This crazy business with the milk has got me thinking. To big companies it’s all just like a game of Monopoly – beat the living daylights out of your opponents and make as much money as possible along the way. Ethics, values and social conscience all seem to go out the window, justified by the fact that business is business and it is all done to satisfy shareholders. And, all too often, why not fill your own back pocket, while you’re at it.
So you end up with dairy farmers starting work before dawn milking cows, going at it all day before milking again at sunset and then milking their bank balance for all its worth just to keep going - and all because the biggest supermarkets are playing a game that involves selling lovely, fresh, nutritious milk, for less than bottled water that comes out of a tap for practically nothing. And don’t get me started on bottled water……. It’s dearer than petrol for chrissakes.
Don’t get me wrong, there is nothing wrong with competition. I love competition. It makes you try harder, it creates efficiency, everyone can be a winner. Being competitive for its own sake is a beautiful thing. Add in a touch of ruthlessness spurned on by greed and it quickly turns ugly.
The supermarkets want to beat each other up selling milk cheaper than the other is fine while they are just cutting their own margins, but they don’t do that. They drag all the people that don’t want to play, into their game. They go to their poor ever-so-reliant supplier and demand a lower buying price, who then has to go to the poor ever-so-reliant processor demanding lower production cost, who goes to the mug farmer at the bottom of the chain demanding milk for peanuts. And who is the winner in all this (water bottlers apart)? Inevitably, eventually, nobody. Milk production will fall as farmers’ transition, prices will rise and the supermarkets will continue fighting each other.
I have been in textiles all my life, most of it supplying big retail chains with clothing and homewares and they are no different, using their spending power and muscle to squeeze every last cent out of suppliers. Who in turn are forced to go to their factories and do the same thing. Which is where the trouble starts. A good supplier knows their product intimately – the cost of raw materials, cost of labour, freight, overhead and the need to allow the factory a reasonable margin. Big retailers don’t want to know about any of this. Squeeze margins and corners get cut. Nobody wins.
And this sort of thing is happening all over the place. From big banks with financial planners very professionally guiding poor mug punters into products that will benefit the bank and the planner first and second – and possibly won’t benefit the investor at all. To small franchised retailers ripping off employees by paying 3rd world wages.
It all starts at the top. Boards wanting to attract shareholders push executives to increase profits offering huge personal financial incentives. At this level it really is very much a game, played out in board rooms full of egos and aspiration. It is all very calculated and civilised and logical. Executives in turn do the same to managers, relentlessly pushing and urging with carrots on the end of sticks and whipping sticks to hand. By this stage people don’t matter so much, they have become human resources and bad things can happen. So much pressure was put on Target’s execs to turn the business around that they conspired to fiddle the books by getting suppliers to pay over $20 million in rebates at end December 2015, which was taken into profit. The suppliers were promised the $20 million would be offset by future (additional) buying price increases. Presumably this was all done for fear of the big stick, rather than in anticipation of munching on a carrot. Throw a tasty carrot in and anything can happen. Greedy pigs love carrots.
Give a certain type of exec a good incentive scheme and heaven and earth will be moved to maximise it. Many years ago a large multi-divisional Australian company offered one of their general managers and open-ended incentive scheme. ‘The sky’s the limit they told him’. At the end of that year eyebrows were raised by the company’s other 50 or so GM’s when this Porsche driving chap appeared on BMW’s rich list. Funnily enough, that same division went into the red for the next three years and was sold off. I was a GM at that company. That year my total remuneration was under $150,000.
I was still there many years later when, as we approached the end of the financial year, an edict came down from the ivory tower that profits were below forecast and we were to go and see our key suppliers and demand an additional ‘once off’ 5% rebate on everything we had spent with them that year. My biggest local supplier was a fabric producer with a mill in Dandenong from whom we had purchased about $3 million worth. I knew perfectly well that throughout the year we had screwed them down on price, with our knowledge of yarn prices and manufacturing costs, plus the ongoing threat of importing from alternative overseas mills. I knew we had been given their lowest viable prices. And yet, I was to go to them, cap in hand, and request a rebate of $150,000 that would have to come straight off their bottom line and would hurt. It didn’t feel right.
Prior to this our company had not been travelling brilliantly well and had been subject to a private equity buyout, which our then Managing Director was heavily involved in. He now had a substantial personal investment in the company. His directive to demand donations (rebates) came shortly before the company was to embark on an IPO, floating on the share market. So I go along to the supplier demanding the 5% rebate and quite frankly I was hoping they would tell me our company could get stuffed. But of course they didn’t. They were petrified they would lose the $3 million in sales turnover, which would threaten their own viability. So after a bit of argy-bargy they came back with an offer of 4% ($120,000) which my company was delighted to add to the rapidly filling coffers. Needless to say, the float went ahead successfully and the Managing Director made a $17 million personal profit. He then stayed on for 3 years, being paid an enormous salary (more than double his successor), before resigning to a golden handshake of a further $3.5 million. Since that float, the company has been in steady decline shedding iconic Australian brands along the way and is currently in the process of being sold to Americans.
These days I have my own little business selling nice latex pillows and down quilts on the internet. Life is lovely and we make people happy. But you know, we are still not immune to the ever encroaching tentacles of big business. 4 years ago, if you were to Google up ‘latex pillows’, on the front page you’d find one or two other local Australian internet sellers, us (www.tlclatexpillows.com.au), a specialty retailer (Adairs, I think), and the rest would be American or English companies. We were a little niche business in a specialised niche market. But big business can’t help itself. It is ever on the lookout for any and every sort of competition or market it can go after. They all want it all. Every major retailer in Australia now sells directly to customers on the web – and why wouldn’t they, it IS where the growth is. So today, Google ‘latex pillows’ and you’ll still find TLC Latex Pillows, but along with Harvey Norman, Target, K Mart, Big W, Myer. They muscle in on every niche market going and each do all they can to dominate.
And, more recently the big wholesalers like Tontine and Sheridan, that supply the major retailers are at it too – but most of them a lot more secretively, they don’t want to upset their retail customers so they hide inside eBay shops under obscure web names. But still intent on grabbing market share.
No complaints from us, competition IS good. It keeps us sharp, we have expanded our ranges, we do more promotions. We play to our strengths – speed and flexibility. But there are annoyances. Looking at some of their site content we can tell the big boys have looked at our site and lazily pinched bits – a phrase here, an idea there, keywords.
And then there are the naughty things they do. Recently eBay excitedly told us were invited to give our customers the option of collecting their TLC pillow order from their local Big W store. Big W want a little business like ours to send OUR customers to THEIR shop for no gain to us whatsoever – and are paying eBay to try to make it happen. Give us a break!
And of course Google (who own eBay) send us our monthly pay-per-click invoice (numberless and no detail) from Singapore, to avoid tax…………. But that is another story.
Target go one step further. They sell a cheap version of a skinny Talalay latex pillow for $59. Fair enough. Sometimes it is advertised at $29 – but when you try to buy the $29 version it is always out of stock! As if to say look how much cheaper we would be if we had them. Don’t look elsewhere. Fair play?