Whilst most of their focus is on each other and the rise of Aldi, Woolworths Limited (ASX: WOW) and Coles may have another threat on their hands.
Last night, the ABC's Four Corners program ran a story about migrant workers on Australia's fruit and vegetable farms and factories being ripped off, assaulted and generally being badly treated and exploited. If you haven't seen the story, I can recommend it – here's the link.
How many consumers contemplate where their fresh fruit and vegetables actually comes from and how it's picked and packed? Most of that fresh food is picked by an army of migrant workers – mostly ignorant of their rights, pay levels and many with weak English language skills. But it seems a large number of farms and factories across Australia have outsourced the management of these workers to unscrupulous labour hire contractors.
Four Corners has discovered that many workers are being paid below minimum wages illegally, while others are forced to beg to receive their pay from their employers – the labour hire firms. Female workers were particularly at risk – subject to harassment and sexual assault.
The big question for the major supermarkets then arises.
Are they aware of the practice and what are they going to do about it?
Some may argue that the pressure from Coles – owned by Wesfarmers Ltd (ASX: WES) and Woolies on suppliers has forced the producers to slash their costs any way they can, including resorting to underpaying workers.
The major supermarkets declined to be interviewed last night but did submit statements. Woolworths says its "supplier terms require that suppliers comply with all relevant laws and support ethical standards with regard to workplace safety, environment, and fair pay and employment conditions."
Coles says it "is committed to ethical sourcing and we expect all of our suppliers to comply with Australian law to ensure that their employees are legally allowed to work in this country and that they receive all their appropriate wages and entitlements."
Other retailers including Costco, ALDI, KFC and Red Rooster also responded – you can read their responses on the ABC Four Corners website (click the "Show background information" button).
The main problem appears to be the labour hire companies and outsourcing of the management of workers to those companies, rather than the farms and factories managing workers themselves. The term, "out-of-sight, out-of-mind" comes to mind. But if the labour hire firms are breaking the law, it's clear they need to be investigated and prosecuted.
Legally, Coles, Woolworths and the other retailers don't have to do a thing. But, and it's a big BUT, their reputations are on the line here, so I'd imagine management of the respective retailers will likely be asking some pointed questions of their suppliers. The consequences if they don't are unthinkable. At the worst, we could see consumers refuse to buy their fresh produce – something that would have an enormous effect on revenues, margins and profits.
