Woolworths is reportedly putting renewed pressure on suppliers to reduce prices, with some suppliers claiming the supermarket is warning that products could be removed from its range if they do not meet its pricing expectations.

The claims were reported by the Australian Financial Review, which said Woolworths has been seeking lower prices from suppliers as the supermarket looks to strengthen its position as the market grows increasingly competitive. Suppliers have reportedly been told that products could face ranging or promotional consequences if they cannot deliver improved pricing.

The reported negotiations come at a time when Australia’s major supermarkets face scrutiny over grocery prices and the balance of bargaining power between large retailers and their suppliers.

The supermarket’s approach is likely to attract further attention from suppliers and industry groups given the regulatory focus on the relationship between major retailers and their suppliers.

For suppliers, the increased pressure comes at a challenging time, with manufacturers and producers continuing to face rising costs. Meanwhile retailers are also under pressure to keep prices competitive for consumers as Australian households remain sensitive to grocery costs. 

Woolworths has been investing in its value proposition as it competes with Coles and Aldi. The company reported its full-year results in August, with management highlighting its focus on customers, value and improving the shopping experience.

The latest supplier claims are significant because major supermarkets have obligations under Australia’s Food and Grocery Code of Conduct. The code is designed to regulate aspects of the commercial relationship between supermarkets and suppliers and it includes requirements around good faith dealings and dispute resolution.

The reported demands, however, do not mean that Woolworths has breached the code or any other law.

The issue does come against a broader backdrop of regulatory scrutiny of Australia’s supermarket sector. The ACCC has previously taken action over supermarket pricing and promotional claims, including proceedings concerning Coles.

Suppliers face immediate concern over the potential impact and losing shelf space or having products removed from a major supermarket can have a significant effect on sales, particularly for smaller manufacturers that rely heavily on the major grocery chains.

The outcome for consumers is less clear, as lower wholesale prices have the potential to translate to lower retail prices, however with suppliers facing tighter margins, it’s possible they will reassess product ranges, pack sizes and promotional activity.