Coles, Woolies shopper-docket rumble going down in Federal Court

Elizabeth Knight
March 27, 2014
The Age
Whether to stack or bundle – that is the question being pondered in the Federal Court today as Coles goes head to head with the Australian Competition and Consumer Commission. And don’t be confused; the question doesn’t refer to how tomato cans are placed on the shelves – it’s about how the retailer rewards its loyal customers by distributing shopper dockets for discounts on petrol.
There has been a long-running dispute with the competition regulator, which has determined supermarkets can offer a discount to consumers who spend more than $30 in the supermarket of no more than 4¢ a litre on petrol.
The ACCC runs the argument that it disadvantages independent service stations and supermarkets that don’t have fuel outlets. Following that piece of string the theory goes that independents will ultimately disappear and the market will be dominated by large supermarket chains that will have a free rein to charge what they like.
This week Woolworths pre-empted the outcome of the Federal Court case by unbundling the discounts it provides to its customers who buy groceries from the discounts it offers customers who buy goods from the service stations it owns.
Coles reckons it has found the shopper docket recipe that will circumvent the ACCC concerns – and it calls this ”stacking”. It offers 4¢ off petrol for the supermarket shopper who spends more than $30 and separately offers 10¢ a litre discount for purchases over $20 at the convenience store attached to its petrol station.
The ACCC argues that because these offers are advertised as a package it amounts to bundling rather than stacking, thus Coles’ behaviour is not in keeping with undertakings with the regulator that were agreed last year. More generally, the ACCC is attempting to guard against Woolworths and Coles cross-subsidising other parts of their businesses. Whether this amounts to semantics (on steroids) is something the court will need to settle. It certainly makes a difference to the 20 per cent of customers who shop at Coles and Woolworths and cash in their dockets for cheaper petrol.
And it is significant to these large supermarket players who use the cheaper petrol as a marketing tool to entice customers into their stores.
But its not the only issue that is occupying the minds of the supermarket heavyweights. The government has already announced a root-and-branch review of competition policy and the supermarkets are in its sights, and the politics of supermarkets and food supply will be directly in the firing line.
Woolworths did a stellar job last month in appeasing the concerns about its relationship with suppliers by rescuing SPC Ardmona with a long-term supply contract for canned fruit. It won’t be enough to keep the supermarkets safe and the government will be keeping a close eye on what happens in the Federal Court this week.
On top of this, the supermarkets are fighting another spot fire – the code of conduct that deals with the relationship with their suppliers.
While Coles and Woolworths have banded together with the Australian Food and Grocery Council to devise a voluntary code of conduct, there remains pressure from the government, which is looking at a mandatory code of conduct aimed at curbing abuses of market power.
Coles and Woolworths would prefer the less-onerous voluntary code but to date have not had the support of smaller grocery retailers including Aldi and Metcash, which have long claimed they have not engaged in poor behaviour towards their suppliers and do not require a code of conduct.
Without the agreement of all the supermarket suppliers there is every chance that the government will step in to impose the more stringent mandatory regulations.
Caught in this potential pincer, Coles boss Ian McLeod has been out talking up the broader merits of competition in Australia and the need for local businesses to be more internationally competitive.
His argument starts with the pitfalls of protecting weak competitors (or the current status quo) rather than encouraging the survival of the fittest. To do this would be to cement a lower-productivity business environment.
It is true that over the past 20 years Chinese imports of Australian resources have increased in absolute terms, while our share of the Chinese import pie has halved where Indonesia’s piece of the Chinese import pie has grown from zero to 19 per cent.
While Australia has ridden the wave of the boom in mineral resources, McLeod contends this pushed up labour rates for the mining sector that leaked into the rest of economy including food manufacturing. So high is the cost of doing business in Australia that he argues international companies are looking negatively about investing in Australia. Many of them have abandoned food manufacturing in Australia.
In Coles’ and Woolworths’ attempt to lower prices, they have placed pressure on suppliers.
What some suppliers see as abuse of market power by the big supermarket chains, Coles sees as the proper operation of competition.
The Federal Court and the federal government will soon make their own judgments.
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