Coles M-D McLeod hits trail on media attack

Posted by AFN Staff Writers on 22nd October 2012

Coles managing director Ian McLeod has become vocal in the media circuit by responding quickly to criticisms of Coles by politicians, farmer and supplier groups, and newspaper commentators.

Recent media appearances by Mr McLeod have included an interview on Melbourne radio station Triple M and an opinion piece by Mr McLeod, published in both The Age newspaper and Sydney Morning Herald on Saturday 20 October 2012. His article was in response to a critique of Coles written the previous weekend by Michael Short, who is also editor of The Zone across Fairfax Media’s sites and apps.

Mr McLeod’s assured responses come at a time when Coles has been producing good results, but also follow not long after a flurry of  publicity in various Australian newspapers reporting the bonus-linked personal remuneration of Mr McLeod.

The Wesfarmers annual report released on 27 September 2012 showed Mr McLeod earned $14.8 million for the year ended 30 June 2012. This brought to about $44 million his total salary and bonuses earned over the four years since being recruited by parent company Wesfarmers to run the then ailing Coles chain.

Coles now accounts for about one-third of Wesfarmers group’s earnings, with growth of over 16 percent in earnings by the Coles supermarket group reported for the last financial year ended 30 June 2012.

Although Mr McLeod’s cash salary remains about $1.9m, his reported remuneration includes performance incentives he is eligible to get on account of his successful improvement of financial results of the Coles supermarket chain during his tenure.

Mr McLeod is scheduled to speak at a business luncheon of the Australian-British Chamber of Commerce in Perth on 12 November 2012. His theme will be about Sustainable Food Systems. He is likely to elaborate on Coles’ initiatives in socially-responsible and environmentally-sensitive aspects of its food supply arrangements in supermarket merchandising.

In his response to the criticisms by Mr Short, Mr McLeod was quoted by The Age and Sydney Morning Herald on 20 October 2012 as saying the following:

“Nostalgia is a powerful emotion that affects everyone from time to time, even the most seasoned newspaper commentator, but it is not a reasonable substitute for informed debate in a national broadsheet such as The Saturday Age.

“I was therefore extremely disappointed to read the emotional diatribe by Michael Short on this page last Saturday, ”Supermarkets put ‘fair go’ in chains”, that was largely based on urban myth and included several critical inaccuracies that undermined its conclusions.

“The biggest myth underpinning popular criticism of the big supermarkets is that ”big is bad” and ‘small is good’, representing some link back to the ‘good old days’ when we bought all our groceries from the corner store – when it was open or actually stocked what we wanted, usually at an inflated price.

“But even seasoned commentators can’t stick their heads in the sand of time and ignore that customers get a great deal from modern supermarkets – much better quality, choice, value and service than they ever did in the so-called ‘good old days’.

“Many commentators trot out the claim that Coles and Woolworths have 70 per cent market share or higher and argue that something must be done about it. The fact is that Coles’ food and liquor market share measured by the Australian Bureau of Statistics is only 26 per cent and has not materially increased in the past four years. Indeed, our market share is actually lower now than it was a decade ago.

“The ‘big is bad’ emotional argument also ignores the fact that Coles employs more than 100,000 Australians in its stores and supports another 110,000 employees of small suppliers and partners who work with us. Coles often provides young job seekers with their first job and provides thousands of Australian families with a secure livelihood.

“It is not just size that counts but behaviour, and Justice Merrett of the Federal Court recently concluded that supermarket retailing is increasingly competitive. As a result, Australian consumers have witnessed the first sustained period of food price deflation in more than 30 years.

“It is no coincidence that this period of food price deflation has occurred at the same time as Coles has pursued its ‘Down Down, Prices are Down’ campaign.

“Lower retail prices have been funded from internal productivity savings, such as less waste, and not from squeezing margins through the supply chain. This was confirmed by the ACCC in its 2011 report on supermarket milk discounting.

“The ACCC also concluded that there was no evidence that milk discounting had resulted in lower farm gate prices or farmers leaving the land. Unfortunately, many commentators continue to ignore the competition umpire’s decision.

“The truth is that many corner shops that used to sell groceries have been replaced by chain convenience stores such as 7-Eleven, not supermarkets. Hundreds of 7-Eleven stores have been established in the past five years. In a modern economy, whether a supermarket chain survives depends not on size but on how well it is managed and whether it provides customers with what they want – quality, service, choice and, above all, value.

“American or British style anti-trust laws are designed to help retailers and food manufacturers who want to protect their profit margins in the face of increasing competition.

“There is little evidence, if any, that such laws actually improve competition. A report by competition policy expert Alistair Davey, from Sapere Research Group, found that overseas anti-trust legislation has a poor record and typically results in higher prices, lower wages and fewer jobs.

“As consumers are paying less for their groceries now than they were a year ago, you would be hard-pressed to demonstrate that consumers are losing out.

“And there is no theoretical or empirical evidence to show that supermarkets can jack up prices unless there are significant barriers to entry into the sector. The entry of foreign-owned supermarkets such as German-owned Aldi and American-owned Costco provides ample proof that there are few barriers to entry and there is strong competition in the retail sector.

“Commentators who set out to generate debate about competition policy and use Coles as a scapegoat should get their facts right, rather than relying on ignorance and fear to support arguments for change.”