What you need to know about Australian Retailers' Trading Terms and Promotional Spend expectations

Trading terms and promotional spend are critical components in the relationships between supermarkets and suppliers in the Australian grocery industry. Major supermarkets like Woolworths and Coles expect significant contributions from suppliers in the form of promotional spend, rebates, and discounts to support product placement, in-store promotions, and discounts to attract customers.

Trading Terms and Supplier Contributions

Retailers can request complex trading terms with suppliers, often requiring them to pay various fees for shelf space, better product placement, and other promotional opportunities. These fees can include listing fees (to introduce new products), shelf-positioning / endcap fees (for prime shelf space), and slotting fees for promotions and advertising. Additionally, supermarkets frequently ask for volume-based rebates, discounts for meeting sales targets, and cooperative funding for national advertising campaigns.

These trading terms are particularly demanding for suppliers in high-turnover categories such as dairy, meat, and packaged goods. New entrants and small to medium-sized suppliers often face the most pressure, as they lack the bargaining power of larger, well-established brands.

Without knowledge of the category and market averages, new entrants could agree to promotional spending and discounts that can materially impact their profit margins, especially if they are competing for shelf space with a supermarket’s own private-label products.

Promotional Spend

Promotional spending, which covers discounts, “two-for-one” deals, on shelf short term discounts, and other special offers, is a key component of supermarkets’ strategies to attract customers, increase basket size, and differentiate their offerings. Woolworths, Coles, and Aldi all expect suppliers to contribute financially to these promotional efforts, both in-store and online. Coles’ “Down Down” and Woolworths’ “Cheap, Cheap” campaigns are examples of long-running promotions where suppliers are often asked to co-fund price cuts on their products.

Promotional spend is also heavily tied to loyalty programs such as Flybuys (Coles) and Everyday Rewards (Woolworths). Supermarkets use these programs to track consumer behaviour and push personalized offers, often funded partially by suppliers who pay to promote products within the loyalty ecosystem. These personalized discounts and points offers are effective for driving sales volume but add to suppliers’ promotional costs.

Impact on Supplier Relationships and Industry Tensions

The financial expectations around trading terms and promotional spend have strained relationships between supermarkets and suppliers. Suppliers are expected to balance their own profitability with meeting supermarkets’ demands, and failure to comply can result in reduced shelf space or exclusion from promotional activities. This power imbalance has led to criticism from suppliers, and even government scrutiny, over what is seen as an “unfair” trading environment.

In response, the Australian Competition and Consumer Commission (ACCC) has intervened in recent years to enforce fairer practices and transparency. There has been pressure for supermarkets to offer more transparent and reasonable terms, but the fundamental power dynamics still heavily favour the major chains.

Partnering with companies such as Australian Grocery Distributors who represent a portfolio of brands across numerous categories will help you get similar terms to the larger more established brands.

Increasing Focus on Data and Insights

Recently, supermarkets have also been asking suppliers to invest in data-sharing tools and insights platforms. This allows supermarkets to track the effectiveness of promotional campaigns and consumer purchasing patterns, enabling them to fine-tune marketing and pricing strategies. However, these data requirements add additional costs and complexities for suppliers, further increasing the financial commitment expected from them.

Why partner with Australian Grocery Distributors?

Supermarkets in Australia expect significant financial commitments from suppliers through trading terms and promotional spend. These contributions are essential for product visibility and sales within stores but often place suppliers under financial strain, especially as competitive pressures drive ongoing price wars. The heavy promotional demands and the need for data-sharing continue to shape a challenging environment for suppliers, pushing them to balance cost pressures with the need to maintain a presence in major supermarket chains.

If you choose to partner your brand with Australian Grocery Distributors we will leverage or experience and portfolio size to ensure that new entrants to the Australian market are not disadvantaged versus larger more established brands to increase your profit margins and deliver a positive outcome to both retailer and brand owner.