Here's a little story from which you can draw your own conclusions. It's 100% true and concerns my own company.
We manufacture a mineral based product for household use. We mine and then process the product so it's all ours from start to finish.
When we purchased the company we were aware that the previous owner had, for a while, been the "home brand" for a major retail grocery. He was badly burned because after spending a large amount of money on bags etc, his contract was summarily ended when the grocery chain found someone who would sell them product at around 1 cent cheaper.
Since that time, we have been approached by one of these major groceries and asked to quote for their home brand. We knew where this company was getting their current supplies from and how much they were paying for it. Approximately 30% less than our absolute rock bottom price. There's no way we could afford to supply the grocery chain at that price. Needless to say, when we told this competitor that the grocery chain was looking around for yet cheaper material, he was not happy.
Our two main competitors in this field have now gone or are in the process of going bankrupt. For whatever reason, they chose to sell product at an unsustainably low price.
The bottom line here is that the major groceries can only go so far in their cost cutting. At some point PDs first point will become reality and there will be no or few Australian comapnies to supply any product at all.
An added consideration here is local versus imported product. For some time, the ability of grocery chains to import low cost material has forced prices lower here in Oz. The recent volatility of our dollar has meant that it will be more difficult for the chains to confidently predict uniform supply in the face of currency volatility.
There is one upside. Since we found ourselves unable to compete pricewise in the provision of relatively unprocessed material, we have, as a company concentrated on the value added side of production. This has involved spending money on R & D, dealing with regulatory authorities etc. Slow and costly yes, but for us, the only way to survive.
