Kellogg flags strained relationship with major Australian supermarket chain

Posted by Daniel Palmer on 31st July 2009

Kellogg Company, the world’s largest cereal maker, has reported a strained relationship with a key Australian retail customer – either Coles or Woolworths – during a conference call following the release of better-than-expected results.

The manufacturer did not say which chain they were having difficulties with, but advised that there was an “issue” with one of the two major chains down under.

“In Australia, we were negatively impacted by challenging negotiation with a retail partner,” CEO David Mackay advised on a conference call with analysts. “However, the rest of the trade is supporting Kellogg well and we’re successfully holding our position in the Australian market.”

Asked to elaborate on the position of negotiations in Australia given that there are few major players in Australia, Mr Mackay said that they were working their way through negotiations and hoped to come to a suitable agreement in “due course”.

“Australia, yes you’re right there are really two major retailers and our third player is a retailer-wholesaler,” he noted. “We have an issue with one of the major retailers and we’re working our way through that and we are getting very positive support from the other retailers. So while it’s challenging, you know, I’m sure we’ll resolve it in due course.”

Relationships between food manufacturers and supermarket chains have been tense in the wake of the global financial crisis, as retailers look to push their private label goods and reduce prices to draw in the price-conscious consumer.

Woolworths last week implied a greater unease with some of their suppliers, as CEO Michael Luscombe told ABC Radio National that questions regarding food inflation in Australia should be redirected to multinational manufacturers who “dominate” the food supply. The comments, which appeared out of character for the chain, were met with disappointment by the leading representative of food and beverage manufacturers in the country. Coles, too, has reportedly had strained relationships with some suppliers after an increase in trading rebates early in the year was met with criticism.