Comparing Australian and Foreign Ownership – Coles, Woolworths –v- Aldi and Costco
It should be understood that foreign companies like the American Costco and the privately owned German Aldi have no legal or moral requirement to have a loyalty to Australia. They need not be interested in whether we have food security or that a maximum number of Australians are employed in any particular field or that our country towns may close down because more and more of our food is imported. They have one prime objective – that is maximise and constantly increase profits and dividends for their foreign shareholders.
Australian companies like Woolworths and Coles include on their Boards people who live here in Australia and who raise their children and grandchildren here and are all part of what goes on in our extraordinary and complex democracy. It is obvious that Board decisions are influenced by this.
For example, in the case of the Aldi owner, there is little chance that he would understand the problems which are confronting Australia. For example, the problems of Australian workers being able to compete with really low salary structures in places like China. He may not understand the importance of keeping Australian farmers in jobs and our country towns in existence.
So here it is – we can support foreign-owned companies like Costco and Aldi and more and more of the wealth will go overseas OR we can support companies like Coles, Woolworths and IGA where most of the wealth creation stays here in Australia – predominantly in the hands of ordinary Australian mums-and-dads and retirees through their superannuation funds.
Yes, I agree that it may cost a little more to buy from an Australian-owned company, however surely this is more likely to ensure a future for our children and grandchildren if the wealth stays here.
Foreign-Owned Aldi and Costco in Australia
The German-owned Aldi company was welcomed into Australia by the Coalition Government. In effect, their view was that this foreign-owned company could show the Australian-owned companies – Coles, Woolworths and IGA – just how retailing should be run in this country. However, I don’t think the Government ever considered there would be any negative consequences such as hardly any staff employed in each store and a reduction in the choice of goods available resulting in virtually no freedom of choice which had been traditional in Australian retailing,
The media publicity has been almost entirely positive and touted the “wonderful benefits” Aldi would bring. As a businessman I have always disagreed. If Aldi provided a full range of products which allowed consumer choice in a similar way to Australian supermarkets; if they employed a fair number of Australians (not just three or four per store) and had the extra costs of being publicly listed so that all Aussies could share their success, then this would be different. Yes, this would really test the astuteness of the Aldi people – could they actually operate on a level playing field and provide goods at a cheaper price? I doubt it.
Yes, average food prices have dropped very slightly since Aldi has been around. Recently the Chief Executive of one of the major food retailers wrote to the Sydney Morning Herald proudly claiming that food prices had dropped by a nett 1.7% – yes, less than 2c in the dollar. This is hardly significant.
But even if we attribute all of this 1.7% cost reduction to competition from Aldi, what has the actual human cost been?
VERY HIGH – I believe. The advent of Aldi in Australia has had a totally unintended consequence, that more and more of our produce now comes from offshore resulting in Australian farmers and producers closing down, going broke, sacking workers and all the associated social implications which accompany this, including suicides.
Here is what has happened. Aldi opens a store and stocks a very narrow range of products with virtually no alternatives and, as they also have very low overheads (as a result of employing hardly any staff and not even having the cost of a telephone in each store), they are able to sell their products at a lower price.
Due to the lower Aldi prices the supermarket buyers at Woolworths and Coles are forced to pay lower prices for goods they buy from Australian farmers and processors.
The Australian-owned Woolworths and Coles must do this to compete. These big supermarkets usually make less than 5c in the dollar profit which would mean that even if they, on average, reduced their prices by 5c in every dollar they would go broke.
It’s important for Australia that Coles and Woolworths don’t go broke, not only because of the 300,000+ Aussies they employ, but also because it’s tens of thousands of Australians who own these companies and who rely on the profits to live – through their superannuation funds and share investments.
Due to the lower Aldi prices the supermarket buyers at Woolworths and Coles have not only forced down the prices on goods they buy from Australian farmers and processors, but they have also substantially reduced the range they stock. That is, Aussie consumers will now start to lose our fantastic culture of freedom of choice even in Coles and Woolworths.
Most of these farmers and processors were already making very little profit, and now with the increased pressure from the major Australian retailers for prices to go down to match Aldi, it means that more is imported from overseas. This includes companies like SPC importing products like asparagus from South America rather than supporting Australian farmers with the slightly more expensive and superior product.
