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What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
What happens when Coles keeps prices down
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What happens when Coles keeps prices down

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"What happens when Coles keeps prices down?” …

"What happens when Coles keeps prices down?”
By - Ian McLeod, Coles Managing Director

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  • 1. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 1 | P a g e **CHECK AGAINST DELIVERY** Firstly, thank you for affording me the opportunity to talk to you about Coles and what has been achieved over the last five years. When I came to Australia in 2008, Coles was a tired, worn out, demoralised business; a business that had fundamentally lost its way. Since then, I believe we have made very good progress; progress that gives us the motivation to do more. And there is much more to do before Coles can reclaim the mantle of Australia’s favourite supermarket again. Before I move to the central message I want to deliver today - about how low prices are good for Coles and for Australia – I wanted to pay tribute to our parent company Wesfarmers. If the Perth-based Wesfarmers Group had not taken the brave step of acquiring Coles in 2007, it is highly likely that the retail business would have been taken over by overseas private equity, or worse still possibly collapsed altogether. If Coles had indeed been taken over by overseas private equity in 2007 – just on the door step of the Global Financial Crisis – it is not clear that it would have survived in its current shape. The long term view would have most likely given way to short term financial expediency.
  • 2. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 2 | P a g e Wesfarmers copped a lot of flak in the early days over the acquisition but I believe the decision has been fully justified by the turnaround over the last five years. Next year, both Wesfarmers and Coles celebrate their Centenary. It is fitting that these two great Australian companies are joined at the hip 100 years after they were established – one by a farmers’ cooperative in Perth and the other by the son of a British immigrant who set up one shop in Smith Street, Collingwood in Melbourne in 1914. It is part of an enduring legacy that the same low price ethos has returned to Coles after 100 years – from the ‘nothing over 2/6’ opening in 1914 to Down Down, prices are down, and staying down at Coles in 2014. When I started at Coles five years ago I was the fourth Managing Director in as many years. Coles was widely regarded as a second rate player – with run down, cluttered stores offering poor quality products at high prices. Customers were actively avoiding shopping at our supermarkets a few years ago and it was frankly hard to blame them. The quality of our fresh food was not up to scratch. And physically our supermarkets were so run down it seemed like the strategy was to keep customers away, not invite them in.
  • 3. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 3 | P a g e The following video gives a better idea of the condition of Coles when I arrived… Our turnaround strategy was based on a very simple proposition – if we genuinely put the interests of our customers at the heart of everything we do, they would benefit and we should prosper. And we have. This simple vision, supported by a focused action plan, has driven the turnaround over the last five years. We’ve transitioned from a business that took little pride in food quality or store appearance to one committed to quality and a great in-store experience for customers. 100,000 Great Coles people were being let down by poor leadership. We’ve grown from a business with 14 million customers per week to one with 18 million per week. And because they like our range, our quality and our value, our customers choose to spend more with us too. As a result, Coles return on capital has almost doubled in the last 5 years and our profit has pretty much done the same.
  • 4. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 4 | P a g e A central focus of our customer centric approach has been to drive prices down, and keep them down. In the last three financial years, Coles has cut the average grocery bill for Australian families by nearly 5 per cent. So while inflation has pushed most things up during this time, a shopping basket at Coles has actually got cheaper. I doubt many businesses can claim to have done that for their customers? But what does this mean? What happens when Coles keeps prices down? It may be good for customers but is it good for Australia? We think it is and so do our customers. We also think that it brings huge benefits to Australia, so today I’d like to explain some of them. In Sir Isaac Newton’s third law of physics he explained that “Every action has an equal and opposite reaction.” So what is it that goes up, when Coles keeps prices down? Quite a few things actually; and we believe they’re good for Australia.
