ACCC dismisses talk of supermarket duopoly

Posted by Daniel Palmer on 11th August 2009

The competition watchdog has today refuted claims that Coles and Woolworths exert too much dominance in Australia’s grocery sector.

Graeme Samuel, Chair of the Australian Competition and Consumer Commission, called for a reality check in the debate around food inflation when he addressed the National Retail Forum in Melbourne today.

The debate has again been a hot topic in recent weeks after the release of RBA data highlighting that food, beverage and tobacco prices had risen 4% each year, on average, since 1993 – comfortably above the 2.7% core inflation rate. Since that release, Woolworths boss Michael Luscombe has blamed multinational food manufacturers, while Agriculture Minister has said that farmers do not receive a fair deal and the Australian Food and Grocery Council has refuted the arguments of Mr Luscombe.

“I understand concerns about the growth of Big Business, but some commentators should take a Bex and have a lie down when it comes to the activities of major supermarkets,” Mr Samuel advised today.

Food price inflation over the last 12 months to June 30 2009 was 4.7 per cent, compared with general inflation for the year of 1.5 per cent.

“This statistic is quoted to suggest that we are being ripped off at the supermarket checkout,” the Chair of the ACCC noted. “The facts and figures tell a different story. Food prices have been rising faster than general inflation across the OECD and Australia is not special in that regard. In fact the most recent data from the OECD shows that Australia had the 11th highest food price inflation rate for the year, out of 30 countries.”

Mr Samuel pointed to figures from other developed economies to suggest that the ‘rip-off’ assertions are unwarranted.

Food prices in the United Kingdom went up 7.2 per cent, compared with a general CPI of 2.1 per cent; New Zealand’s increased 8.3 per cent with CPI at 1.9 per cent; and Canadian food prices went up 7.4 per cent against a CPI rise of 0.1 per cent.

The ACCC has recently said that one of the most critical issues confronting the sector is that of retail leases; with restrictive covenants that fail to encourage greater retail competition of particular concern.

“The important thing is to allow new entrants to expand, make sure that others can’t shut them out through the misuse of market power and restrictive covenants or planning laws, and ensure consumers have access to good comparative information,” Mr Samuel contended.

The leader of the competition watchdog maintained that the share of large supermarkets operated by the two majors had been “fairly consistent” over the past decade, with new competitors restricting their market power.

“Coles for example has over 700 supermarkets (including BiLo)* and Woolworths has around 780 (including Safeway),” Mr Samuel told delegates. “But now they face expansionary new entrants. ALDI has recently opened its 200th store and has announced plans to expand much further, up to 700 supermarkets in due course, which would put it on a par with Coles. Costco is entering Australia with its first warehouse in Melbourne and plans to open more in New South Wales.”

“Independents including IGA supermarkets, Franklins, Foodworks and Supabarn are also tough, and in some cases expanding, competitors-Foodworks is buying 45 supermarkets from Coles, and it too now has over 700 stores.”

The ACCC has been investigating restrictive covenants – which involved big supermarket chains and independents, landlords and tenants-since its grocery inquiry delivered last year. And they are threatening supermarket owners and landlords with prosecution if they continue to block business competitors through lease arrangements.

*after accounting for the 45 being sold by Coles to Foodworks