Coles defends price cuts as battle shifts to chicken

Supermarket giant Coles has rejected claims its retail milk cuts aren’t sustainable, revealing that its aggressive price war will continue with discounts to chicken.

Coles came under fire earlier this year after slashing its home brand milk to $1 a litre, sparking a “milk war” with rival Woolworths.

The price war is now set to move to chicken, with Coles managing director Ian McLeod telling a Senate inquiry that the supermarket will discount the meat heavily in the coming weeks.

Concerns have been raised that the low prices could squeeze out independent retailers, coupled with claims that dairy farmers would suffer at the hands of the supermarket giants.

Dairy and egg farmers have accused Coles of trying to kill their industries and strangle smaller outlets through aggressive discounting.

The industry uproar prompted a Senate inquiry into the impact of the price war. Yesterday, Coles told the inquiry slashing the price of home brand milk will be good for the dairy industry.

Coles merchandise director John Durkan said low prices for consumers would make the dairy industry stronger, claiming there has been a 2% increase overall in milk sales since the price cut.

But Pat McEntee, general manager of fresh foods with Woolworths, told the hearing his company was concerned Coles’ decision to drop the price of milk “overnight”’ threatened to create an imbalance between branded and home-branded milk.

Recent figures from research group The Nielson Company reveal home brands represented a 24.5% share of supermarket sales in the September 2010 quarter, up from 23.2% in the last quarter of 2009.

According to McEntee, Woolworths was only reacting to Coles’ price drop because customers expect the supermarket giant to be competitive.

McLeod said Coles’ price cuts were part of the task of turning Coles from a second-rate business into a competitive player after parent company Wesfarmers bought the chain in 2007.

Both Coles and Woolworths were recently slammed by brewing company Foster’s, which claims the supermarkets have engaged in loss-leading behaviour, whereby a product is sold at a loss to attract customers who might then purchase other profitable products.

Foster’s has confirmed it withheld supplies of top-selling brands in February and early March as a result of the alleged loss-leading.

Choice spokesman Christopher Zinn says supermarkets should publish all shelf prices online so shoppers can properly compare costs, including any price decreases and increases.