Coles identify supply chain efficiencies as reasons for discounts

Supermarket giant Coles has countered increasing industry criticism of pricing by stating that cost reductions and supply-chain efficiences has created a pool of savings available for reinvestment in lower prices, as well as better returns to shareholders.

It comes after Coles chief executive Ian McLeod told a Senate inquiry into milk pricing last week that discounting is good for customers and not harmful to local food producers.

In recent months, Coles has enraged suppliers of milk, beer, wine and eggs over its aggressive approach to discounting.

Foster's took unprecedented action against both Coles and Woolworths in January and February, using a provision in the Consumer and Competition Act that allows a company to withhold supply if a retailer is using its product as a loss-leader and selling it at below cost.

The Coles boss said fresh chicken was the latest product targeted for price cuts, with more to come in the next few weeks.

He said in a statement that Coles customers, who were facing rising utility bills and interest rates, had saved $800 million over the past 12 months due to cheaper groceries as a result of food price deflation.

"Australia may have escaped the worst of the global financial crisis, but many families are still struggling to make ends meet in the face of higher household costs," McLeod said.

McLeod was in no mood for compromise yesterday, amid further tit-for-tat between Coles and Woolworths over who started the price war in beer that led Foster's to withhold supply earlier this year from both chains. The two supermarket giants control about 70 per cent of Australia's $75 billion grocery market.

According to Coles, it was the same virtuous circle of price cuts leading to higher profits and even lower prices that Woolworths used to devastating effect for more than a decade.

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