FOOD and grocery suppliers have rejected renewed claims from Coles that they are gouging consumers by raising prices, saying the theory that multinationals are treating Australia as "Treasure Island" has been well and truly put to bed.
"The whole Treasure Island theory has been thoroughly debunked in a series of reports which have clearly demonstrated that retailers have improved their profits well above their global peers whilst the profits of suppliers have been falling," Australian Food and Grocery Council chief executive Gary Dawson told Fairfax Media on Thursday.
"The notion that suppliers are suddenly winning big price increases is not borne out by the data."
This week, Coles managing director John Durkan said multinational food and grocery suppliers were treating Australia like Treasure Island, charging consumers premium prices to boost profits and to fund their Asian operations.
Mr Durkan warned Coles would not only demand suppliers justify price rises by proving that their costs were increasing but it was prepared to replace branded goods with private label goods if branded prices rose too fast.
"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," Mr Durkan told Fairfax Media.
Suppliers say Mr Durkan's renewed "Treasure Island" rhetoric threatens to disrupt the fragile truce between the supermarket giant and its partners after Coles' mea culpa last year over past mistreatment of suppliers and after the introduction of the Food and Grocery Code of Conduct in July.
"It would be very unfortunate if this was a throwback to that conflict-driven environment where there was a lot of threatening behaviour to extract additional profits out of suppliers," Mr Dawson said. "Threatening to delist branded products in favour of private label brands is short-sighted," he said, particularly as the weaker Australian dollar made sourcing private label food and groceries from offshore less lucrative than it was five years ago and made local producers keen to pursue offshore markets.
"Suppliers are looking for a more constructive approach that puts value on innovation and capability and security of supply for Australian sourced products, particularly at a time when there will be increased competition from export markets."
Processed food and beverage exports from Australia have risen 28 per cent in 2014-15 and as the dollar falls, high-value export markets are looking increasingly attractive to food producers and processors. "Consumers know that it's the retailers who set retail prices, and ultimately consumers will decide the outcome of the supermarket battle. One of the factors will be choice, and access to the brands and products consumers want," Mr Dawson said.
Suppliers believe Coles is sending a less than subtle message that it is intent on keeping prices down and will take a hard line against suppliers seeking to recoup rising costs or fatten margins by putting up prices.
Coles' parent, Wesfarmers, is relying on earnings growth from Coles and its other retail businesses, Bunnings, Officeworks, Kmart and Target, to counter a sharp drop in earnings from industrial and safety and chemicals and fertilisers and losses from coal this financial year.
Coles and Woolworths are investing hundreds of millions of dollars into reducing grocery prices to gain market share and reduce the price gap with fast-growing discounter Aldi.
A KPMG report commissioned by the Australian Food and Grocery Council last year showed suppliers were handing over $1 in every $4 of sales on discounts, rebates and promotions to the major grocery chains and profit margins had fallen below global peers.
A Morgan Stanley report last year showed that the profits of food and grocery suppliers had fallen 38 per cent between 2010 and 2014 while Coles' profits had risen 77 per cent and Woolworths' profits had risen 29 per cent.
