Speaker 1: From the Australian. Here's what's on the front. I'm Claire Harvey.
Speaker 1: It's Monday, April twenty twenty twenty six. Small business owners,
Speaker 1: tradees and farmers are asking the Treasurer for a huge
Speaker 1: cut to red tape and compliance costs in the May budget.
Speaker 1: They say even a cafe owner needs dozens of licenses
Speaker 1: and certificates before they can make a single flat white.
Speaker 1: Ben Robert Smith's lawyers are considering an application to permanently
Speaker 1: stay his prosecution for five alleged war crime murders, with
Speaker 1: the argument to be the former Special Forces soldier can't
Speaker 1: get a fair trial because of all the media attention
Speaker 1: in his case. Those stories are live now at the
Speaker 1: Australian dot com dot au. As the Iran War sends
Speaker 1: costs soaring, Woolies is telling its suppliers farmers and food
Speaker 1: producers they can't lift shelf prices. Cole's is temporarily paying
Speaker 1: struggling dairy farmers. More, both supermarket giants are fighting off
Speaker 1: legal action by the regulator over allegedly fake discounting, with
Speaker 1: Woolly's case to hit the Federal court this week. So
Speaker 1: who gets jammed? Our story starts with a much loved
Speaker 1: Australian company, feeling the.
Speaker 2: Pain and like every good yard, it's true. It's Bunderberg's
Speaker 2: Queens Lamps Australias, the world's great Australian brew.
Speaker 1: Eli Greenblatt is a senior business reporter with The Australian ELI.
Speaker 1: You had a story which really got our audience paying attention.
Speaker 1: It was about one of Australia's most beloved drinks makers, Bunderberg,
Speaker 1: which produces gingerbeer.
Speaker 3: That kind of thing, well, bunderboog gingabear gets its name
Speaker 3: because it's from Bunderberg, contains fresh ginger and is traditionally brude,
Speaker 3: just like regular beer. But if we made it any
Speaker 3: other way, it just wouldn't be Bunderberg ginger beer.
Speaker 1: But I love Bunderberg ginger beer, I must admit, and
Speaker 1: so to my kids. But their innoviti of strife, Why.
Speaker 4: Yes, we love Bunderberg ginger beer too, so much as
Speaker 4: the country and increasingly overseas. And the problem for them
Speaker 4: is their expenses are just out of control, flowing from
Speaker 4: the war in Middle East, the war with Iran. They
Speaker 4: rely heavily on fuel, on diesel. You can imagine that
Speaker 4: their factory that they're brewing site is up in Bunderberg
Speaker 4: in regional Queensland. They need to get their gingerbeer all
Speaker 4: over the country, so as far as Western Australia and overseas,
Speaker 4: diesel touches every part of their business. Their expenses. Their
Speaker 4: diesel expense alone has gone up almost forty percent and
Speaker 4: they need to claw back some of those costs. Now.
Speaker 4: The only way they can claw it back is by
Speaker 4: charging the supermarkets more, the main sellers of their ginger beer.
Speaker 4: And then you would think the supermarkets could pass on
Speaker 4: those costs to customers. But in this environment, in a
Speaker 4: highly inflationary environment, with the cost of living crisis, it's
Speaker 4: very hard, or the supermarkets believe anyway, it's very hard
Speaker 4: to pass on those costs. So for a producer like
Speaker 4: Bunderberg and many other producers, many other food and grocery suppliers,
Speaker 4: they're facing exploding costs because of the war in Iran.
Speaker 4: They need to call those costs back, but the people
Speaker 4: they sell to are quite reluctant. They're pushing back and
Speaker 4: that's a big problem for them.
Speaker 1: It's interesting though, in this conversation il I always think
Speaker 1: where we talk about the supplies being squeezed and their
Speaker 1: relationship with the retailers who are very powerful. And then
Speaker 1: we talk about the retailers potentially being reluctant to pass
Speaker 1: price rises onto the customer because they're worried about, of course,
Speaker 1: about market share. But both the major supermarkets in Australia,
Speaker 1: Coles and Wilworths, make more than a billion dollars profit
Speaker 1: per annum. Why can they not just absorb more of
Speaker 1: these price rises in the interests of maintaining their market share?
