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Australia Day

Should suppliers and supermarkets have sociopolitical goals?

Background

There has been a gradual decline in demand for Australia Day merchandise from our stores over recent years. At the same time there’s been broader discussion about 26 January and what it means to different parts of the community.’

Woolworths statement

Woolworths made a commercial decision to not stock Australia Day merchandise, e.g. thongs, this year. Most of the negative reaction, by different groups of people, is due to sociopolitical reasons, not commercial reasons. The on-going public debate about this decision highlights a bigger question. Should suppliers and supermarkets have sociopolitical goals?

This simple blog highlights potential challenges for suppliers and supermarkets trying to implement sociopolitical goals. The goal of this blog is to be part of a wider discussion by suppliers and supermarkets about how best to meet shopper demands, including sociopolitical goals.

Many terms such as ESG / purpose led / values-based decisions are used to describe this type of decision. For ease of use I shall just use the term ESG. My blog, ESG in FMCG, provides more information.  

Recent issue – inflation / COL

ESG – shoppers

As outlined in my blog, ESG in FMCG, shopper demands of suppliers and supermarkets have changed. During the last 20 years shoppers have placed more emphasis on the values of the business they buy from, rather than just the physical product / price. This change in shopper demands is often labelled ESG.

Shoppers reaction to Coles and Woolworths financial results (FY23) highlighted shoppers ESG thinking. Shoppers criticised the large % increase in profit whilst many shoppers were struggling with COL (cost of living) pressures. In this example, shoppers are concerned about supermarkets lack of social responsibility. They believe that supermarkets should lower prices to assist shoppers struggling with COL pressures.

‘The key source of contention is why profits and margins increased so dramatically.’

ABC News, Coles, Woolworths profit surge raises questions over inflation profiteering, Feb 23

Some will argue that some shoppers’ negative reaction to Woolworths Australia Day merchandise decision is due to a number of factors, e.g. large % increase in profit, not just Australia Day merchandise. They will suggest the level of trust between the shopper and supermarket has been in decline for sometime.

Some media commentary has suggested Woolworths deliberately made their Australia Day merch announcement to deflect criticism of their large % increase in profit. This commentary also suggests the level of trust between the media and Woolworths is in decline.

Independent research by Roy Morgan suggests that Woolworths is the ‘Best of the Best – Most Trusted Brand in Australia’ (Roy Morgan , Bunnings, Kmart and Samsung are Most Trusted Brands in Retail and Consumer Products for 2023, Nov 23). So, it is questionable that the majority of shoppers have declining levels of trust with Woolworths.

Recent UK research suggests declining trust between supermarkets and shoppers may be an issue in many markets. UK research has highlighted that 18% of shoppers do not trust supermarkets at all. This is the lowest level of trust for UK supermarkets since the horsemeat scandal. 48% consumers trusted supermarkets to act in their best interest. (Retail Gazette, Trust in supermarkets falls to lowest point since horsemeat scandal, Aug 23).

The challenge for suppliers and supermarkets is what decisions will build trust with all shoppers? If the decision could be divisive, i.e. upset some shoppers, should it be supported? Many will suggest the industry is ‘shopper led’. Does that mean meeting the demands of all shoppers or just the majority of shoppers?   

ESG – government

“For too long the big supermarkets have had too much market power. This allows them to dictate prices and terms that are hitting people hard.”

Greens Senator Nick McKim

(news.com.au, Coles ‘change’ noticed by shoppers ahead of price gouging inquiry, Jan 24)

As planned, on the 3rd October 23 the government formally announced it is reviewing the Food and Grocery Code. On 6th December 23 The Senate Select Committee on Supermarket Prices was established. This committee will inquire into the price setting practices and market power of major supermarkets. It is logical that politicians will focus on how best to manage major supermarkets with different legislative measures, including legally enforceable voluntary codes such as the Food and Grocery Code.

The reason why politicians have these inquiries is because they believe major supermarkets (Coles, Woolworths) may have too much market power. Politicians will suggest they are just acting on concerns raised by voters. Numerous media reports / research highlights that COL pressures are a major concern for voters. For example, SMH research highlights that Australians want ‘keeping the cost of living low’ as the top government policy in Dec 22. The % of respondents choosing ‘keeping the cost of living low’ as the top government policy grew from 16% in Jan 22 to 32% Dec 22.

COL pressures

(Source: SMH ‘The year of living costs’: Financial pressures top Australia’s worry list in 2022, Dec 22)

Woolworths announced their Australia Day merchandise plan on the 10th Jan. 11th Jan Peter Dutton, opposition leader, called for a boycott of Woolworths for ‘trying to cancel Australia Day’ (Guardian, Peter Dutton calls for boycott of Woolworths after Australia Day merchandise dropped, 11/01). 18th Jan the QLD government announced a parliamentary inquiry into the high cost of groceries and low farmgate prices (ABC News, Supermarkets to face Queensland parliamentary inquiry into high cost of groceries and low farmgate prices, 19/01). 25th Jan (day before Australia Day) the federal government announced that ACCC will launch a 12 month inquiry into supermarket prices (Treasury, Government to launch ACCC inquiry into supermarket prices, 25th Jan).

The challenge for suppliers and supermarkets that base their ESG decisions on shopper insights is that other stakeholders, e.g. politicians, may not agree with the decision. Some will use the term stakeholder management to describe this situation. The question then becomes, should ESG decisions be about a supermarkets’ ideal shopper or all stakeholders?