At least SPC are still in business. Many of the other Australian processors and canneries have either simply closed down or have been sold and moved overseas. By my calculation, over 800 jobs have already been lost at Australian processors as an unintentional result of Aldi opening in Australia. Of course, with the “knock on” effect, this will mean many thousands of jobs and the livelihood of many have been affected. This would be just the beginning. There is a chance that it will go on and on to a point where virtually every morsel of Australian food is imported from China or some other very low-cost country. I call this, “extreme capitalism” – and all to save what will most likely be less than 2c in the dollar for the cost of our food purchases.
The people at the American-owned Costco would tell us that food in America is 20% cheaper as a percentage of average income compared with food in Australia. What they don’t tell us is that the wages they pay in their stores in the USA are 50% less! Let me give you the figures.
In a typical Costco store in the USA an adult would be paid about $8.00 per hour. In a typical Australian Woolworths or Coles the minimum hourly rate is approximately $16.00.
Someone once said to me, “Dick, if Aussie consumers want global prices here, surely we will end up with global wages”. So true! I understood globalisation had the advantage of raising the standard of living in the developing world to the standards we enjoy in developed countries. However it looks more like it will be the developed countries like Australia lowering our wage levels and therefore our standard of living more towards that of the third world – that’s if the greed of current extreme capitalism is allowed to continue.
So – there you have it. The advent of Aldi and Costco in Australia has had an unintended consequence – not only to reduce our wonderful freedom of deciding what particular product we want to buy, but also forcing the major Australian retailers to source food at lower and lower costs which means that Aussie farmers are dumped and most of our food will come from overseas countries with the lowest labour costs, such as China and India.
I always understood that globalisation was supposed to mean that countries do what they do best – for example, Asia makes the best electronics and Switzerland makes the best watches and Australia grows the most magnificent and safest food in the world. This is clearly not happening.
Australia has now become a nett importer of food and vegetables – can you imagine that!
DO WE VALUE THE HEALTH OF OUR PETS MORE THAN OUR KIDS?
I am told that Australian families spend about $6 billion a year on pet food and that the growing market is the “premium” brands which cost 60% more; but in trying to sell my Dick Smith’s Australian-grown foods to the supermarkets in the past the buyers tell me, “Dick, you can’t be even 20c dearer –we have to compete with Aldi and Australian families only buy the cheapest food!”.
So it’s pretty clear: if you want the cheapest food go to Aldi or Costco where it’s very likely that the cheapest food will be imported – if not now, certainly in the future as more and more Australian processors close down and farmers lose their livelihoods.
Fortunately Woolworths has told me that they will give our new Dick Smith Foods, with our higher quality magnificent Australian grown produce, a go. Their buyers are sceptical that we will be able to get Australian consumers to support our 20c higher prices – I hope they are wrong. I’m hoping that Coles and Metcash (who supply IGA) will also come on board.
ALDI REMOVES OUR TRADITIONAL FREEDOM OF CHOICE
Most importantly, Aldi has very astutely taken away the Australian tradition of the consumer being able to make a choice of what particular product they will buy, i.e. “Will I buy Kraft peanut butter with imported peanuts, the Dick Smith peanut butter with Aussie peanuts, or the generic?”
What has happened is that an Aldi buyer makes the autocratic decision on the product in a particular category you will be forced to buy. In every case I would imagine that Aldi makes its decision based on which item makes them the most profit whilst selling for the lowest price.
SECRECY AND ALDI
“In Aldi’s world, open communication was regarded as a mistake – anyone who broke that code was a traitor”
“A Secretive Family’s Success – What Makes the Aldi Discount Empire”
In Spiegel Online 8.3.2010 – see link HERE
Aldi has been described as a “highly secretive” company – why would they be highly secretive? For example, it is reported that Aldi operate in Australia by the rare entity called “a Limited Partnership” and it appears that a Limited Partnership has “the great advantage that they do not have to publish their financial results”, and it appears that there is no way of us knowing in Australia what their entire profit is year after year and, more importantly, how much wealth they take out of Australia and send to Germany.
