Saturday, April 29, 2006

Paul McIntyre: Coming to a food store near you

Not content with dominating the weekly grocery shop, Australia's two big supermarket chains are now in a race to take on TV broadcasters with in-store "narrowcast" TV networks.

Coles Supermarkets and Woolworths are both eyeing international projects such as Tesco TV in the British grocery retailer, Tesco, and Wal-Mart in the US, which has 2600 stores wired-up with TV screens. Wal-Mart is now effectively the fifth largest TV network in the US behind CBS, ABC, NBC and Fox, reaching a shopping audience of 130 million every month. The retailer initiatives in Australia are likely to incorporate 15-second ads for products in specific grocery aisles, news and current affairs programs and retailer-specific content which might include recipes and health tips.

But as the local grocery chains toyed with their grand digital in-store media aspirations this week, they were again fending off claims of excessive market power and hard-ball pricing tactics on suppliers, this time from growers and farmers.

Estimates from the fruit and vegetable industry this week were that up to 900 of 6000 growers in New South Wales alone would leave the industry in the next 12 months as their viability was squeezed.

Much of the heat is being levelled at the grocery chains - producers claim the retailers are screwing down farm prices to shore up their own profits and are not passing on those savings to shoppers as often claimed.

One example raised this week involved apples. Orchardists were being paid A93c/kg (lower than the price in 1970) while the retail price was more than A$5 a kg.

The supermarkets are facing more supplier fury because they have managed to escape a federal Government initiative to introduce a mandatory code of conduct for trading with the horticultural industry. Some industry figures are not happy.

"There is a substantial imbalance of market power already between growers and retailers, who can be very heavy-handed in their dealings with growers by refusing to enter into contracts or cancel contracts without notice," said John Rogers, the former head of NSW Farmers Association horticulture committee. "These types of things are commonplace."

But even with all that crossfire, the grocery giants' plans to leverage their clout into new areas is not slowing and in-store digital media is virgin territory.

Packaged goods companies spend about A$300 million annually on TV advertising alone and the retailers figure they can poach some of that along with other media channels such as print because of the proximity of their technology to the point-of-purchase.

Coles Supermarkets finished an in-store TV trial last December which was understood to have shown healthy sales increases for most of the 40 brands which participated in the three-store pilot.

Coles has so far led Woolworths in the development of in-store TV initiatives. Some industry observers estimate chains could pull up to A$25 million in advertising revenue for every 100 supermarkets (Coles and Bi-Lo have more than 700 stores between them in Australia; Woolworths has 748 attracting 13 million customers each week).

Coles Supermarkets played down its plans this week, saying: "We have completed the trial and are assessing whether to proceed with a broader roll-out."

It is understood the review across the Coles Myer group has slowed down the process although some of the retailer's suppliers said this week the supermarket chain had privately indicated it would go ahead with a national roll-out.

Major consumer goods companies such as Reckitt Benkiser, Unilever, Cadbury, Coca-Cola, Nestle, Goodman Fielder and Dairy Farmers were among the companies participating in the Coles pilot.

Some indicated the results were less than satisfactory while others saw sales increases in the double-digit range. Staples such as bread and milk are understood to have shown volume increases of up to10 per cent.

Woolworths last year was cool on any in-store TV roll-out but confirmed this week it was again "exploring" an in-store narrowcasting video network and had appointed one of its executives, Anthony George, to head the project. "Yes it is something we are exploring in a general capacity but we can't confirm any plans at the moment," a spokeswoman said. "That's for supermarkets. It's more about digital communications. It's not really TV, that would imply making programming. It would be a combination medium for a variety of purposes. That's how overseas retailers refer to it."

The Coles TV trial allowed products to be promoted in the grocery aisles but also carried news and entertainment from Network Ten at the checkout. Recipes and hints were also carried on the large flat screens.

Paul McIntyre is a Sydney journalist

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