Australia Day merchandise

Shoppers

“Stay out of politics, sell groceries and stick to that.”

Michael

(news.com, Woolies boss grilled by morning show hosts over controversial decision to scrap Australia Day merch, 24/01)

My blog, ESG in FMCG, highlights shoppers increasing demand to purchase products from suppliers / supermarkets that have similar values to them. This change in shopper demands has led many companies in many industries to make ESG decisions. The challenge for suppliers and supermarkets is to understand what shoppers ESG expectations are for FMCG. Generally speaking, do shoppers want suppliers and supermarkets to engage in sociopolitical discussions?

A recent example of a supplier being labelled ‘woke’ was Bud Light beer in the US partnering with trans influencer Dylan Mulvaney. After the promotion industry analysts suggest that Modelo replaced Bud Light as the top-selling beer in the US. AB Inbev (Bud Light brand owner) suffered 10% sales drop in the US during spring primarily due to declining Bud Light sales. (BBC, Bud Light boycott over trans influencer Dylan Mulvaney hits beer giant’s sales, Aug 23). This example highlights the risk to suppliers and supermarkets that decide to have ESG positions that some of their shoppers may not align to.  

ESG is a relatively new concept for many suppliers and supermarkets. It is inevitable that there will be period of trial and error where some mistakes are made. IMHO (in my humble opinion) the reaction to Budweiser and Woolworths decisions suggests engaging in sociopolitical issues is high risk for suppliers and supermarkets. There are numerous other less risky ESG initiatives suppliers and supermarkets can undertake.  

The financial risk

Some may suggest suppliers and supermarkets should engage in sociopolitical issues. They will suggest that only a small % of shoppers may be alienated. According to Woolworths website they serve 24 million customers a week (Woolworths). If a decision was to alienate 10% of Woolworths shoppers that would mean Woolworths could alienate 2.4 million shoppers with 1 decision. The long-term financial cost of 1 decision could be substantial for any large supplier or supermarket with many shoppers.  

Big Data

My blog, Does big data create big results in the supermarket industry? highlights that IMHO big data does not always deliver big results. Major suppliers and supermarkets, such as Budweiser and Woolworths, have access to big data. The reaction to Woolworths decision suggests the data was not able to accurately predict the reaction to not range Australia Day merch. IMHO the issue is that the data is too narrow. Most supermarket data is focused on shoppers, not all stakeholders, including politicians. Secondly the data focuses on why shoppers buy products, choose particular stores etc, not shoppers’ opinions about sociopolitical issues.   

Suppliers and supermarkets not fully understanding shoppers is not a new phenomenon. For example, Coca Cola launched New Coke in 1985. Due to shopper complaints’ they relaunched Coca Cola Classic 77 days later. The challenge for suppliers and supermarkets is deciding what data / research is best to test potential ESG decisions.

Personalisation

For the supermarket industry personalisation is when manufacturers and supermarkets tailor the shopping experience, including the products offered, to the shoppers’ individual requirements. My blog, RIP Personalisation, provides more details.

In theory, personalisation suggests shoppers control the overall shopping experience, including the range. In this example, Woolworths suggest category sales of Australia Day merch are in decline / not hitting hurdle rates so they will delete the range. How can Woolworths then offer personalisation for shoppers that want Australia Day merch? Other retailers, e.g. Amazon, carry larger ranges as part of their personalisation strategy. The challenge for suppliers and supermarkets is deciding whether the ESG decision is going to support other strategies, e.g. personalisation, within the business.

Other stores

“I think we could clearly have done a better job of explaining our decision, that’s why I’m here,”

Mr Brad Banducci, Woolworths CEO

(news.com, Woolies boss grilled by morning show hosts over controversial decision to scrap Australia Day merch, 24/01)

Other stores have also decided to not range Australia Day merch. For example, Aldi announced they would not be stocking Australia Day merch the day after Woolworths announcement (news.com, Second big supermarket axes Australia Day merchandise, 12/01). Generally speaking, the public reaction to other stores decision has been significantly less than Woolworths announcement. This suggests that Woolworths had an execution / PR issue. The challenge for suppliers and supermarkets is how to communicate a potential divisive decision to the public.

Another factor to consider is how shoppers currently perceive the supplier / supermarket brand. For many years Woolworths has focused on being an Australian company, supporting Australian families, farmers etc. IMHO part of the reason why the reaction to the decision was so strong was that it was not aligned to the existing brand positioning. Some shoppers may have perceived this decision as not supporting Australia, something Woolworths has historically done.  

Summation

Disruption is the new normal in supermarkets. As shopper demands change then suppliers and supermarkets need to evolve their offer to meet their demands. This is why suppliers and supermarkets are becoming more engaged in ESG activities.

Recent sociopolitical initiatives by Budweiser and Woolworths highlight a significant risk to the industry. Very importantly these examples highlight a decision that the majority of shoppers may support (or have no opinion on) is not always justification for an initiative. If an initiative could be divisive and alienate a minority of shoppers’, it still can have a major impact on a business. Suppliers and supermarkets need to understand what decisions pose the greatest risk and how best to implement the initiative, if at all.

Finally, I strongly believe the industry has learnt a lot from the Budweiser and Woolworths sociopolitical initiatives. This knowledge can now be used to better serve all shoppers.

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation. Contact Details .