  • 5. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 5 | P a g e Food is the second largest component of a family’s budget after housing costs and one of the key drivers of the Consumer Price Index. Indeed in 2007, the high price of groceries in Australia became a key election issue, with some justification. Kevin Rudd, in his election speech in July 2007 stated “we will establish a National Inquiry into grocery prices to make sure working families aren’t ripped off”. In fact, my first day on the job coincided with Coles’ first day on the stand at the ACCC inquiry that followed. If our strong competition in groceries was not dragging the CPI down, inflation would be materially higher. For thirty five years, food inflation ran at an average of 6% but since we began the turnaround, we have turned food inflation into food deflation at Coles; and it has reduced the ability of our competitors to raise prices also. In the second quarter of this financial year, the CPI was 2.2%, but within that, housing costs went up 4.4%, education costs went up 6.1% and health costs went up 7.7%. In contrast, Coles prices were roughly 1% lower than the previous year.
  • 6. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 6 | P a g e Had food prices kept increasing at the rate they did for the 35 years until 2009, the CPI would be over 40% higher. Food affordability isn’t just about macro-economics for our customers. It simply means that the 18 million people a week that shop with us can either get more or better groceries than they might otherwise expect, or have more change in their pocket to save or spend on other things. The cost of living is a huge issue to more than a million Australians. All of us have been affected by the surging price of electricity But recent analysis by the Dietitians Association of Australia has found at least five per cent of Australian households, or 1.15 million people, are struggling to feed their families. They found that rural homes run out of food and city-living Australians struggle to afford healthy food. The Salvation Army also surveyed clients and found that 92% have no savings at all, 28% cannot afford a substantial meal once a day and 66% have cut down on basic necessities. Keeping prices down helps: on average our customers have saved an extra $450 last year compared to the 2009 financial year.
  • 7. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 7 | P a g e This is a week’s wages for many Australian families struggling to make ends meet. Five years ago you would often find identical products priced differently in stores only a suburb apart. Customers told me and to be honest I didn’t believe them… But they were right! Like them, we did not think it was right that prices should be different in different stores simply because the locals could afford to pay more or were unable to shop anywhere else. We also know that many things in rural and regional Australia are more expensive than in cities. So we introduced common pricing for similar products in all Coles’ supermarkets. This means that with only limited exception, we charge the same price across each State, regardless of distance and regardless of a suburb’s affluence. That means the price of Kellogg’s cornflakes or Vegemite or Coca Cola is the same in Balmain as it is in Broken Hill. People who live in rural and regional areas are not paying more for their groceries at Coles because they live a long way from the cities. Common State-based pricing was our first significant move to engender high levels of customer trust about Coles pricing. Five years into the Coles turnaround, we are still driving prices down and we are keeping them down.
  • 8. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 8 | P a g e We’ve introduced value meal solutions that can feed a family of four for $10, with recipes developed by one of Australia’s favourite chefs, Curtis Stone. And importantly we have Coles’ brand products that give customers the choice of buying the same or better quality as branded alternatives but for as much as 30% less. Coles brand has also driven innovation, bringing hundreds of new products to the shopper that simply weren’t available to Australians before. After the 2008 ACCC Inquiry into high grocery prices, I thought lowering them might be regarded as a good thing! However, there are many critics of big businesses such as Coles, and as a result, our determination to lower prices for the Australian customer has not been met with universal applause! Some politicians think that as big companies don’t vote it is easy to attack them to get a few media headlines at our expense. Right wing commentators and left wing unions also regard us as fair game. They claim we make profits by bullying our suppliers, that we will bring about the demise of the corner shop, or that we are killing off truck drivers by the score.
  • 9. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 9 | P a g e Some claim that we hate farmers; even that we will climb over their dead bodies, if there’s a buck in it! Every one of these assumptions and claims are dead wrong. What they also fail to recognise is that big companies aren’t just faceless; they employ millions of people in Australia – and all of them vote. Coles’ employs over 100,000 team members – many of them in electorates of politicians that attack us. Some politicians wish to cut the number of stores we run, for example in Queensland alone this would cause us to close 10 stores and 1,000 of our team members would lose their jobs. It upsets them the way their company is portrayed and that because they work in a supermarket, their jobs aren’t worth fighting for. A Deloitte report confirms that every dollar Coles spends, creates another four to five dollars of income throughout the national economy. This is the lifeblood of many small businesses that operate across Australia, especially in rural and regional areas. Because we are big, some of our critics argue that we make too much money.
