Food suppliers uneasy as Coles stays quiet on possible price cuts

Food processors are nervous about a new price cut marketing blitz between Coles and its rivals, particularly Woolworths, leading to the sort of "me too" price slashing felt last decade when farm production and manufacturing costs shot well ahead of wholesale prices.

Anonymous suppliers have reported being asked to accommodate price reductions of up to 14 per cent.

Coles management was apparently justifying the prospect of payment cuts by pointing to shrinking inflationary pressures on food manufacturers and other suppliers compared to recent years when leaping energy, freight and most input costs had them begging for better price deals from retailers.

Coles declined to make any comment on commercial conversations it may have with its fresh food and grocery suppliers, or any potential marketing promotions on the horizon.

However, media reports last week suggested suppliers were being advised of a new Down Down campaign being prepared to take some of the recent consumer cost of living anger away from the company's doorsteps.

The food processing sector's peak body, the Australian Food and Grocery Council, is uneasy about the risk of a return to the "dark days" when supermarket discounting wars squeezed suppliers such as dairy companies unrealistically hard for a decade.

Coles' official line has been that it was working hard to keep grocery prices affordable to help shoppers as they dealt with escalating living costs, higher mortgages and rents and increasing energy and fuel expenses.

"We have kept price inflation in our supermarkets below the rate reported by the Australian Bureau of Statistics for the past 16 quarters," a company statement said.

"Coles is always looking for ways to lower the cost of groceries and invest in value through campaigns like Great Value Hands Down and thousands of weekly specials."

The AFGC's chief executive officer, Tanya Barden, hoped supermarkets and their fresh and dry goods suppliers could "avoid returning to the dark period" when manufacturers and suppliers could only pass on a small proportion of their true costs.

She said between 2011 and 2021 food manufacturing costs rose at double the rate of wholesale prices paid by retailers.

This resulted in a slide in food manufacturing profitability from $8 billion a year to $5b and a resultant stagnation in investment and jobs in the sector.

"During this period suppliers adopted substantial efficiencies and there simply isn't any more buffer in the system," she said.

"Suppliers' input costs have climbed significantly in recent years due to COVID disruptions, weather events and geopolitical tensions.

"While some costs have come down, the industry is still incurring input cost increases particularly in transport, energy, and labour.

"The result is an industry under pressure."

The AFGC was looking forward to having its say when the Australian Competition and Consumer Commission began its much publicised inquiry into supermarket prices announced by the federal government late last month.

The inquiry, examining retailers' pricing practices and the relationship between wholesale, farmgate and supermarket prices, is expected to run for 12 months.