June 12, 2012
The Age
NATIONAL Party senator John Williams plans to crank up his lobbying of the federal government to change legislation to curb the power of the two big supermarket chains after meeting some key independent grocery, liquor and service station operators.
Williams said yesterday he had also met an expert in supermarket competition, Professor Frank Zumbo, to work out a game plan to rebalance the power of the two chains.
“I met Zumbo on Sunday to discuss some of the issues and I plan to hold a few more meetings with the independents and meet with the ACCC [Australian Competition and Consumer Commission] so that we can get some action from the regulator and government,” he said. “What is happening in some industries, such as the dairy industry, needs to be stopped before too much damage is done.”
Williams’ campaign comes as the Master Grocers Australia lobby group prepares its own campaign after the release of a report by Commonwealth Bank on Woolworths’ $1 billion a year growth plan and its development of stores in marginal sites, including West Dubbo in New South Wales.
The report raised questions about some of the sites and their short-to-medium-term economics. “Master Grocers Australia believes the strategy is conscious, deliberate and intended to bring about a substantial lessening of competition in those local markets where over-large stores are developed,” a draft report quoted in The Age yesterday said.
Williams said there was no silver bullet, given Coles and Woolworths had up to 80 per cent of the market, but he believed amendments to the Competition and Consumer Act could help suppliers and independents because many struggle to survive.
Other things being considered include setting up a small business and farm tribunal with powers to monitor the behaviour of the supermarket chains.
The various lobbying efforts come as the incidence of suppliers reporting anti-competitive behaviour rises. Williams said the ACCC was to blame for part of the problem as it had allowed supermarket chains to buy stores from competitors. He said the ACCC needed to get tougher on false advertising. “It’s happening all the time. There was a case recently of a petrol station advertising $1.42 a litre for unleaded petrol,” he said. “Cars pulled up but when they filled up they were told it was $1.50 a litre unless they had a certain shop docket or used the supermarket’s credit card. It’s misleading advertising and it should be stopped.”
In the past 18 months, the discounting between Coles and Woolworths has never been as fierce or the cries from suppliers louder. Coles estimates there has been price deflation of 2 per cent a year since the start of 2009 and matching competitor price cuts has saved Australian consumers more than $2 billion a year in total.
Over the next 12 to 18 months Coles will focus on improving its supply chain to further reduce costs and pass on savings to customers. It is also tackling its liquor business, which has been a drag on earnings.
The dairy industry was the first to get caught in the price war crossfire, followed by the bread industry, then brewer Foster’s pulled thousands of cartons of VB off its trucks last year after it found the beer was to be sold below cost, which would chip away at its brand and hurt independent outlets.
While consumers benefit in the short run from the discounts, there are longer-term implications. Wine group De Bortoli Wines recently warned about the effect of the proliferation of private-label wines being offered by the big supermarkets. Darren De Bortoli said private-label wines were reducing the amount of shelf space for branded wines. He said in most cases the quality of the wine was not as high and was hurting the economics of private wine companies.
Private-label brands pose the biggest threat to existing brands as retailers substitute many brands for their own and become marketers in their own right. If Europe and the United States are any guide, there has been a systemic shift in the combined industry profit pool from manufacturers to private label as it moved from less than 10 per cent of shelf space to more than 40 per cent.
One of the problems is some private-label packaging – especially in cereals and biscuits – resembles the branded products by using the colour schemes or designs of competitors to benefit from the advertising, marketing and product development money spent by the brands.
It is one more example of how big supermarket chains call the shots. In the past few years, suppliers have been hit hard by the consolidation of retailers and their move to demand more and more private-label brands. Concentrated markets have negative effects on manufacturers and growers. Innovation, new products, new ideas fall when there is too much power, which doesn’t help anyone.
If enough suppliers and smaller competitors are driven out of business, it will reduce choice and eventually drive up prices. It is a complex debate that will intensify as the big supermarkets increase discounting through the next frontier: loyalty programs.
The one known in all this is that the debate will intensify as the big supermarkets increase discounting to drive volumes and earnings.
Subscribe to our free mailing list and always be the first to receive the latest news and updates.