Surely if you come to a country you accept the culture of that country. So what is all the secrecy about? Our culture in business is one of openness. Imagine if Gerry Harvey or John Singleton or John Symonds decided to become “highly secretive”. Aldi, it appears, is owned by one of the wealthiest men on earth, Mr Karl Albrecht. He is worth over $20 billion! Not only is this outrageously disgusting if it’s true, considering there is over a billion people starving in this world, why isn’t he known as a generous philanthropist?
SUGGESTIONS ON HOW ALDI CAN BETTER SUPPORT AUSTRALIA
1. Remove the secrecy as to where the huge profit actually goes (I am told it now goes into a “Trust”. Is that Trust going to be distributed in Australia?)
2. Stock a decent range of products in each food category so Australians can continue with our culture of the freedom of individual choice – not just in your shops but in our Aussie owned supermarkets as well.
3. Don’t push your prices so low that Australian farmers and processors can’t compete. This not only affects sellers who supply to Aldi, it also affects suppliers to Coles, Woolworths and IGA as they will always lower their prices to compete with you.
4. Ask your owner, Mr Albrecht, to come to Australia and tell us what his plans are for Aldi in Australia. Will he support Australian farmers and Australian country towns? Is he just motivated by profits and personal wealth, or is there something else? Explain to him that we are very open people here and we welcome people from overseas but we like them to fit in with our easy going and less autocratic culture.
4. Become listed on the Australian Stock Exchange so that ordinary Aussie families can share in your success through their shares and superannuation funds.
Read this important article, “A Secretive Family’s Success – What Makes the Aldi Discount Empire Tick – Click Here
Here are Two letters from Dick Smith to Aldi and one letter from Aldi’s Group Managing Director, Tom Daunt – in which we ask why Aldi underprice their products
FM: DICK SMITH
TO: Mr Tom Daunt
Group Managing Director
Thursday 15 September 2011
Dear Mr Daunt
About ten days ago when returning with my wife, Pip, from the Northern Territory in our helicopter, we dropped in to a farmer’s property near Cowra. He had the most magnificent crop of beetroot I had ever seen ready for harvest – in fact, Pip brought back some beetroot which we have been cooking and eating ever since. They are really delicious.
The farmer told me a disturbing story. He told me that it looked as if he was going to be “paid out” for the crop he had grown and it was destined to be ploughed back into the ground.
Following some inquiries, I have discovered that Aldi is selling 450g cans of beetroot for $0.75. The farmer told me this is clearly below the cost of growing, processing and canning the beetroot let alone allowing for a profit for the fanner and the canner.
Could you advise me why Aldi is doing this? It doesn’t seem logical that Aldi would be doing this as a “loss leader” to draw people into your stores because, surely, you will have to raise the price of other products to cover your costs? And, of course, in the longer term the Australian public just pay more.
I am considering taking the farmer’s crop so at least he stays in business and his local country town doesn’t end up derelict and with people out of work. But before doing this, I would like to know what your explanation is for selling beetroot at such a low cost?
One of the rumours I have heard is that the cans could rust and they have to be sold before rust sets in – but this sounds ridiculous and I don’t accept this explanation!
Now I do know that Aldi is perceived by many as an “ultra secretive company” and I understand you do not generally disclose where your products come from. But I ask that you please break this rule in this instance (if indeed it is a “rule”) and advise where you have sourced your beetroot and why you would be selling it so cheaply?
I have been told that it is Heinz that supply you. Heinz have announced that they are going to close down their beetroot cannery in Australia, sack their workers and relocate production to New Zealand so they can once again compete and supply back to Australian supermarkets. As you can understand, the two Aussie-owned supermarkets- Coles and Woolworths – try and do everything they can to at least match Aldi ‘s prices so they don ‘t lose business and therefore reasonable returns to their Australian shareholders.
In this case they are both selling beetroot in the $0.75 range to compete with you – I am told without any profit. This will surely result in Australian farmers going broke and all processing and growing moving offshore.
Is this what Aldi wants? Surely not.
I look forward to your urgent advice on this.
Attention:Mr Dick Smith
Friday 16 September 2011
Dear Mr Smith,
Thank you for your correspondence of 15 September 2011 regarding the supply and sale of beetroot.