  • 10. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 10 | P a g e Very simply, of every dollar that goes through our cash registers we earn about 4 cents before tax. This chart shows the average operating earnings of a range of businesses, and at the end of the chart you can see that food retail and fuel retail have the lowest profit margins in Australia; well below food manufacturing and eclipsed by other sectors. Even with Coles’ earnings under 5%, a huge slice of this is paid in tax, and funds a variety of public services, as well as contributing to the wages of the politicians that criticise us! The tax we pay has actually quadrupled since 2008. We wrote the ATO a cheque for $324 million last year. The remaining money is either reinvested to make Coles better for customers of distributed to almost half a million shareholders, the majority of whom are Aussie mums and dads with their superannuation accounts.
  • 11. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 11 | P a g e We do our best to give them a fair return, by attracting more and more customers every week, by lowering prices, improving quality and delivering a better service. Every Coles’ customer survey group puts the cost of living as their number one concern. Politicians that attack Coles should remember that 18 million customers support lower prices – and they all vote. The net effect of political proposals to curb the growth of big companies such as Coles means that food prices will be higher and put people out of work. Let me be clear: Coles is in the business of keeping the cost of living down, so it’s more than a little frustrating when some politicians criticise us for trying to do just that. Australians are among the least loyal supermarket customers in the world. It’s very easy to go elsewhere and shop with the competition. One in six customers is prepared to change supermarkets for a 5 per cent price decrease. Quite simply, customers are prepared to cross the road for lower prices and they can do that very easily in Australia. That keeps us on our toes.
  • 12. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 12 | P a g e But competition transcends price; the priority our customers look for is convenience, availability, quality and price - and we fight every day to deliver that. Parliamentary and government inquiries have found the sector is competitive, and the entry of the far larger German and American mega-corporations, Aldi and Costco, are unquestionably making competition even more intense. In the year 2000, Aldi had no supermarkets in Australia. Just over ten years later, Aldi now has around 300 stores and they are expected to double that in the next few years. That means Aldi will nearly have as many stores as Coles – and our 750 supermarkets took almost a century to build. Some argue that Coles’ low prices strategy is killing the convenience store. The facts, as you can see, do not support this assertion. I have worked in the supermarket industry for over 30 years in the UK, and in Europe, and in Australia. I can say that I can’t see a future without the local store. Supermarkets may be able to compete on price but they cannot compete with the absolute convenience of location.
  • 13. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 13 | P a g e In fact, research shows that convenience stores in Australia have grown by close to 50 per cent in the last decade. If there is any competitive threat to corner stores it has come from much bigger structural factors in the convenience market rather than low prices in supermarkets The truth is that Australians shop differently for big weekly shopping visits to supermarkets compared to one-off daily visits to convenience stores for selected grocery items. As such, I believe convenience stores will always have a place in the Australian retail landscape. The first and most obvious evidence of this is that last year we directly employed over 102,500 people in nearly 2,500 stores across the country. In addition, we support almost 120,000 further jobs throughout the broader economy. Coles team members are from all walks of life, 173 ethnic backgrounds and rather brilliantly can speak a combined total of 313 languages! About one third of all Coles’ stores and team members live and work in rural and regional Australia. We also have more than 900 indigenous team members, and employ over almost 2,500 team members with a disability. And then there’s Brenda, who, at 80 and after 47 years still works part time in one of our Melbourne stores.
  • 14. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 14 | P a g e Having a cup of tea with Brenda in Malvern store tea room, she happily told me how Edgar Coles used to come in, to check the store out and have a cup of tea with the manager. The original Coles used to be close to their customers and we want to recapture that way of doing business - putting our customers first and giving them a great shopping experience. Since 2008, we have invested over $3 billion on rebuilding Coles. We have opened 100 stores and refurbished a further 350 stores, keeping a minimum of 8,000 contractors in work every year. We have sought ways to provide greater growing capacity within Australia to reduce the dependency of imported products to meet customer demand. We have an “Australia First” Sourcing Policy which means we have had to reduce imports where we can. Successful recent examples include Coles brand yoghurt, Coles brand cheese and this year, Coles capsicums and Coles avocados; all previously imported to a degree, but now 100% Australian. In fact Coles brand has more Aussie kangaroo symbols on its products that any other brand in Australia. Food manufacturing is facing challenges from rising input costs and a high Australian dollar but Coles brand contracts provide greater security for hundreds of businesses to not only survive but to thrive. We have issued booklets, copies of which are on your table today, to provide hard evidence of Australian businesses that have won from producing Coles brand products.
