The supermarket price wars have had many victims, and the latest to be impacted by the ruthless competition that is squeezing food companies out of business is iconic Aussie pie maker Four ‘N’ Twenty.
Yesterday the makers of Four ‘N’ Twenty pies, Patties Foods, which also manufactures Herbert Adams and Nanna’s brands, said the increase in private label will hurt its business, mostly likely beginning this year.
The pie maker predicts that in the second half of 2012, it will face much tougher trading conditions, as private label offering from Woolworths and Coles increase in numbers, pushing established brands off the shelves.
Both supermarkets have confirmed plans to rapidly increase private label products in the coming years, and as they do so, other manufacturers are seeing their products moved from prime positions on shelves, and disappearing altogether.
Very few manufacturers will speak on the record about the impact of the supermarket price wars, for fear their deletion from shelves will be speeded up if they do.
Even the Senate Inquiry investigating the power of the big two struggled to get people to speak, which is indicative of the power they wield over manufacturers and suppliers.
The few who will speak either speak out anonymously, or once they can no longer be punished, as was the case with the exiting chief executive of the Wine Federation Australia, Stephen Strachan, criticised the supermarkets’ power only when he had stepped down from the post.
''If you're an individual company that speaks out against them or says anything publicly that criticises their tactics, they would have no hesitation in giving you a holiday from their shelves and that is what's creating a culture of fear and compliance in the industry,'' Strachan said.
''Whenever I've made comments in the press, I could only talk about retailers in a generic sense, but they [Coles and Woolworths] would religiously follow up on those comments and make it known they were displeased.”
The recent Food Magazine Leaders Summit also came up against the same issues.
We invited food manufacturers and other food companies to participate in the day, aimed to identify the main issues in the industry and work towards improvement, but when it became known that the impact of the supermarket dominance would be discussed on the day, dozens refused to come, for fear of the retributions of being associated with anything discussing such issues.
Despite the pressure from the supermarkets, Patties has managed to continue to grow, mainly due to other more traditional pie outlets.
The company expects the 2012 financial year will deliver a net profit of between $19.2 million and $19.7 million, up from $18.4 in 2011.
Second-half net profit will almost definitely remain the same as the same period last year, however, showing the beginning of a decline in profits.
When Patties Foods released its 2012 first-half results it expected that, despite the difficult conditions, it was still expecting improved profits for the second half.
"The second half saw increasing pressure on margins in the In Home (supermarket) channel, particularly with the continued growth of private label products,” Patties said in a statement to the Australian Stock Exchange (ASX).
Managing director Greg Bourke said the company has been working hard on driving strong sales growth, and has increased manufacturing efficiencies maintained tight control over costs to achieve its results.