Thursday, April 22, 2010

DANCING WITH ELEPHANTS


I feel sorry for Ram Rai who has had his company Jewel of India (fresh and frozen curries) placed into receivership recently. Why? Because he trusted those bastards (one of the the supermarket duopoly), to play fair. He gave them a good product which for many years made them a lot of money. Over time, and ownership change, the relationship changed. The supermarket chain, fiercely (why?) competing with its only rival put all the costs of discounting back to his company. Is this fair? No. Does it happen? Damn right yes. It is not only small producers like Rai and his curries (market-leading curries) that are under the gun, the biggest brands we know are also put under undue pressure. Do they complain to the Commerce Commission? No. Why not? Have you heard of the old saying 'you can win the battle but lose the war'. The 'powers that be' that have the ability to make or break brands can punish 'squealers' and make it very difficult to have normal  trading relationships if one does not agree with what they consider to be the rules.
I know of many wine companies, large and small who have been in Rai's position. When they can they wear it and hope that their brand equity will survive the assault (volume times margin being the mantra). Maybe they will come out OK. Unfortunately many cannot survive. In Wednesday's NZ Herald  Rai was quoted as saying "what they fail to understand is that each dollar discounted is coming from someone else's pocket". What he means is that if $1, $5, or even $10 is discounted off a product for the consumer, that discount is not coming from the supermarket but from the brand owner. Is this sustainable without some serious product engineering (downwards)?. I think not.
This weeks special highlights from Progressive (Foodtown, Woolworths, Countdown), Stoneleigh range  $11.99 ($10 off), Wither Hills range ( about $10 off the chardonnay) and Sacred Hill range $12.99 about $7 off but I suspect with SH they have been beaten up so much over the last couple of years they may be engineering their product to match the discounted prices.

5 comments:

Second said...

So when my wife and I buy a size 24 chicken at Pak and Save for $10 and clap our hands in glee that Pak and save are saving us money by making us bring our own bags etc... in truth they buy the chicken at that price anyway and we are doing a packer out of a job by shopping there?

THE WINE GUY said...

No. Pak 'n' Save and other large format chains have massive buying power that enables them to buy and sell relatively cheaply (not as cheaply as they can but that is another matter). Pak 'n' Save have an everyday low price formula that on average the shelf price on items is a bit below the other chains. Yes, they do subsidise this by having less service labour in the store. If they deep cut beyond the everyday price it is likely that the supplier is subsidising this cut. It is when Pak 'n' Save and other supermarkets (remember there really are only two under different banner names) continually bully the supplier to subsidise cheaper prices so that they can continue their price war amongst themselves that things start to go wrong. It is then that some suppliers drop out and then lose volume sales and shrink; agree to the terms and go broke; engineer their product downwards (use cheaper materials while keeping the price the same). Whichever of the three they do the result is most likely downsizing of their operation with consequential job losses. The supermarket chains meanwhile blisssfully carry on, banking hundreds of millions and continue to convince consumers like you that they are doing you a great favour.

Second said...

oh so the super markets are driving prices down.
In future should I frequent the corner dairy?

Anonymous said...

Why don't you read my comment again

The Wine Guy

THE WINE GUY said...

I'm not saying that supermarkets shouldn't exist. It would be stupid to buy all your requirements at a corner dairy. Supermarkets by stint of their buying power can offer product at cheaper and fair prices without having to act unfairly to suppliers. What people like you Robert (the average consumer) have to understand is that you can't have your hand out for something free or abnormally cheap all the time without there being consequence. In my scenario the consequences are quality suppliers being put out of business with resultant employment losses or being forced to make cheaper products of less quality. In other cases we have The Warehouse type product that is basically planned obsolescence, breaking down after a few uses and filling our landfills with plastic and cheap metals. We will end up getting what we ask for if we continually seek out unnatural bargains.