Will Australia’s Looming Grocery War “F@ck” The Ad Business?

Will Australia’s Looming Grocery War “F@ck” The Ad Business?
SHARE
THIS



If we’re not already in the midsts of one, a looming price war between Australia’s major grocers could have dire repercussions on media businesses already struggling with margins.

The players – Coles, Woolies, ALDI and IGA – are already slashing their prices to keep market share; great news for shoppers, bad news for marketing budgets everywhere. Putting it in its most simplest of terms, there has to be some give somewhere when you’re selling milk for a dollar and that’s increasingly in diminished ad spend.

As one media boss told B&T anonymously in February: “It (the grocery war) is bad for all the suppliers and therefore all the vertically integrated suppliers that supply to the suppliers and it’s fucking our industry and it’s going to screw a lot of brands and businesses,” he moaned. “(Cheaper prices) are coming at a cost of squeezing its suppliers and driving the entire profit and margin out of a lot of companies.”

Six weeks ago, Woolworths announced it would spend half-a-billion slashing prices, updating stores and attempting to tell everybody it was now “Cheap Cheap” (an attempt to throw off the perception it’s the priciest of the four). Many of Woolies’ top line grocery products have subsequently been reduced by more than a third.

https://www.youtube.com/watch?v=vd0jTlvLMtA

Last week, financial firm UBS released a report confirming that if Australia’s grocers weren’t already at each other’s throats then a full-scale war was just around the corner. It cited Woolies’ $500 million spend as the catalyst and said the fallout could be similar, or worse, to what’s just happened in the UK. Over in Old Blighty its top four grocers entered a price war about three years ago and margins subsequently halved.

What’s even more alarming for the ad business, the UBS report said previous ding-dongs between Coles and Woolies had been waged using slick and expensive TV and marketing campaigns. But not this time around.

“Historically, Australian supermarkets have been engaged in a marketing war,” the UBS report said. “However, the step-up in focus on price and material slowing in Woolworths’ performance suggest a price war is brewing.” Result? More one-dollar milk, less ad spend.

The UBS report said the IGA chain was the least likely of the four to have the war chest to fight any price war and should solely focus on being different, while it predicted growth across the sector would fall to about four per cent rather than five-and-a-half per cent and “margins would be cut across the sector”.

However, there’s a delicious irony in all this. Coles and Woolies not only want but often insist its suppliers spend a considerable amount on ‘above the line’ – expensive TVCs on commercial stations often their favoured approach. A tough strategy to fund when they’re also slashing your margins to virtually zilch.

Media stalwart and commentator, Fusion Strategy’s Steve Allen agrees. The big two, he says, increasingly want suppliers to pay them directly just to have a product listed.

“They’re all playing the same game,” Allen told B&T. “It costs more to product list, it costs more for your facings, it costs more for the merchandising, it costs more for the promotional deals, and that all comes out of the marketing pot and that means less ad spend.

“The manufacturers are supporting their brands, it’s just more and more of it’s going to directly to the retailers and less of the spend is going to media agencies and advertising agencies. Everybody’s bottom lines are suffering,” Allen said. “The smaller guys, particularly, it’s increasingly difficult to run a brand campaign and stay in favour with the major retailers because so much money these days is spent currying favour with them and getting your product kept on the shelves.

“It’s not a deliberate attack but there is quite a concerted attack on what, historically, has been the second biggest advertising product category in the market place,” he said.

Allen also took aim at Coles’ and Woolies’ claims that they were loyal to and worked alongside their suppliers. “The reality is they couldn’t give a rat’s arse about their supplier’s business,” Allen surmised. “If one supplier goes out of business they will quickly find another one to replace it or just fill it with a house brand.”

Grocery wars aside, there were more immediate problems for media agencies, Allen argued. He griped that the calibre of commercial TV in Australia was so dire at present that increasingly advertisers didn’t want to fork out for expensive TVCs supporting it, preferring cheaper (and often digital) alternatives. Product placement on the likes of My Kitchen Rules a case in point.

“There’s no question ad spend would dramatically rise if Seven, Nine and Ten worked harder on improving their programming,” Allen concluded.

This can of worms for another B&T day.

Please login with linkedin to comment

Advertising Standards Bureau easter Jamie Oliver Thinktank Social UM Melbourne

Latest News

Twitter Lifts Revenue 74% On The Back Of Advertising Boom
  • Technology

Twitter Lifts Revenue 74% On The Back Of Advertising Boom

Twitter has just experienced its fastest growth in revenue since 2014, with the social media platform benefiting from increased interest from advertisers. Revenue was up 74 per cent YoY, according to the company’s Q2 results, reaching $US1.19 billion ($1.6 billion) from $US683.4 million ($925 million) 12 months ago. The strong results came in the same […]

by B&T Magazine

B&T Magazine
Wild Turkey Whisky Campaign Stars A Smouldering Matthew McConaughey
  • Advertising
  • Campaigns

Wild Turkey Whisky Campaign Stars A Smouldering Matthew McConaughey

Wild Turkey has announced the launch of its new global creative campaign and platform, ‘Trust Your Spirit’, featuring the brand’s creative director and spokesperson, Matthew McConaughey. The global campaign and platform ‘Trust Your Spirit’ is to encourage people to be bold, unapologetically themselves, and stay true to who they are. The global tagline and ethos […]

Optus Teams Up With TikTok To Launch Sign-Language Campaign
  • Marketing
  • Technology

Optus Teams Up With TikTok To Launch Sign-Language Campaign

Telecommunications company Optus has announced it will launch the world’s first TikTok sign-language activated filter. Featuring Optus ambassador Ian Thorpe, Optus will unveil a branded effect that shows TikTok users how to say key phrases in Auslan sign language, including ‘How are you?’ and ‘It starts with Yes’, through the hashtag challenge #SignYes. Optus will […]

Bapcor Debuts First Campaign With AJF
  • Campaigns

Bapcor Debuts First Campaign With AJF

Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions, Bapcor will launch its latest campaign, ‘The unseen parts of every Australian journey’ this weekend.

Professional microphone in radio studio
  • Advertising
  • Media

Podsight’s Benchmark Report Shows Podcast Advertising More Effective Than Other Digital Channels

Podsights has revealed new insights into the effectiveness of advertising in podcasts, tracking global and Australian podcast advertising trends. This is the first Australian report to be published since ARN partnered with Podsights to set the standard for best-in-class podcast advertising measurement. The report includes additional analysis and follows a series of Measurement Masterclasses held for […]

NGEN’s Charity Cup Raises Over 175K For UnLtd Charity Gotcha4Life
  • Campaigns

NGEN’s Charity Cup Raises Over 175K For UnLtd Charity Gotcha4Life

NGEN’s 2021 charity cup has raised over $175,000 for UnLtd charity partner Gotcha4Life. Gotcha4Life is a not-for-profit foundation raising awareness and funding to provide educational workshops and innovative programs that build mental fitness in individuals and communities. While Sydney and Brisbane completed the Charity Cup in June, before Covid restrictions hit, the final leg in […]

Biennale Of Sydney & Cicada Innovations Launch Sustainable Materials Challenge
  • Campaigns

Biennale Of Sydney & Cicada Innovations Launch Sustainable Materials Challenge

Australian tech incubator Cicada Innovations and Biennale of Sydney are launching the ‘New & Sustainable Materials Challenge,’ in an effort to create a more sustainable future. The works of chosen material-makers will be showcased to millions of Biennale audiences, exhibition partners, and exhibition makers globally. The Challenge is open to any Australian and UK startups, […]