COLES managing director John Durkan says multinational food and grocery suppliers are still treating Australia like "Treasure Island", charging consumers premium prices to boost earnings and fund their Asian operations.
In a blunt warning to suppliers, Mr Durkan says Coles will not only demand suppliers justify price rises by proving that their costs are increasing, but is prepared to replace branded goods with private label goods if branded prices rise too fast.
"Treasure Island is still Treasure Island in my view - I can't understand why Australia has to pay more than the rest of the world in terms of cost increases," Mr Durkan told Fairfax Media. "Australian consumers have got to be paying a reasonable price for their goods and they're still too high."
"If we continue to see branded price increases, home brand will take up a higher proportion of sales - consumers only have a limited budget to spend," he said.
Mr Durkan first accused multinational suppliers of price gouging soon after joining Coles from Britain in 2008, saying Australian consumers were paying at least 10 per cent and as much as 100 per cent more than British consumers for packaged groceries because suppliers had been making excessive profit margins in Australia and relying on annual price increases for margin growth.
Over the last five years, as Coles challenged suppliers and cut or absorbed cost price rises, the retailer has recorded annual food and liquor deflation of 1.5 per cent and claims to have saved the average family more than $600 a year off their grocery shop.
However, after a period of price restraint, Mr Durkan says suppliers are now trying to push through cost price rises, citing Arnott's 10 per cent price rise on products ranging from chocolate biscuits to chicken stock, and imminent price rises flagged by beverage companies Coca-Cola Amatil and Schweppes.
"What has surprised me with Arnott's is we've seen three in a row now - I can only believe the parent is requiring more out of Australia," he said. "Australia tends to bear the brunt of more costs than anyone else, mostly because emerging countries in Asia take a bit of investment and it seems Australia has to pay their share when money is required."
Schweppes and Coca-Cola Amatil confirmed that they had submitted requests for modest price rises - believed to be less than 5 per cent - in February 2016 to recoup rising costs.
"We assess all the cost impacts on the business and any price increase we put through reflects total costs," a Schweppes spokeswoman said. "We don't look to profiteer from increasing prices and we only pass on fair increases at an appropriate time."
"We have given notice of a very modest [price] increase to our customers which is in line with our annual process," a Coca-Cola Amatil spokeswoman said.
Mr Durkan said Coles had asked Coca-Cola Amatil and Schweppes to justify the proposed price rises, the first for both bottlers since February 2015.
"We may come to a reasonable conclusion that they're legitimate," he said. However, he pointed out that global commodity prices had been falling, particularly for inputs such as sugar, oil-based plastics and fuel.
"Australia cannot carry on being Treasure Island," he said. "We are facing uncertain times, the economy is not as strong as it used to be, real wages growth is close to zero if not negative, consumers are doing it tough and we cannot continue to carry on raising prices. We should all be thinking about how to lower prices for consumers by being more productive and innovative."
While Mr Durkan would appear to be acting in the interest of consumers, his warning to suppliers comes amid increasing price competition in the $90 billion grocery market.
Coles is cutting prices to ensure it maintains price leadership with Woolworths, which is attempting to regain market share by investing more than $600 million into grocery prices and service in stores. Coles is also reducing prices across its entire Coles private label range to better compete with discounter Aldi.
"We lower the price of a basket every week … we won't be uncompetitive," Mr Durkan said.
Analysts believe Coles' profit margins could come under pressure or stall this year if it continues to invest in reducing prices ahead of cost reductions and as deflation makes it harder for retailers to fractionalise costs.
But Mr Durkan said Coles was focused on sales and customer growth, not margins.
"We don't worry about EBIT margins and we don't give forecasts," Mr Durkan said. "Our profits will grow through increasing sales and increasing transactions - the margin will be what the margin will be."
Mr Durkan's shot across the bows of suppliers also comes as the major chains negotiate new agreements with suppliers following the launch in July of the Food and Grocery Code of Conduct, which is aimed at curbing unfair treatment of grocery suppliers.
