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.
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.
B2B marketers could learn a thing or two from their B2C colleagues, argues WP Engine VP APAC sales Mark Randall in this guest post. It surprises me how many B2B organisations are not quite hitting the mark when it comes to reaching their audience. When talking directly to businesses, many brands are missing an opportunity […]
The majority of adverts uploaded to Facebook aren’t created for Facebook as its priority. This is causing huge inefficiencies and poor performance for brands, many of whom are facing up to shrinking budgets. Tom Phillips (main photo) managing director at Connecting Plots shares lessons from 12 campaigns they optimised for auto brands… It’s no secret […]
On Wednesday, 21 October 2020, the PR industry was bolstered by the launch of the Public Relations Institute of Australia’s (PRIA) first University Mentoring Program in New South Wales, adapting the traditional face-to-face program to a virtual format for the first time. In collaboration with the University of Technology Sydney (UTS), the PRIA NSW Young […]
JCDecaux has developed a dynamic digital campaign with live timetable data where commuters can access their money from MyPayNow while waiting for the bus. In an exclusive nationwide Out-Of-Home campaign, JCDecaux’s SMARTFRAME digital assets are broadcasting bus arrival times, letting commuters know how far away their next bus is – and just how easy it […]
Rokt has today announced an investment of US$80M. The capital will help accelerate research & development and support the expansion of its client base into new verticals and geographies as Rokt continues to make e-commerce smarter, faster, and better. The funding round was led by Rokt’s largest institutional shareholder TDM Growth Partners , and supported […]
PayPal Australia and Buy From The Bush have joined forces to launch a new online marketplace to showcase rural Australian small businesses in time for Christmas. The expanded partnership aims to build stronger connections between bush businesses and Australians in cities and suburbs across the country. The new Buy From The Bush Marketplace is an […]