Speaker 4: You know, the supermarkets are seen as very strong. And
Speaker 4: let's talk about Coals and Woolworths. Yes, they're profitable. I
Speaker 4: wouldn't say they're highly profitable. They're not as profitable perhaps
Speaker 4: as iron all miners or gold mines at the moment,
Speaker 4: or some tech companies. Their profit actually is quite conservative,
Speaker 4: it's quite reasonable in the scheme of things compared to
Speaker 4: other companies. And yes, they make billions, but they also
Speaker 4: have tens of billions in sales, and then billions of
Speaker 4: dollars in costs for themselves, hundreds of thousands of staff,
Speaker 4: it distribution, warehousing, They need to open stores, they need
Speaker 4: to refurbish stores, so their profit margin, what's left at
Speaker 4: the end of the day is maybe a few cents
Speaker 4: in the dollar. Now, the problem for Coals and Woolworths,
Speaker 4: and I'm not saying we should feel sorry for them,
Speaker 4: but certainly their problem, their conundrum is they're kind of
Speaker 4: stuck in the middle where they have to balance their
Speaker 4: duty to their own staff, so to pay them properly,
Speaker 4: they have to pay their suppliers so their suppliers can
Speaker 4: stay in business. They have to have a return for
Speaker 4: their shareholders, so their shareholders continue to invest in them.
Speaker 4: They have to invest money back into the business, so
Speaker 4: new distribution centers, new transport, new supply chains, refurbishments. They
Speaker 4: also have to sell the product at a reasonable price
Speaker 4: for customers, so they keep on coming back. So then
Speaker 4: the problem comes. For example, let's say in one instance
Speaker 4: they and will use Bunderberg ginger beer as an example.
Speaker 4: Let's say they pass on those higher costs incurred by
Speaker 4: gingerbeer to their shoppers. Well, the shoppers will stop buying
Speaker 4: although by lets. So that means if the sales are down,
Speaker 4: their profits are down, so their return to their shareholders falls.
Speaker 4: They have less money to reinvest in their staff for
Speaker 4: the training of their staff. They have less money to
Speaker 4: invest in refurbishments, they have less money to pay for wages.
Speaker 4: So that causes kind of a cascading problem all the
Speaker 4: way down the line. Now, let's say you take the
Speaker 4: other example. They don't pass on those costs and they
Speaker 4: say to Bunderberg or they say to Coca Cola or
Speaker 4: Cadbury or whoever, Look, we can't pass on those costs.
Speaker 4: You've got to cover it yourself. Well, the supply gets
Speaker 4: in trouble, do they survive? Where do they get their
Speaker 4: products from? So it's about striking that balance between suppliers, customers, shareholders.
Speaker 4: But certainly, and then we've written about this, certainly for
Speaker 4: Woolworths and for Calls, they believe there's a little appetite
Speaker 4: in this current environment to raise prices for shoppers. They
Speaker 4: just won't accept that.
Speaker 1: Here's what Woolly's CEO, Amanda Bardwell had to say about
Speaker 1: that at The Australian's Global Food for in March.
Speaker 5: I'm very concerned for customers. They're already under immense cost
Speaker 5: of living pressure and so to see the incroasis that
Speaker 5: we have from a fuel perspective, it does just add
Speaker 5: another layer of pressure on customers. And so for us,
Speaker 5: that's where we're very focused right now. Is value unbelievably important,
Speaker 5: and that's critical for us to really focus on what
Speaker 5: is it that we can do right now to make
Speaker 5: a difference.
Speaker 1: From the suppliers point of view, that is crushing news.
Speaker 1: And they often have a real love hate relationship with
Speaker 1: these supermarkets. You know, dairy producers for example, are at
Speaker 1: the mercy of price stting by these retail giants because
Speaker 1: of course they rely on them. Where does your sympathy
Speaker 1: lie here, though, Eli? You know, do you understand how
Speaker 1: it is incredibly confronting for a company like Bunderberg, which
Speaker 1: employs about two hundred and eighty people, to be in
Speaker 1: this situation.
Speaker 4: Yeah, I've been bundergoing a great regular company, and we
Speaker 4: need more of those regial companies in rule and regual
Speaker 4: areas employing people in good, well paying jobs. I think
Speaker 4: it's tough, and I don't have a dog in this fight,
Speaker 4: but my sympathy is actually with everyone because the supplier
Speaker 4: needs to make money, The supplier needs to stay in business.
Speaker 4: The supply needs to make a return on their own investment,
Speaker 4: whether it's Bunderberg or a giant like Coca Cola. To
Speaker 4: keep on investing a company like Coca Cola or Cadbury's
Speaker 4: or any of those big brands that you see in
Speaker 4: the supermarket. They won't invest in Australia unless they can
Speaker 4: make a return, a decent return, and that means thousands
Speaker 4: of their own jobs. It means investment in regional factories.
