Supermarkets’ huge profit from bag ban
COLES and Woolworths stand to make roughly $71 million in gross profit by replacing free lightweight plastic bags with heavier 15 cent options.
That's according to an analysis by Queensland University of Technology retail expert Dr Gary Mortimer, who argues that the bag ban will be a "windfall for the supermarkets, but it won't do much for the environment".
"There are costs beyond just the bags themselves, such as the costs associated with sourcing and negotiating with packaging suppliers, procuring them, shipping and warehousing them, and distributing them to stores only to then give them away.
"Supermarket margins are already feeling the strain of price deflation. These businesses are generally making less than 6 cents in the dollar, so the opportunity to phase out this cost certainly makes good business sense."
Dr Mortimer estimated Coles and Woolworths previously gave away a combined 5.7 billion bags a year at 3 cents per bag, working out to a total cost of $171 million. Under the new scheme, he predicts they will use just 1.18 billion of the heavier bags at a cost of $106.1 million.
"While retailers stand to pocket this saving, the switch to stronger, multi-use plastic bags brings with it its own costs," he said. "To begin with, the bags alone cost more - 9 cents each - and also have associated procurement costs.
"In turn, while the new re-usable bag may cost more than the thinner single-use bag, fewer will be used and therefore ordered. Retailers can expect to see a reduction in these packaging costs.
"Selling these new bags at 15 cents each effectively creates another revenue stream potentially adding up to $71 million in gross profit."
Retail analyst Geoff Dart from DGC Advisory disagreed, saying he didn't believe the supermarkets would profit from the bag ban. "In fact quite the opposite," he said.
"We need to keep in mind that a significant number of shoppers at Coles and Woolies also shop at Aldi, where they're used to bringing their own bags or grabbing an empty box in the aisles," he said.
"Backlash has not been as bad as some may think and that means shoppers are adjusting and won't have a need to pay for a bag. Also consider the cost for Coles and Woolies to buy and stock the stores with bags - heavy and light - and additional handling by shop staff to assist.
"At the very least, unprepared shoppers will reduce their purchases per visit to avoid cost and multi-shop - that is, come back for a second shop prepared, or, as most Coles and Woolies are near fresh fruit and veg stores and butchers who are still providing bags, go there first.
"For how long, who knows? Shoppers and consumers have choices and they're not [sitting still] when it comes to managing the family budget and finding alternatives."
University of Tasmania marketing lecturer Dr Louise Grimmer said she was disappointed that single-use plastic bags had "been effectively replaced with much thicker bags that are often not reused for shopping and that are going to end up in landfill in the same way that the single-use bags did".
"At least with the single-use bags they could be reused, for example as bin liners," she said. "If retailers were serious about trying to be sustainable, as many of them are now claiming, they would be offering a small discount for shoppers who bring their own bags."
Dr Grimmer said this would offset some of the criticism that the supermarkets now stand to make money from the 15-cent bags.
"I don't have a problem with retailers making a profit, that is how businesses stay in the game," she said.
"[But] if retailers and supermarkets in particular are going to market themselves as being 'green' and working towards sustainable practices, then I would expect them to take the lead in totally banning all plastic bags for example and encouraging shoppers to bring their own bags."
She added that she hoped the backlash had been amplified by the media and social media and was not reflective of the true reaction.
"I would be disappointed to think that so many of us can't make a simple change to the way we shop and allowed this issue to make us so angry," she said. "There are much bigger issues out there to be concerned about - just bring your own bags when you go shopping, it's pretty simple."
According to Dr Mortimer, experience from other countries that had introduced a fee for lightweight plastic bags, including the US and UK, showed while there was an initial reduction in bag usage, customers soon simply started paying the charge.
"Simply charging for a plastic bag, without directing these funds into environmental programs, does not necessarily resolve the problem," he said. "Shoppers slowly return to old habits, governments and retailers stop educating consumers and reusable bags soon make their way into waterways and landfill."
Neither Woolworths nor Coles would say how much profit they will make from the plastic bag ban.
"The pricing of our 15 cent reusable plastic bag reflects the cost of supply and associated operational costs," a Woolworths spokesman said.
"We also have the Bag for Good for customers which is a bag for life. It costs 99 cents and when it gets damaged, we will replace it for free, no matter when a customer bought it from us. Any money made from the sale of the Bag for Good will help fund the Junior Landcare Grants program."
Woolworths will continue to offer customers in NSW, Victoria, Western Australia and Queensland free reusable bags until Sunday to smooth the transition. The supermarket announced the move last week following customer complaints.
A Coles spokeswoman said: "We have based the prices for our bags on the cost of supply and operational costs. We have the Better Bag, which is made from 80 per cent recycled material and is bigger, thicker and more durable than single-use plastic bags.
"Better Bags can be used multiple times and when customers have finished with the Better Bag, it can be recycled through the REDcycle bins available at all Coles supermarkets. Better Bags will cost 15 cents."
Coles has also launched a range of Community Bags designed by schoolchildren across Australia. The range includes a $1 tote bag, a $2 shoulder bag, a $2.50 chiller bag and a $3 jute bag. A portion of the sales of the bags will be donated to Clean Up Australia, Little Athletics Australia, SecondBite and Guide Dogs Australia.
As of Sunday, single-use plastic bags have been banned in all states and territories except NSW and Victoria. The supermarkets took the initiative by removing them from their entire store networks, with Woolworths getting in 10 days early on June 20.
Despite roughly three-quarters of shoppers claiming to support the ban, the move has sparked a customer backlash, with the retail workers' union describing the phenomenon as "plastic bag rage". In one extreme case, a staff member at Woolworths in WA was "strangled" by an angry customer.