Living with supermarket power

The level of concentrated market power in the Australian grocery retail industry is unprecedented: Coles and Woolworths now collectively control 74% of market share.This shift in market power is neither temporary nor cyclical, but has in fact created a fundamental structural change that is expected to remain for years to come. Whilst consumers do have the power to respond by boycotting the big two, the value for money on offer is difficult to refuse.

It is therefore up to the agrifood producer to alter their business model in order to survive in today’s retail environment. Given that supermarket power is a reality agrifood businesses must adapt their business models to remain profitable. Attaining economies of scale, adopting new technologies and improving management can lead to reduced production costs. Channel diversification can be used as a risk management tool as well as better suiting the individual needs, capabilities and circumstances of each business. By adopting ‘new age’ cooperative marketing models, market power can be generated. Creating closed-loop supply chains through strategic alliances or vertical integration are also methods that can be used to attain market power. Finally, by increasing the returns on production through premium pricing based on product differentiation, the viability of a business can be improved. Implementing the appropriate strategy allows the individual agrifood producer to utilise the present market power imbalance to their advantage