  • 15. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 15 | P a g e Unfortunately these good news stories are rarely if ever covered in the popular media which only prefers to focus on conflict. What has really impressed me about Coles, is that it is not just Brenda at Malvern who has served Coles for a long time. About one in six of our team members have been with us for 10 years or more. Almost 1,700 have been with us more than 25 years and a further 900 have been serving Coles customers for over 30 years. One achievement that gives me great personal satisfaction is that we have restored their faith in the company they work for, because quite frankly five years ago there wasn’t a lot to be proud of! Five years ago two thirds of our team members were casual but now two thirds are permanent and we have invested over 1,000,000 hours into training to help service our customers better. We have also promoted over 4,500 team members into management positions in the company. We want our team to feel that working for Coles is not just a job but a career! But this extends beyond direct employees – we’re trying to give our suppliers longer contracts when we can – particularly farmers - so they too have greater security.
  • 16. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 16 | P a g e This has meant that our relationships with suppliers – often characterised as fractious in the media – have in fact, improved substantially. An independent audit of suppliers ranked Coles almost bottom in 2008, but as we have worked with our suppliers we have gone from the bottom to near the top, in the latest survey. Coles is a very major buyer of foods that are grown and made in Australia, and we try to buy locally. I have personally met numerous 2nd & 3rd generation Australian supplier families who have seen their businesses double, triple …and even quadruple in size in the last 4 years with Coles. Around 96% of our fresh produce is Australian Grown and we are working to increase that, by encouraging local farmers to enter long- term contracts to grow specialty fruit and vegetables that can only be sourced overseas at the moment. In fact, compared to the 2008 financial year, we are now selling an extra $4 billion of Australian food and 200,000 more tonnes of Australian fruit and vegetables. This is 30 times faster than the growth in imported fruit and vegetables. Farming is a notoriously tough business and Australia is particularly good at it but crops are variable.
  • 17. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 17 | P a g e A couple of years ago there was a bumper lettuce crop. Farmers couldn’t sell them, and were ploughing them back into the ground. Coles stepped in recognising that if the prices were reduced, Australian families would buy more. So, in partnership with our lettuce farmers we reduced the price, sold the oversupply and importantly increased sales and profits to farmers. It was a win for both our farmers and customers As another example our customers want fresh strawberries year round, so to solve that we funded protective tunnels for a local farmer in Victoria We try to meet customer demand for produce as diverse as purple carrots and orange cauliflowers, and to do that we work with our farmer partners, because it’s good business for all of us. In fact, we are selling more Aussie food than Coles has ever done before. A healthy food manufacturing industry thrives on innovation which leads to export opportunity and growth beyond our shores. We encourage that.
  • 18. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 18 | P a g e We have worked with numerous Australian small companies to bring new, innovative products to the market as well as quality products under the Coles brand to lower the cost of shopping for our customers Similar to the strawberry tunnel example, in exceptional cases we have provided loans to small suppliers where investment was badly needed but funding was unavailable. The idea was so compelling to allow the production of better quality products or better value products to customers we decided to support them directly. We don’t make much noise about it but Coles raises tens of millions for the community every year. This year we will give close to $30m to charity. We are a national partner of Guide Dogs Australia and raised nearly $1 million for vision impaired Australians through our stores nationwide. We are an official partner of the Cancer Council and have been the primary supermarket sponsor of Daffodil day since 1996. Since then, we have raised more than $10 million for cancer research. And in 2013, we made Redkite our charity of the year to help families struggling to meet the costs of helping their kids survive cancer.
