Shoppers are winning in Coles and Woolworths supermarket war, but it won’t last

Terry McCrann
March 04, 2013
Herald Sun

THE evidence is overwhelming and undeniable. The great war of the supermarket aisles unleashed by the tough Scottish import Ian Mcleod at a reborn Coles has put millions of dollars a week into the pockets of shoppers and drivers.

As Coles and Woolworths have gone head to head, drivers have been getting consistently cheaper petrol – and bursts of very cheap petrol – when the war goes hot with 15c, 20c and even 30c “shopper dockets”. Although, that has also changed and muted the traditional weekly discount cycle.

While shoppers have never before had the store-wide price cuts and deep but sustained price-slashing on high-use loss-leaders – the $1 a litre milk most prominently – of the past few years.

Before McLeod arrived Down Under, the average shopper would have to increase his or her weekly supermarket spend every year, just to buy the same amount of groceries. If you spent $100 a week one year, you’d have to spend $104-105 a week the following year just for the same trolley-load.

Extraordinarily, over the past few years, you got to spend less. Not just less for one year, but even less the next. Indeed, shoppers in the big two supermarkets only have to spend $90-93 a week to get the same trolley-load that cost them $100 a few years ago.

They might not believe that – indeed many would probably say that is not true and that they’re spending more.

And that’s true. They are spending more. But they are walking out with far more goods.

The numbers from Woolies and Coles have shown shoppers were spending roughly 5 per cent more dollars each year, but walking out with 8-9 per cent more actual goods.

The proof of this pudding is very definitely in the eating. More people have been shopping in Coles and Woolies. The big two just keep getting bigger.

And that might be “the problem”. It certainly explains why competition czar, the ACCC’s boss Rod Sims, has launched his own war against the two. Although he’s calling it: “looking into allegations”.

The only word to describe Sims’ move is “courageous” – in the Yes Minister sense of the term.

Does he want to be the competition czar who takes away $1 milk from shoppers? Ban them from getting the occasional 30c “shopper docket”? Or even the 8c of today?

There are, though, two big issues he cannot ignore. They are both about fairness. But they are ultimately all about protecting the consumer.

If the war drives out other players, then the big two might end up totally controlling the market – for petrol and groceries.

The ACCC’s job is not just to promote the most competition that can immediately benefit consumers. So, if the two want to go head-to-head, great, so be it.

It’s also about how they get to afford to do that. One look at their ever-rising profits makes it clear Coles and Woolies aren’t paying for the price cuts.

Bluntly, they are putting the hard word on their suppliers. As I’ve written before, if you can force even the mighty Coca-Cola to slash the price of Coke on the shelf, you have power.

Now some of that was not only good for the consumer, but healthy for business. It forced suppliers to become more efficient.

But there’s a big question: Have Coles and Woolies gone too far? Is the power they are exerting against suppliers beyond simply being tough and unfair? Milk for $1 is beyond reason.

But what if Coles picks up the cost, as it says it is doing? That’s the second issue: when does “loss leading” become anti-competitive.

This is exactly the issue with petrol. Coles and Woolies can “afford” 30c off at the pump, because you only get that after having spent money in one of their supermarkets. BP and the other “regular” petrol companies can’t cross-subsidise.

All this comes back to one core point. Yes, the war might be delivering cheap petrol and cheaper groceries to shoppers.

But if it succeeds in wiping out everyone else, then Coles and Woolies could then operate like a classic duopoly, raising prices and sharing the market and the profits.

The arrival and growth of Aldi does not counter that. It’s too narrow and too small.

So, yes, shoppers and drivers have never had it better. But the jury’s out on where it will all end.