Speaker 4: The money's not there, they'll close down. That's a problem
Speaker 4: for Coals and Woolworths. If they can't make money, they
Speaker 4: will open less stores, they employ less staff. Of the
Speaker 4: staff they do have, they'll pay them less money. They
Speaker 4: also have sympathy with the shopper. They need to be
Speaker 4: able to afford the groceries in the first place. And
Speaker 4: in this environl there is little appetite to raise prices.
Speaker 4: It's very tough out there. There is a cost of
Speaker 4: living crisis. Inflation is already out of control. It's ticking
Speaker 4: up to four percent. Many economists believe it will get
Speaker 4: to five or six percent even as this crisis in
Speaker 4: the Middle East plays out. Someone has to pay more now.
Speaker 4: Maybe it's spread evenly. Maybe it's like, you know, a
Speaker 4: quarter with the supplier, a quarter with the supermarket, some
Speaker 4: with the customer, some with the shareholder. Someone has got
Speaker 4: to bite the bullet is someone has to take that cost.
Speaker 4: It's now a big tug of war between those three
Speaker 4: or four parties, and it's not clear yet where it's
Speaker 4: going to go.
Speaker 1: Coming up. Is there a way to make the whole
Speaker 1: system fairer?
Speaker 4: Is there Do you.
Speaker 1: Think an opportunity for there to be at a two
Speaker 1: speed system here where Coals and Wilworths kind of use
Speaker 1: their power and maybe consider it their obligation to help
Speaker 1: protect small supplies who would go under without them, and
Speaker 1: maybe inflict a little bit more pain on the Coca
Speaker 1: Colas of the world, who, let's be honest, are going
Speaker 1: to survive no matter what.
Speaker 4: Yeah, and you think they would survive no matter what.
Speaker 4: And Wallies and coals the supermarkets, they are sympathetic to
Speaker 4: the suppliers and the problems of these supplies, especially smaller
Speaker 4: ones who do rely so much on the great volumes
Speaker 4: they can get with coals of woolies. You mentioned this
Speaker 4: love hate relationship. That's absolutely true. If you're a small
Speaker 4: supplier like Underberg or anyone else, if you can get
Speaker 4: a deal with coals and Woolies, that's huge volumes you
Speaker 4: can have through your factory that really sustains you and
Speaker 4: keeps you going. But I think, for example, you mentioned
Speaker 4: Coca Cola, Coke, or Mars, Wrigley or Cadbury's. We think
Speaker 4: of these large suppliers as faceless conglomerates who make so
Speaker 4: much money it doesn't really matter to them. But in
Speaker 4: a way it does. And when we've interviewed with the Australian,
Speaker 4: the local bosses of Mars or Cadbury or Coca Cola,
Speaker 4: they have to go back to their head offices which
Speaker 4: are overseas, perhaps in Switzerland or the United States, and
Speaker 4: they have to justify to them why they keep on
Speaker 4: investing in Australia. They have to justify the return to
Speaker 4: the head office. And if Coca Cola in Atlanta, or
Speaker 4: Nesley in Switzerland, or Mars, which is in Chicago, if
Speaker 4: they can't see a return of investing in Australia, they
Speaker 4: won't invest. They can move the factory to Indonesia or
Speaker 4: the Philippines or China and then quite easily import that
Speaker 4: product to Australia. And that means we lose out on jobs.
Speaker 4: Many of them are regional jobs. Cadbre Mars have got
Speaker 4: regional factories. We lose out on technology. We lose out
Speaker 4: on an investment, and they can do that very easily.
Speaker 4: If you're an executive in Mesley in Switzerland or in
Speaker 4: Mars in Chicago, you don't really care too much about
Speaker 4: perhaps jobs being lost in Australia. It's not going to
Speaker 4: be of concern to you. But those are real choices
Speaker 4: being made right now, and those conglomerates have to justify
Speaker 4: a return in Australia, as does Bunderberg or a small
Speaker 4: muslea company or a small sweets or chocolate company in Melbourne.
Speaker 1: It's interesting, isn't I think One of the reasons why
Speaker 1: the Bunderberg story appeal to our audience so much is
Speaker 1: that this is one of the little affordable luxuries that
Speaker 1: makes life worth living, especially in a time of high
Speaker 1: cost of living. You know, you might not be able
Speaker 1: to afford anymore to take the whole family out to breakfast,
Speaker 1: which is now one hundred dollars proposition, but you can
Speaker 1: buy a six pack of Bunderberg ginger beas and drink
Speaker 1: them on a Thursday night or something at home. It's
Speaker 1: really sad that it's those small suppliers who are feeling
Speaker 1: the pain kind of hardest and first isn't it.