  • 19. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 19 | P a g e We selected Redkite as our charity of the year this year. Redkite raise much needed funds offering practical financial support for kids with cancer and their families. So far this year alone, Coles and its customers have raised over $3 million for Redkite, we’re on track for our $5 million target by the end of the year. We have asked Redkite to be with us today, and if any of you can make a small donation (or even a very large one!), please fill out the form on the tables or see the Redkite people who will gratefully collect it at the end of the day. Many people think we simply throw out food that reaches its use by date. However, Coles takes great pride in donating as much food as possible to those are need help. We are one of Foodbank’s biggest donors of grocery products. It has been a ten year partnership and we have donated more than ten million meals. Our contribution climbs every year. A few weeks ago, I was privileged to receive an award on behalf of Coles from the Governor-General for the good work that has been done with Foodbank over the last 10 years. And one of our new projects that really interest me is our SecondBite partnership.
  • 20. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 20 | P a g e We donate fresh produce to SecondBite who work with local community groups to transform it into hot meals for people that have fallen on hard times. We gave about 3 million hot meals last year and I hope that’ll reach 5 million this year. But that is not all. We have also been an active partner with State emergency services in responding to crisis in our local communities such as the Victorian bushfires in 2009 and the Queensland floods and cyclones in January 2011 and 2013; and the Tasmanian Bushfire Appeal this year also many Coles team members and our customers are directly affected when disaster strikes. They are typically the first to react and support other Australians facing difficult circumstances. That is why we have provided over $2.5 million to local charities in communities where our stores are located over the same period. We have also worked in partnership with Junior Landcare since 2008 to provide over $1.3 million for 1,000 local schools gardens that teach Australian children how to grow food and where food comes from.
  • 21. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 21 | P a g e We also give $10 million of sports equipment to schools every year through our Sports for Schools Program, because kids need it and schools often struggle to provide it. Press reports recently indicated some schools will see their electricity bills double this year. They need all the help they can get. The more we keep prices down, the more we sell, and the more we sell the more we can donate to good community causes. Australians are increasingly concerned about how their food is produced. Coles has made a decision to be ahead of the rest of the sector on the issue. Many customers and animal welfare groups have been pleading with us to show the way and take a lead in areas where Australia is falling behind the rest of the world. All Coles Brand eggs are 100% cage free and Australian Grown, all Coles Brand fresh pork is 100% sow stall free and Australian grown, all Coles Brand fresh milk is 100% Australian milk and 96% of our fresh fruit & veg is Australian grown. We have stopped injecting our young cattle with growth hormones and we have ensured our salmon is sustainably sourced.
  • 22. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 22 | P a g e We’re working collaboratively with our farmers and helping bring real change. Last week, Coles announced a major new partnership with AusVeg, adopting their industry standard on sustainability as our best practice approach to ensure clean and green fruit and vegetables for our customers. And we recycle 60% of our waste, and turn 23 tonnes of plastic into furniture for schools. We’re using renewable meat trays and cutting our carbon emissions. Despite our growth as a business, we are using less energy now than we were 3 years ago. We’re trying to make a difference. What I’ve outlined today I believe shows that when Coles keeps prices down, competition, affordability, ethical sourcing, community support, farm sales, food manufacturing, jobs and job security all go up. We think that’s a good thing, so we are going to keep doing it. It’s all about affordable food for our customers and helping Australia grow. Five years ago Coles was going backwards because we weren’t giving customers what they wanted.
  • 23. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 23 | P a g e Had we kept that up we might well have gone broke, and we’d have deserved it. But we’ve fixed it by putting our customer first. We want the customer to be at the heart of everything we do. Coles is important to the growth of many new family-owned stores that spring up around us in shopping centres. They thrive because they are giving customers what they want. And that’s what we do too. Unashamedly we want value for our customers and believe that what we are doing is the right thing to do. It's the right thing to do, because it is lowering the cost of living for ordinary Australians who are shopping on a budget and have been frustrated for many years by a constant flow of rising food prices, poor service, poor quality and poor operating standards. It means challenging the status quo and sometimes challenging suppliers where we believe Australians deserve a better deal. Take our multi-national suppliers for example, many of them are bigger than Coles and make far larger profit margins. Prices are higher than overseas and that’s why we challenge it for our customers.
