The chief executive of Wesfarmers, owner of Coles, Target, Bunnings and a number of other retail chains, has threatened to cut ties with inefficient producers.
Richard Goyder said on Thursday 18 April that suppliers who don't invest in their business appropriately could be shelved, the AFR reports.
"Any business in this country has to be looking at how efficient it is," he said. "Our business is not to prop up inefficient suppliers but supply great products to our customers in the best way we can."
Goyder's comments come after Wesfarmers reported its strongest quarterly sales growth in two years.
Coles and Woolworths are both being investivated by the ACCC amid claims from producers that the supermarket chains use less than noble tactics to drive prices down.
Goyder, however, says overall, it's dealings with producers are positive and Coles is now sourcing $2.8bn more fresh, local produce than in 2008.
"The vast majority of our arrangements are constructive … and suppliers on the whole are grateful we have been able to turn this business around," he said.
Supermarket chains are increasingly focussing on bypassing the middleman and dealing directly with producers, with Coles last week signing a $2bn-plus private label milk supply deal with Murray Goulburn and Norco.
They've also spent months working on a voluntary code of conduct with the grocery sector, and according to AFR hope to reach an agreement in the next few weeks, despite farmers calling for a mandatory rather than a voluntary code.