By Evan Reid, Email: email@example.com,Student no# 215308274
Traditionally farmers have sold their goods to packing sheds, who then on sell to retailers. However as price takers in the market farmers have been powerless to change the price they are paid for their goods. Coles and Woolworths are by far the largest buyers in this channel, and dictate the price they will pay to suppliers. Coles and Woolworths use this power to compete with each other by lowering prices on products while refusing to engage in revenue sharing, instead pushing the lower price onto the producers. These price wars create a conflict in the supply chain, often the most powerful player, the supermarkets push the price drop onto the supply companies, who in turn push it onto the farmer who are sometimes struggling to stay afloat but are powerless to change the price. Last year this bullying behavior came to the attention of the ACCC, with Woolworths being accused of seeking payments from suppliers to bolster falling profits.
Gaining a Better Price for Suppliers
Some players in the farming industry have created pull strategies, marketing their products using direct advertising to the public in an attempt to “Pull” their products through the supermarkets supply channels. Pull strategies work well for simple products which are distributed widely (Iacobucci 2014). Farming industry groups often create larger pull campaigns as smaller farmers cannot afford large scale marketing campaigns on their own, for example Aussie banana’s catchy “Make Those Bodies Sing” jingle which is now accompanied by a website and Sam Kekovich’s famous Australia day “Lambassador” ads (below), are both “Pull” strategies from industry groups.
Farmers Changing Distribution Channels
Increasingly farmers are choosing not to sell to the big supermarkets. In a bid to stay profitable, many producers are moving to direct to consumer sales via traditional farmers markets and increasingly online, as well as using independent retail channels. Selling direct to the consumer can be seen as inefficient (see image below) as it adds the costs of packaging, distribution, and marketing, however it allows producers to set a fair price for their goods. Having multi-channel supply chains, where customers can buy online or via a 3rd party retailer can create supply chain conflict as well, where retailers and distributors argue that suppliers are bypassing the middleman to gain competitive advantage (Rusko 2016).
In my home town of Bendigo, one manufacturer has taken the big supermarkets on directly and has created their own retail outlets, “Erindale Farm Butchery” grow and process their meat on their farm, then sell via their own branded butcher shops which are opposite the two big Woolworths in town, they also offer an online store where you can order your meat online. They also stock “Jonesy’s” dairy, a local dairy who sell their regular and flavored milk at farmers markets and via local independent retail channels. This increase in direct to consumer distribution is not just limited to Bendigo, with “Dunnstown Inglenook Dairy” in Ballarat gaining media attention for moving into direct to customer distribution in a bid to seek better prices. In another attempt to outflank the big supermarkets online retail company “Aussie farmers direct” uses an online shopping platform promising fresh produce and a “fair deal” for farmers.
Unfortunately Australian consumers have become accustomed to paying low prices for quality foods, and efforts to showcase the societal and personal impacts of maintaining such a low price still do not deter most people from choosing to save sometimes as little as a few cents.
Iacobucci, D 2014, Marketing Management (MM), 4th Edition, Cengage Learning
Rusko, R 2016, Conflicts of supply chains in multi-channel marketing: a case study from northern Finland, Technology analysis & Strategic management, Vol. 28, No. 4, pp.477-491, http://dx.doi.org/10.1080/09537325.2015.1100294