  • 24. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 24 | P a g e These examples include products made overseas and sold overseas at lower retail prices… much lower! Differences in manufacturing costs explains some of it… But nowhere near all of it. Astonishingly, it also includes examples of products made in Australia but still sold cheaper overseas. What should we do for Australians, turn a blind eye, or challenge it? Our $1 per litre milk initiative has been controversial. Our intent has been and remains providing lower priced milk for our customers while not adversely affecting our farmer suppliers. We have achieved this sustainable price reduction in two ways. First we took a price hit ourselves, reducing our profit margin on milk to fund a lower retail price. Secondly, we paid dairy processors more for their milk, so dairy farmers would not suffer. Since then, we have paid dairy processors more when they have asked for it to sustain farm gate prices. However, the lack of transparency in the farm gate price has been of increasing concern to us.
  • 25. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 25 | P a g e We have therefore recently agreed a new deal with the two largest farmer co-operatives in Australia, Murray Goulburn and Norcp to build new plants and process Coles brand milk as part of that co- operative. This will provide long term security through long term contracts for over 2600 dairy farmers and a premium farm gate price. This will also provide much greater price transparency for dairy farmers. The 10 year agreement will directly benefit the dairy farmers that own the dairy cooperatives. I believe this is a game changer in the Australian dairy market. Let me give you a picture of where we are going over the next five years, and some of the implications of that. We have a single minded vision: to become Australia’s best supermarket. The best supermarket for customers; the best supermarket for team members, the best supermarket for Australian suppliers, and the best supermarket for the mums and dads who invest their hard-earned savings in our company.
  • 26. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 26 | P a g e The key to achieving this vision will be keeping prices down. Keeping prices down will give us the volume to continually improve supplier quality. Keeping prices down will give us the revenue to continue creating jobs; jobs for people for whom Coles represents a serious career, and people with trade skills like the hundreds of butchers and bakers we will train and employ. Our strategy is to grow largely through improving stores rather than dramatically increasing the number of them. Keeping prices down will enable us to renovate another 300 stores and upgrade our delicatessens and bakeries…..and we will continue to innovate. We renovated our stores 5 years ago and we are doing it again now. It is like painting the Harbour Bridge, when you finish painting it you have to start all over again!! And we also try and change the share of the bridge as well! The following video shows how we are shaping Coles stores of the future. Keeping prices down will enable us to invest in more local innovation, which creates even more jobs, and meets the needs of customers as the population ages and demands change. As our volume grows we aim to reduce imports even further and increase local production. We already source 96% of fresh produce locally, and want to source more.
  • 27. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 27 | P a g e More than 90% of our Coles Brand products are already Australian made but we want to source more. Keeping prices down will lead to many extra direct and indirect jobs over the next five years. For our suppliers keeping prices down will lead to hundreds more suppliers benefitting from longer term secure contracts, and this in turn will allow them to invest and employ with certainty. Our five year pricing vision is to have a basket of groceries cost less than it does today in real terms. Keeping prices down will continue to drive competition, so people that shop somewhere other than Coles still share the benefits of lower grocery prices. And naturally keeping prices down will pull the cost of living and inflation down during a difficult economic period. Keeping prices down will increase our earnings, and we will share this as we always do, with customers through further savings, with team members through growth and opportunity,
  • 28. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 28 | P a g e with the Government through tax, and importantly with our shareholders through dividends and capital growth as they deserve fair, solid and reliable returns on their investment. And if we can keep prices down in Food, perhaps we can help our customers by broadening our offer even further. We will keep looking, we will keep trying. At Coles, we constantly strive to do better and the customer comes first…always! What matters is keeping the customer front and centre by keeping range, convenience and quality up, but prices down. By keeping prices down we’ve already increased affordability, competition, local sales – particularly for farmers – community contributions, job security and employment. That’s what we’ve already done and over the next five years we’ll be doing much more of it.
  • 29. “What happens when Coles keeps prices down?” Ian McLeod, Coles Managing Director, Speech to the American Chamber of Commerce in Sydney 4 June 2013 29 | P a g e Five years ago we set ourselves the goal to give the People of Australia a shop they trust, delivering quality, service & value. It was our goal five years ago and it remains our goal now. We are serving our customers better now than 5 years ago and over the next 5 years, our aim will be to serve them even better. Thank you for your time.

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