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Suppliers to Coles and Woolworths, encouraged to spend on advertising via the supermarket groups’ retail media platforms, have little idea on where their money has gone or what the benefit was, according to an inquiry.
Competition watchdog the ACCC wants Coles and Woolworth to be more transparent in the fees charged to suppliers to advertise with the supermarkets.
The Australian Competition and Consumer Commission’s inquiry into supermarkets says there is a bargaining power imbalance between the supermarkets and the suppliers.
The inquiry, as part of recommended legislative and policy reforms, said Coles and Woolworths must provide each supplier that has provided funding to retail media units Coles 360 or Woolworths’ Cartology with an itemised account of how the money contributed was used.
Confidential submissions last year to the supermarkets inquiry raised concerns about pressure on suppliers to advertise. Then the interim report of the inquiry quoted suppliers as saying they felt they had to spend money advertising on Cartology and Coles 360.
Those two, along with Chemist Warehouse, are the biggest players in retail media in Australia. Morgan Stanley forecasts retail media spending in Australia on in-house/owned ad platforms to grow to $2.8 billion in 2027 from around $1 billion in 2022.
The final report from the ACCC said the two supermarket groups both indicated to the inquiry that they do not require suppliers to use retail media, but identified the benefits they may get.
Coles submitted there are many alternative marketing avenues open to suppliers other than Coles 360.
Woolworths stated that the team that manages Cartology is separate from its commercial team.
However, industry group the Australian Food & Grocery Council (AFGC) said the methodology for calculating the cost of using retail media is unknown and that it lacks transparency around the return of investment.
Many suppliers have reported concerns they are “pressured,” the AFGC told the ACCC.
“Suppliers using retail media, which includes payments from suppliers to cover their products featuring in a supermarket’s catalogue or being promoted on e-commerce platforms, is an increasing emphasis of supermarkets when negotiating commercial agreements,” the AFGC said in its submission to the inquiry.
“While retail media can deliver benefits to suppliers, and ultimately, they can decide whether to purchase those services, many suppliers have reported concerns that they are pressured into using the services at markedly higher than market costs.”
The ACCC, in its report, noted other suppliers have raised similar concerns about feeling obligated to use these services, and a lack of transparency about how funds contributed by the supplier are spent for the benefit of the supplier.
“Suppliers of fresh produce, who are sometimes restricted by Coles and Woolworths from applying their own branding to their produce, expressed concerns about a lack of transparency regarding how their contributions to retail media are used by Coles or Woolworths,” the ACCC said.
“Some suppliers submitted that Coles or Woolworths request a monetary contribution toward the total spend on a campaign for a specific category of produce, but the supplier has no awareness of whether their contribution is proportional to that of other suppliers of the same category of produce. Nor do they have any awareness of how the funds are spent, beyond seeing the public promotions the supermarket undertakes.”
An internal presentation used by Woolworths indicates that the supermarket group was aware of supplier concerns regarding Cartology.
The presentation reported statements from individual suppliers:
- “ROI is not clearly justified”
- Small business – “it’s a waste of money, we see no return from investing in it”
- “Cost of doing business increasing, ROI questionable.”
The AFGC told the ACCC that encouragement of the use of inhouse media services is an increasing emphasis of supermarkets when negotiating commercial agreements.
Correspondence between a supplier and Woolworths suggests that suppliers’ increased spending on the supermarket’s respective retail media may be a way for suppliers to promote products.
However, another correspondence also suggests a supplier may propose to increase their retail media spending as part of a cost price increase negotiation.
The ACCC noted that retail media services are potentially a substantial source of income for the supermarkets.
Market analysts say retail media units at the supermarkets offer better profit margins than the main business of selling groceries.
Revenue from Woolworths’ Cartology is estimated to have tripled since the 2020 financial year.
However, Woolworths submitted that Cartology revenue growth over this period was off a very low base.
Coles, in an internal business retail media presentation, forecasts that its media income would grow due to a shift in income to owned channels from traditional media.
Woolworths, in its response to the inquiry recommendations, which were mostly about costs to consumers, said long standing and mutually beneficial relationships with suppliers are critical to enable the supermarket group to better serve customers.
“We support improved transparency for suppliers, particularly fresh produce suppliers, and we stand by our previous commitment to the horticultural industry on this issue,” said CEO, Amanda Bardwell.
“Having fully cooperated with this Inquiry, we will review the report and its recommendations to identify any insights to make us a better business for our customers, suppliers and communities in which we operate.”
Woolworths, in its latest half year results reported a 15.3% Increase in Cartology revenue.
Cartology numbers are reported within WooliesX which posted a 17.6% in total sales to $4.922 billion. This included a “material improvement” in Cartology.
Coles reported half year revenue for Coles 360 grew by 10%.
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