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Are the supermarkets really the good guys?

"Their profits are our profits." The Parrhesian/AFR

At the weekends we get the Australian Financial Review Weekend edition. Being fundamentally a financial newspaper it is, I suppose, mostly a right-wing publication, if you are into defining newspapers this way. I am not right wing, but I do enjoy reading it - even the very right wing articles. At least I am getting another view, and besides it stirs up my righteous indignation. Every now and then - no often - there are also left-wing articles. And actually, fundamentally I think it is relatively unbiased and fair in its comment. Plus in the weekend edition there are very lengthy articles on everything from drones to happiness. I confess I mostly don't read the investment/economics stuff, and it depends what the politics is about, but mostly it's a good read.

This last weekend I was particularly struck by an article entitled Those 'obscene' big business profits are actually our profits by a columnist given the pseudonym of The Parrhesian, with this very vague little drawing. Every article has a similar but clearer picture of the columnist in question. In this case there was an explanation from the AFR at the end, as to who this person was:

"Parrhesia is the ancient Greek obligation of speaking truth for the common good. The Parrhesian is a senior Australian business leader." AFR

I guess the main thing to take from that and the drawing is that it seems to be a woman. But who? There are lots of female CEOs of big businesses around these days - and currently all three of the major Australian supermarkets have a female CEO. Is it one of them?

(From left to right - Amanda Bardwell (Woolworths); Leah Weckart (Coles); Anna McGrath (Aldi Australia)

Only IGA - fundamentally an American company - has a male CEO as also does Metcash who operates the IGA network in Australia.

But back to my article, which, to be fair, was about big business in general, not just supermarkets, but it had obviously been stimulated by the current outrage about supermarket profits, and the duopoly that is Coles and Woolworths, plus the threat of forcing the breakup of the two companies. And the main focus of the article was indeed the supermarkets, so I suspect it might have been one of the three above and most likely again, one of the first two.

The defensive drift of the article is stated in the second paragraph:

"These businesses not only provide goods and services we need, they employ lots of people, contribute lots of taxes to the government, invest in infrastructure and innovation that benefits future generations, and provide an avenue for investors to share in profits and increase their wealth."

Let me take that statement about investors first. If you say the word 'investors' most people automatically think of those young and middle-aged, mostly men, who populate the offices of all the stockbroking companies. Not so. It's you and me. Everyone who has superannuation - and that would be every working person in the country - at least the legal ones. Doubtless there are a few black pockets in which employees are not given superannuation because they are paid cash in hand. But if you have superannuation then you are an investor, because those superannuation companies are investors, and you can bet they have shares in the supermarkets.

"They employ lots of people." Indeed they do - hundreds of thousands, and they can't be such bad employers as many of them stay around for a lifetime - some of the checkout ladies in our local Coles and Woolworths have been there for decades and also seem to be pretty happy. On top of the massive number of direct employees, there are also many indirect employees, in that there are many, many other businesses who depend on the business of big business - the makers of all the equipment that goes into those businesses for starters, from computing systems to shelving, stationery and toilet paper. Then there are the advertising agencies, and the companies that supply their money. Currently there is a crisis that you may not have heard of - Armaguard is in trouble, and so you can get less cash at the moment in the supermarket. The supermarkets are as dependent on Armaguard as Armaguard is on them. Remember the collapse of that refrigerated delivery company? Their deliveries are subcontracted too, and maybe a whole host of other operations.

The largest indirect employee groups are of course the suppliers of the goods in their store - the farmers, the food processors, and so on. It's a never-ending chain, because they, in turn depend on the makers of the tractors, the suppliers of animal food and fertilisers ... And of course the supermarkets try to get the best price they can, and sure they have power to squeeze. Perhaps they squeeze too much.

Do they really have too large a profit - and what do they do with that profit anyway? Who gets it? Well they get 1-3 percent profit, which is not huge in comparison with many others - and certainly the major international companies - Apple and co - who do not pay Australia much tax. Because first up the government gets tax on the profits of Australian companies. In 2023 Woolworths paid $700 million in income tax:

"That more than covers the running of our National Parks or the operating costs of the Department of Industry, Science and Resources."

Aldi - a German company which is privately owned has no shareholders. That part of the profit goes to the owners. And I imagine their accountants are clever enough to make sure they do not pay a great deal of tax here in Australia. Yes they will in Germany I assume, but not here.

70-80 percent of the rest of Australian big business profit goes to the shareholders - you and me. The rest?

"Finally, what’s left over is kept by the company so it can invest in more stores, more people, better service, upgrading systems and processes, as well as retaining some earnings in case there is a period where profit dips and it needs a buffer to ensure it can pay staff and suppliers."

Then there's all the 'good' things they do. Sure at least a percentage of that is to make them look good - it's excellent PR - the grants to startups and suppliers who want to upgrade their technology or their business in some way; the donation of 'leftovers' to charities such as Second Bite, Foodbank, Oz Harvest. And let's not forget they:

"play their part in addressing climate change, domestic violence, inclusion and diversity, mental wellness and various other causes cohesive to our social fabric."

Big business, and farmers as well are generally much more committed to climate change than you and I, who are mostly focussed on our own daily problems. Politicians? Well it depends on the politician, and there are always political obstacles along the way.

A final word in defence of big business - particularly supermarkets - by Parrhesian:

"Large companies are held accountable via the Corporations Act and numerous regulators; they must disclose their operations, financial results and risks transparently and in a timely manner, and answer to armies of analysts and investors who pore over them. And their executives are accountable to directors who scrutinise their decisions. Things still sometimes go wrong, but they mostly apologise and try to fix it."

I suspect there may be more dodgy dealings amongst tradies and hospitality two industries which are particularly susceptible I think - the so-called battlers and workers and suchlike - the cash in hand situation that we have probably all come across. Do they charge too much, pay too little, treat their workers fairly, pay attention to the environment (have you seen the mess in a tradies backyard or a building site recently) ...?

A sweeping generalisation of course, as it tends to be with big business. Of course, some CEO's and high up executives get paid far too much and have too many perks, of course there is some creative accounting going on, but generally that last quote above applies.

Surely breaking up our two major supermarkets would not help the consumer. The economies of scale would be less, and we would be paying more at the checkout. Small businesses have to charge more because they don't have the economies of scale. Just compare the price of fresh food in the supermarket with the greengrocers and butchers next door. We have that situation in Eltham. I have no idea why they survive as I do not think their products are that much better - certainly not the fresh fruit and vegetables. It's not organic and it's not from small local farmers.

Apologies. I know this is a bit of a rant with no glossy lip-smacking photographs of delicious food, but it's a thought provoking article in many ways. It certainly made me think, although perhaps I did already go along with the premises. I would be very happy to hear opposing thoughts. Just leave a comment - right at the end of the page - just write where it says to write a comment, you don't have to add your name, and then press Publish.


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Apr 03

I cannot disagree with you. Had no idea IGA was American...


Apr 03
Rated 5 out of 5 stars.

Excellent, thoughtful article - goes beyond the headlines and politician's attention gathering frenzy.

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