Speaker 4: I think it is, and it's anigh conic that is overused,
Speaker 4: but it is an iconic Australian brand which should get
Speaker 4: our support absolutely, and people do love Underberg gingerbeer. I do,
Speaker 4: and people just have that emotive feel about it.
Speaker 2: It's a story that started with mom, dad, my wife
Speaker 2: and I now up to its fourth generation of a
Speaker 2: true blue brew that captured the hearts and the taste
Speaker 2: buds of the nation.
Speaker 4: But I think if they went to the supermarket and
Speaker 4: saw that six pack or slab of ginger beer had
Speaker 4: gone up by five or ten percent, you watch the
Speaker 4: sales drop. They will just absolutely shrink. And from our discussions,
Speaker 4: our interviews with Bunderberg, you know they're possibly asking for
Speaker 4: maybe five six percent increase price increase from Mullies or Calls. Now,
Speaker 4: if that is translated to a five or six percent
Speaker 4: increase at the shelf price, you com bet sales will plummet.
Speaker 4: It's a big problem that's today's fresh food people.
Speaker 1: Price is of course the thing that Calls and Woolies
Speaker 1: are experts in. Then that's how they've got themselves into
Speaker 1: trouble with the Australian competition and consumer Commission. The a
Speaker 1: Triple C is taking will worse than Coals to court
Speaker 1: for alleged misleading claims in their ads. There's always something
Speaker 1: that's causing supplies to feel the heat. In this instance,
Speaker 1: there's this extra pressure from the regulator. Is that what
Speaker 1: is making Woolies, for example, pushback so hard on supplies
Speaker 1: right now?
Speaker 4: I think yes, the regulator is taking a very close
Speaker 4: eye as our politicians on the way supermarkets treat supplies.
Speaker 4: And we saw that play through a Senate inquiry and
Speaker 4: a couple see inquiry which the supermarkets have to deal
Speaker 4: in good faith with supplies and sit down with them
Speaker 4: and listen to what's going on, and they need to
Speaker 4: respond within about thirty days of a price high request.
Speaker 4: So we're going to start to see that now hit
Speaker 4: Coals and Mollies and they have to really consider what
Speaker 4: they do. But it's certainly a big problem where you've
Speaker 4: got diesel fuel prices going up forty percent. Someone's going
Speaker 4: to pay for that? Who pays for it? Now? Do
Speaker 4: the politicians want that to end up in shelf prices,
Speaker 4: which then ends up in inflation and puts more pressure
Speaker 4: on the Reserve Bank to increase interest rates. Would they
Speaker 4: rather see Coals and Moullies take a hit to their profit? Well,
Speaker 4: I don't know if Shells will be happy. And by
Speaker 4: the way, most Australians have shares in Coals and Mollies
Speaker 4: to their super funds. So would you want a lower
Speaker 4: return on your investment? I mean, who wears the pain here?
Speaker 4: It's not very clear at the moment.
Speaker 1: Yeah, it's a diabolical situation. And these are basically logistics companies,
Speaker 1: aren't they for supermarkets? I mean their food retailers of course,
Speaker 1: and they're experts in marketing, but most of their time
Speaker 1: must be spent working out kind of logistics like these.
Speaker 4: So much is that case of imagine a supermarket in
Speaker 4: this particular to the supermarkets. Imagine getting fresh food, dairy
Speaker 4: food that is perishable all over the country at the
Speaker 4: lowest price possible, in the fastest possible way, so it
Speaker 4: doesn't go off on the shelf at the same price
Speaker 4: that you charge anywhere in the country. It's a huge,
Speaker 4: complex logistical nightmare. And not surprisingly, Coals and Woolworths invest
Speaker 4: billions of dollars billions on their logistics, on their supply chains,
Speaker 4: on their warehouses, and they do that with the hope
Speaker 4: of getting a return. So, you know, Coals, for example,
Speaker 4: in the last few years has spent two or three
Speaker 4: billion dollars on state of the art warehouses, using robots,
Speaker 4: using automation to really increase their efficiency and their speed
Speaker 4: from the farm gate to the shelf. But to do that,
Speaker 4: they need a return. They need to make a profit
Speaker 4: to justify that, you know, I Agreen, thank you very much,
Speaker 4: thank you.
Speaker 1: Eli Greenblatt is a senior business reporter with The Australian.
Speaker 1: You can read all the latest in business, as well
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