'value' of milk in stores, but it has also educated the independent retailer of a new and improved wholesale price point for fresh milk, as major milk processing companies continue to undercut each other for market share.

How is this your problem, as a consumer? Many I've spoken to don't think it is an issue at all, as they are enjoying the savings they receive. My question to them is, "At what cost...are the savings coming to you?" When we put the cost impact of milk in perspective - is it really out of your price range? The true value of fresh milk is $2/L. So if your family was to drink 10L a week, that represents a $10 cost. Yes an extra $1/L on whatever your household consumption is. Cost impact? Save a $1/L on milk by supporting this war, and you help sink your local dairy industry. Spend and extra $1/L on milk, and you secure the future of your local dairy industry.

But who really cares whether our fresh milk is produced locally, or whether it is coming from the southern states or Australia? It is still Australian right? Sure it is...for now. The truth is we know there will be tremendous competition for high quality, 'safe' food in the near future from many countries in South-East Asia (it has already started actually). The southern states are heavily geared to manufacture and export commodities, like powdered milk and butter. As soon as we reach a tipping 'price point' where milk processors are rewarded a better price for exports...than they are for domestic milk supply, which has been devalued by the Retail Giants who we now know to be devoid of a social conscience - GOOD LUCK!!!

Good luck? That seems a bit harsh you say! Not at all. Processors will seek markets that help them generate profits too. As they are losing money from the sales of milk at $1/L (as are the retailers and dairy farmers), they will inevitably seek better opportunities. The DUOPOLY + ALDI are remaining rock solid on their intent to break the Australian Dairy Industry. Understand that survival is a basic human instinct. It will remain a driving force at the core of our business, our family and our life. Market signals are driving us as an industry away from domestic sales...towards export opportunities. You don't have to like it, or even agree with me - but you the consumer, who spend 80% of your money with the BIG 3, and support the continuation of supermarket milk sales with 50% at $1/L on a daily basis - are helping the above scenario speed up.

Now that Aldi are firmly in the frame...what do you know about them? They did actually start the war on milk, and Coles copied their lead...as did Woolies. Who are Aldi? They were originally owned and managed by brothers Karl Albrecht and Theo Albrecht. Sadly Karl Albrecht passed away in 2014, leaving Theo with a personal wealth of €17.2 BILLION ($27AUD Billion), making him the richest man in Germany, with the co-owners of Aldi Nord, Berthold and Theo Albrecht Jr., close behind at €16 billion ($25 Billion). Globally Aldi have a revenue of over €60 billion ($94 billion) from more than 10,000 stores. Oh, and Lidl will soon join the picture to - they are bigger than Aldi, with over 10,000 stores across 28 countries in Europe alone. Their revenue is now exceeding $100 Billion.

Despite the fact I've said it all before...over, and over, and over, and over again - the huge majority remain oblivious to this truth, to this reality. The people I get to talk to on a daily basis, are amazed - even bemused as to why they were unaware? They were shocked that they were aiding in the demise of the local dairy industry, as they had never been given the knowledge to make an informed decision. Marketing spin is a great tool to increase sales. But it is a frightening day when we allow, and accept that it's OK for retailers to educate consumers...as to the correct retail price point for our high quality, locally produced, fresh food. If these retailers set prices at an unsustainable low price - rest assured, it is a means to an end for them...not YOU!!

What could the end game possibly be? A continuation of downward pressure on suppliers is seeing them go out of business. Over time, repetition of these actions will open the door for more cheap imports - and that will enable retail giants to increase margins and subsequently - profits. It also gives them the perfect 'out', by saying to you the consumer..."Sorry, but we are unable to source items ABC locally anymore as they just aren't available." Happy days for retailers, and you now get to buy whatever is on the shelf - whether you like it or not!

As we have known for years, retail giants have been breaking local suppliers financially. The ACCC is finally stepping in, but their power to repair this broken system is questionable. We saw last year the ACCC take positive action, fining Coles $10 million (remember their profit last year was $2,440 million). While ACCC Chairman Rod Simms assured us all that this would send a very clear message...really? At least they've started the ball rolling and that is something we haven't see before.


http://www.smh.com.au/business/coles-fined-10-million-for-misconduct-20141221-12c0ys.html

http://www.smh.com.au/business/retail/aldi-and-woolworths-accused-by-the-accc-of-misusing-grocery-code-20150924-gjtr7v.html

http://www.businessinsider.sg/aldi-and-lidls-low-milk-prices-hurts-uk-farming-2015-8/#.Viais34rIgs

1 comment:

  1. Well written I managed to catch a snippet of the Senate on the TV the other night , they mentioned the problems with the dairy industry so it seems the message is getting to the right people . But what they were waffling on about was how the government is giving farmers access to low interest loans and how the rate was a real bonus to farmers , what a croc there should not be a reason to give farmers loans as they are already on their knees and putting them further in dept is not the answer All we need now is for the government to grows some balls and force the majors to return the dairy industry to a level that will sustain supply of local fresh dairy products and reward farmers with a decent income so they don't have to take out loans for survival .

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