Supermarkets stubbornly stick to their specials.

Supermarkets stubbornly stick to their specials, Why? Because they can.

The cyclone, Dylan, brought high winds gusting up to 120km/hr with significant rain causing flooding in some areas. The growing area for bananas are: Cardwell in the South, Tully, Innifail and Babinda. The flooding and winds will have damaged some banana plants and certainly made it difficult for growers to get their produce to market. Supply has already become short.

Queensland Banana growing area

Queensland Banana growing area

Coles buys (of their Australian produce) about 80% of their produce direct with the growers negotiating fixed contracts and the remaining 20% from Flemington market in Sydney and local markets in other capital cities. Around two weeks ago Coles decided to have a Special on bananas selling them way below cost as a ‘loss leader’ at $1.80. Then Woolies and Harris Farm got wind of this and also ‘special’ their bananas. Dubious competition! Coles put into motion flyers, advertising etc and decided to stubbornly stick to their specials. So they dig a hole and dig a bit harder.

Coles had a choice and could have pulled out but they didn’t. They knew the cyclonic weather was coming and have now exacerbated the issue further. This has now become a problem for small grocery retailers. For them a shortage in bananas and higher prices.

For the Grower who is contracted they are committed to getting produce to market, some having penalty clauses, paying more to get their product out or not being able to supply. The wholesalers are being squeezed to provide the bananas below cost and so to placate the large supermarkets will lose money supplying what they have. They will wear this loss and pass some of this on to growers paying them less for their produce. The growers have higher costs due to crop loss and transport to market.

What is the long term effect? We know prices are going up, supply will be short and everyone will be scrambling to make up for their losses. Bingo Banana prices will skyrocket.

Feels a bit of dejavu – cyclone Yasi in 2011.

So having the flexibility and ability to purchase locally and from small growers Harvest Hub aims to support them through these events. Buying at Coffs Harbour this week whilst the stocking issue gets resolved. Whilst wholesalers who represent small growers also keep them afloat by paying them a fair price for produce while they struggle sorting through nature’s tricks and big business marketing pressures.

It almost would make you go bananas.

 

 


Any thoughts on this subject?