$1 MILK is a classic failure to plan
I am fed up with the hypocrisy around this story. While I have sympathy for the farmers, I’m tired of the bleating from the agriculture sector about Woolworths and Coles sending them broke. But don’t take that as an endorsement of some of the tactics of the supermarket chains. After the fiasco with Goulburn Valley in Victoria the flaws and selfishness in the supply chain are open for everyone to see, revealing a classic case of ‘failure to plan’ and anticipate the risks, and a complete abandonment of the fundamentals of the power of brand.
Let’s get a few thing straight:
- Woolworths and Coles use $1 milk as a loss leader – a way to use price to attract customers and buy loyalty. (A very attractive proposition for many families in the current tough economic conditions). This is a perfectly legitimate tactic that has been used since the birth of supermarkets.
- The milk cooperatives and wholesalers did deals which bought volume, but in turn reduced margins dramatically. It would also appear that when they made the deals they failed to anticipate the risks implicit in that deal for the farmers.
- The two major chains are allowed to exist in a duopoly that flourishes under a government which appears to tolerate the duopoly without question.
- Of recent times some of the major brands have started to fight back by identifying value add reasons why the public should start paying full price again. The supermarket chains don’t like it, but people are responding.
- Which of course begs the question; Why did it take the milk producers so long to realise the power of their brand?
Planning is an essential part of any organisation. Powerful brands come from sound planning. Each of the scenarios stated above is a factor in that planning, and an objective lesson in not just looking at the short-term opportunity without considering the long term risk, or potential damage.
It would seem the dairy industry has been shortchanged when it comes to getting good advice on what their brand could achieve and have accepted the first, short-term cash deal that came along.
It would also be an opportunity lost not to mention the media’s lack of objectivity in this story. Much better to feel sorry for the poor farmer – makes a more powerful headline or 4 Corners report!