Cognitive dissonance a problem for grocery shoppers

Posted by AFN Staff Writers on 29th June 2015

supermarketJan Davis is a contributor to Australian Food News.

Grocery shopping is more complicated than you might think.

As individuals, we are apt to feel sympathy for the farmers and suppliers that the retail giants must be screwing to keep prices down and profits up. But, as consumers, we want cheap stuff.

This is what psychologists refer to as ‘cognitive dissonance’. This means the feelings of discomfort that result from holding two conflicting beliefs at the same time. People tend to seek consistency in their beliefs and perceptions. When there is a discrepancy like this between beliefs and behaviours, something has to give if the dissonance is to be resolved.

As a community, we have the ability to do something about this by determining the point at which the market power of corporations ceases to provide benefits to society and becomes a threat that must be reined in. Unlike many other countries, this is an issue we’re struggling within Australia.

Professor Ian Harper chaired a Productivity Commission review of Australia’s competition policy which reported earlier this year. In his view, it comes down to balancing the efficiency that comes with size against the “potential detriment to Australian consumers due to the reduction in competition”.

There is no better example of the difficulty of finding that balance than the duopoly of giants that dominates Australia’s retail food industry. Between them, Coles and Woolworths share about 72 to 74 per cent of the market.

But these giants don’t just dominate the food industry – they are everywhere in our lives.

Coles is not just the place where “prices are down, down”. Its parent company, Wesfarmers, also owns Target, Kmart, Bunnings Warehouse, Officeworks, Bi-Lo, Liquorland, First Choice Liquor and Vintage Cellars. Not to mention a couple of coal companies, a half-dozen or so chemical and fertiliser makers, and a bunch of other industrial brands.

Likewise, Woolworths are not just the “fresh food people”. They are also alcohol people, through BWS, Dan Murphy’s and Cellarmasters. And hardware people, via Masters Home Improvement.

Both retailers are also in the fuel business. And financial services, including credit cards, phone plans, home insurance, travel insurance, life insurance – even pet insurance. And more.

Aldi and IGA are making slow but steady inroads into the grocery sector. Experts estimate that that these two companies have a market share of around 20 to 22 per cent. This means the four largest players in the sector accounted for around 95 per cent of the Australian grocery market.

By comparison, in the UK, five major retailers control just over 70 per cent of supermarkets; in China, the largest five control 38 per cent; and in the US, Walmart is the largest player with 25 per cent of the market.

Industry commentators predict that there will soon be another player on the block, with the entry of Lidl into the Australian market. Lidl has annual sales of $128 billion worldwide and could be a formidable competitor.

Traditionally, Lidl’s main competitor has been Aldi. However, the size of the market is growing more slowly than the supply side. This means that Lidl is sure to also take market share from Coles and Woolworths, who are already feeling the pinch as Aldi grows.

There have been consistent calls for closer scrutiny of the conduct of the big two supermarkets with respect to suppliers; and for closer oversight of their competition practices.

Earlier this week, the Australian Competition and Consumer Commission (ACCC) announced that it will conduct a public review of Coles’ proposed acquisition of Supabarn supermarkets.

Supabarn is a privately-owned supermarket group with stores in Canberra and Sydney. Many are full line supermarkets similar in size to typical Coles or Woolworths stores, and include a liquor section.

“Given Supabarn’s position as a significant independent supermarket chain, an important focus of the ACCC’s review will be whether its removal as a competitor would substantially lessen competition between supermarket chains,” according to ACCC chairman, Rod Sims.

The legal test which the ACCC will apply in considering the proposed acquisition is in Section 50 of the Competition and Consumer Act (2010). Section 50 prohibits acquisitions that substantially lessen competition in a market, or which are likely to do so; but does not allow the ACCC to consider factors other than those related to competition.

As part of its review, the ACCC will invite submissions from consumers, suppliers, supermarket operators and other interested parties until mid-July. All consumers should be watching this process with great interest.

Jan Davis has worked in senior agribusiness roles across Australia for thirty years. Tagged as Tasmania’s top political lobbyist and one of the most influential people in the state; she works as an agribusiness and government relations consultant. To read her full biography click HERE.