I believe that you have previously corresponded on occasion with my predecessor, Michael Kloeters, regarding other issues around Australian made products and investing in Australia. Having been raised in country Victoria, I share your passion for rural Australia and the fine growers and manufacturers of food that we have in Australia. It is a key strategic objective of the business I run at ALDI to develop long term, mutually beneficial relationships with Australian manufacturers and growers, and we are both focussed and successful in doing so.
In relation to the issue of beetroot that you have raised, whilst the details of supply are commercially sensitive, I can confirm to you that our ‘New Season 450g Beetroot’ is both Australian made and is not sold as a loss leader. Our beetroot is grown in Australia and has been supplied over the years by both SPC Ardmona and Golden Circle. The current crop of beetroot is supplied by the Golden Circle factory in Queensland and is sold for profit across our ALDI stores in Queensland, New South Wales, ACT and Victoria.
You have rightly noted that Heinz (the owners of Golden Circle) have recently announced the closure in
2012 of some manufacturing facilities here in Australia, which we are very disappointed about. We are actively seeking alternatives and hope to be able to continue to offer great Australian beetroot into the future.
On a separate note, it worthy of mention that we are certainly not the “ultra-secretive” company that you mention some perceive us as. As evidenced above, we are more than willing to share information wherever commercially possible, and I am personally engaged regularly with various stakeholders such as our suppliers, industry participants, policy makers and journalists.
I hope that the information was of use to you, and wish you well in your endeavours, particularly in promoting our great Aussie growers and manufacturers.
Group Managing Director
Wednesday 5 October 2011
To: Tom Daunt
Group Managing Director
Thank you very much for your letter of 16 September in reply to my letter of 15 September 2011. I
must say at the outset that I am impressed that you wrote back to me.
I believe a serious problem has been created – probably unintentionally – by the opening of your
Aldi stores in Australia.
It is well known that Aldi have lower overheads than the large Australian supermarkets, Woolworths and Coles, and that means that generally Aldi can sell food at a lower price.
The problem that has occurred is that Coles and Woolworths have, naturally, decided to try and match your prices wherever possible.
Because these companies have higher overheads mainly because of the broad range of products and the larger number of people they employ, it means that Coles and Woolworths actually have to purchase their products at a lower cost than you do in order for them to be able to make a similar profit to yours. This results in Coles and Woolworths demanding that suppliers actually sell to them at a lower price than they sell to your company.
What has happened is that many of the Australian farmers and processors cannot go to a lower price without losing money. We have seen what has happened with Heinz closing processing plants in Australia and more and more people are being put out of work.
Of course you will probably say, “well, that’s capitalism and that’s how it goes – the survival of the fittest”. However, my problem is that I see it as a form of “extreme capitalism”. I am told that twenty years ago both Coles and Woolworths had an attitude that companies supplying them must also be profitable. However, in recent times suppliers have told me that the buyers have said to them words to the effect, “this is the price we require. We couldn’t care less if you go broke – we will get the product from overseas”.
I am sure it is not the intention of Aldi to have such an aggressive form of capitalism operating here in Australia, but it is the result of the lower prices in the marketplace.
As you were raised in country Victoria you would know how important it is that we do have a viable farming community and that country towns exist with work available. I have a fear that this will change.
On a more positive note I must say that a number of suppliers have said to me that your purchasing people are less aggressive and, in some cases, tend to be “fairer” than those from Coles and Woolworths. Of course, it’s likely you can afford to be fairer because of your lower overheads as stated before.
Tom, I just don’t know where we go from here. Yes, I would love to see more competition in the food retailing sector. However, if it is competition that just forces prices down and down, I can see that in the long run virtually nothing will be grown or processed in this country.
We once had a viable electronics manufacturing industry, however the Whitlam Government decided that all duty and protection should be removed. This means we now no longer make electronics such as television sets, radios and ancillary equipment.
I accept this is part of globalisation, however I always thought that countries do what they are good at, i.e. the Chinese would manufacture electronics because that is what they are good at and Australia would be supplying fruit and vegetables to the world because that is what we are good at.
I am sure you have the best intentions; however I think you are caught up in this new form of extreme capitalism which seems to be devoid of conscience in relation to putting the future of humankind behind pure profit and low prices.
All the best.
Published October 2011