The single biggest supplier to the nation’s $90 billion grocery market, beer and dairy giant Lion, has warned it won’t swallow lower prices as part of any ­renewed price war between Woolworths and Coles unless it can be guaranteed greater shelf space for its brands and a lift in sales at the check-out.

Lion Dairy & Drinks boss Peter West, who oversees some of the most popular food brands across the supermarket aisle such as Pura, Dairy Farmers, Dare, Vitasoy, Yoplait and Berri, said he wouldn’t accept price cuts without a clear benefit to his business.

“We understand the cost curves of our factories. We understand where if we grow volume, what it does for our margin and we can manage to that,’’ Mr West told The Australian.

“What we are not for is just reducing price for no benefit. So we need to see a volume benefit, and the only way you can sign up for that is if you get more shelf space.’’

Making sure his own house was in order, he said Lion would strip out $80 million in costs from its dairy and drinks division this year and had targeted another $80m in cost cutting for the following 18 months through better procurement, streamlining management and reaping greater productivity from its ­factories.

Lion, owned by Japanese conglomerate Kirin, is the largest supplier to Australian super­markets through its wide portfolio of brands and foods, which stretch from dairy products such as white milk, flavoured milk and cheese to juices, as well as a ­bulging suite of beers — it is the nation’s biggest brewer.

Its sales to Woolworths and Coles alone are multi-billion-dollar contracts.

Lion and other suppliers could be held to ransom by the supermarket chains if a price war breaks out and they are forced to reduce their own prices.

Analysts believe the price war between Woolworths and Coles could escalate soon as Woolworths prepares to unveil a new strategy next month that will include $500m invested in lower prices.

“There is no doubt the Australian shopper is being trained around price,” Mr West said.

The competition for the lowest price is made all the harder for brand owners such as Lion who also have to compete with private label, or supermarket-owned brands, which take up valuable shelf space.

Mr West believes the only way his business can grow volume at lower price points is by getting more display and presence on supermarket shelves.

He said Lion was becoming more efficient, led by a $160m targeted reduction in its own costs over the next 2½ years that would give it some flexibility on price — but volume gains had to be part of any discussion with ­retailers.

“As part of being more efficient, you can pass on those efficiencies if you are growing volume,” he said.

“Any of the discussions and negotiations we are open to.

“But the challenge that all the retailers are looking at is that they have probably got too much range.”

Mr West said the supermarket chains might have to rationalise their own ranges.

He hasn’t hesitated to slim down Lion’s range, cutting the company’s product portfolio by 21 per cent when he took charge last year.

And he has plans to cut deeper this year.

“I think we have more debate in our business over how much further do we have to go. I probably come from a more confident view that we need to do more. But what we are trying to do is analyse by ­category how that stacks up, and certainly we have got an ongoing review.”

Last month, Lion sold its everyday cheese business to Warrnambool Cheese & Butter for $138m, handing over well-known dairy brands such as Coon and Cracker Barrel.

Lion still owns a 10.22 per cent stake in Warrnambool Cheese & Butter, initially bought as a blocking stake in 2013 to prevent a full takeover by Canadian dairy giant Saputo. Mr West said at some point its minority shareholding — worth about $50m and a handy bargaining tool with Saputo — needed to be addressed.

“We sit on that investment and we will make a decision in time. We have not entered into a discussions or a decision but at some point we will,” he said.

Hacking away at brands that don’t have enough earnings muscle and eventually selling the Warrnambool holding will help Lion direct resources to its power brands, such as iced-coffee drink Dare, which is reaping double-digit sales and dominates the flavoured milk and iced-coffee categories.

Latest figures show Dare is now outselling Coca-Cola in the petrol and convenience channel, growing sales by 19.8 per cent in the last quarter.

Extracted in full from The Australian.

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