uYesterday I talked about Chris Corrigans arrival of an airline dupololist, and no doubt he'll make a stack of cash out of controlling most of Australia's transport systems (now that he controls the Virgin Blue airline). But, in other "duopoly news"; Australia's two biggest retailers (Coles Myer and Woolworths) are on the verge of a huge profit bonanza. Coles Myer announced it's half yearly profit last Thursday, and at $403.8million, it is nearly twice what it was in 2001. And Woolworths will probably do even better than that.
Cleaning up like this has been achieved through some clever productivity gains as well as increased volume through lower prices. Of course, all of this is great for consumers, terrific for keeping inflation and interest rates down, but it ain't that grand for many smaller food suppliers and manufacturers.
The Aussie giants have learned much from US Monolith Walmart in the art of putting the squeeze on their suppliers. Almost to the point of suffocation. And sometimes beyond that. Many suppliers in Australia are learning that they must either play by the new rules, or risk having to pull the shutters down forever. Of course, on the flip side, their are opportunities abound for those companies that can and do fall into line.
Further adding to their woes is Coles Supermarkets new 3-tiered Housebrand strategy, which is expected to contribute up to 30% of turnover by 2007. This means that the No 4 brand by market share will become a sitting duck, and No 3 might even find itself in strife. The producers of these brands will have few choices; they can move into supplying the housebrands and succumb to the whims of the big chains, or launch massively expensive marketing campaigns to eek back some market share. Either way it will hurt short term profits, and potentially longer terms ones as well.
But if they can prove to be reliable, and low cost, smaller food manufacturers can use the housebrands to get in on all the action. Up until now they would have found it almost impossible to get shelf-space.
Just more Big getting Bigger by swallowing up all the small fish.