“Root and branch” competition review
80% market concentration is dangerous and oppressive – and the rules need to change
Master Grocers Australia (MGA) - and the Liquor Retailers Association (LRA) – are calling for once in a generation
changes to competition laws to counter the extraordinary and dangerous 80% market domination of Coles and
Woolworths. The MGA/LRA case is that without change there will be no competition left to protect.
MGA/LRA speaks for the thousands of smaller independent grocery/liquor retailers that make up now just 15% of
the market. It has now made its submission to the Federal government’s “Root and Branch” Competition Review.
Here is a link to the full submission:
http://www.mga.asn.au/files/3914/0244/0925/MGA_CCA_ROOT__BRANCH_Final_Sub_10June14.pdf
MGA/LRA is also today releasing a short animated video which captures the oppressive power of the two major
chains: https://www.youtube.com/watch?v=UxGsu4lkcIc
The competition laws which have been operating for the last two decades have made Australia unique in the
world: we are the only country where two chains – Coles and Woolworths – control close to 80% of the market.
In the UK the two major chains control 44%. In the USA it is 42%.
This means that laws which have been designed to maximise competition in Australia have in fact led to
competitors closing down and the extraordinary rise of just two major chains. It is proof that what may work in
theory does not translate to on-the-ground reality when it comes to competition.
Competition policy is often debated purely in terms of price to consumer. However this is only one dimension of a
much wider picture.
An 80% market concentration is dangerous because ultimately it means consumers have little or no real choice. It
kills the livelihoods of small business owners, with devastating consequences not just for owners and their
families, but employees and also a local network of interrelated small businesses. It also means an unfair fight for
suppliers/manufacturers who have no chance against the oppressive power of two huge chains.
Ultimately this extreme concentration of power means the big get bigger while the small get smaller. It means
wealth is transferred from small, family operators, who can ill afford it, to two huge chains. It also means wealth
is transferred from small towns/suburbs to the head offices of Coles and Woolworths, thereby destroying local
economies. This has dramatic effects on smaller retailers and their communities. The status quo is not only
fundamentally unfair, it is destroying the nature of local communities in Australia and turning them into support
systems for Coles/Woolworths profit models.
Coles and Woolworths have consistently pushed the competition laws to the limit - and sometimes beyond – in
the pursuit of market domination. The MGA/LRA submission to the “Root and Branch” review identifies several
strategies which have Coles and Woolworths have used. These include:
- fuel shopper dockets with discounts of up to 45 cents a litre, which has killed business for independent
petrol retailers and grocers alike
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- Crowding out a local market by building big new stores where they are not needed, which forces small,
family businesses to close their doors (called “Predatory capacity”)
- Pricing essential goods such as milk at such a low price that smaller operators can’t compete - and pushing
farmers/suppliers to the wall at the same time (called “Predatory Pricing”)
- Buying up real estate which competitors may want and then leaving it vacant (called “Landbanking”)
The ACCC has moved on several of Coles/Woolworths tactics however it is often too late: the damage is done
before they can be stopped. In this way the big two chains have been gaming the system.
MGA/LRA says that the laws need to change in fundamental ways to stop this oppressive use of power.
Specifically we recommend changes to the Competition and Consumer Act, Section 46. This covers “Misuse of
Market Power” and has traditionally been at the heart of Australia’s competition law. The changes we call for
are:
1. Add an “effects” test
Practically speaking it has been difficult for authorities to prove that Coles/Woolworths intend to drive
competitors out of business/damage them by their practices. An “effects” test is straightforward because
it measures the impact – rather than forcing authorities to collect evidence on intention or somehow read
the minds of Coles and Woolworths executives
2. Add a prohibition on “predatory capacity” (crowding out a market with new stores)
This would be inserted along with the existing prohibition on “predatory pricing”. It would cover the
acquisition of an existing store, the building of a new store, or the acquisition
of land (freehold or leasehold) which is far greater than would be required in a particular
area, or where the corporation is already reasonably represented. This is a logical change
and is being conducted overseas.
3. Reverse the onus of proof
This means that Coles or Woolworths need to prove they did not intend for their actions to have certain
consequences – as opposed to the status quo where authorities face the near impossible task of making a
case.
We also call for changes to Section 50 of the CCA, covering Creeping Acquisitions and Mergers. As its name
suggests, this is a way of gaining market domination by stealth – but escapes the law. Currently the law does not
effectively cover what consequences an individual acquisition means in terms of a larger pattern of acquisitions in
the overall market and an overall move to market domination. The MGA/LRA recommends measuring the
cumulative effect of any acquisition.
Finally the MGA/LRA calls for a mandatory Industry Code embedded in the CCA to control and direct a number of
activities which inhibit fair competition. The Code would have a wide ambit, reflecting the fact that the current
competition problems confronting the supermarket and liquor industry are now overwhelming.
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It would cover a range of areas including:
-
Overall scrutiny of market conduct
Disclosure of Coles and Woolworths terms of trade with suppliers
Advance notice to the ACCC of any planned acquisitions
Scrutiny of the basis of new acquisitions
Greater clarity on how the ACCC deals with fuel shopper dockets and other product bundling
A procedure for divesting of stores/sites acquired in breach of the Code.
The measures we propose represent a challenge to legislators. They are certainly a challenge to the status quo.
But they are necessary because the last 20 years have been devastating to smaller operators. The current system
shuts out individuals who have the enterprise to build their own business. And it is destructive to local
communities while enhancing the interests of just two major entities.
As we have stated, without any change there will no longer be any competition to protect. And everyone will pay
the price for that.
Further comment please contact;
Jos de Bruin, CEO
MGA/LRA - ph: 0418 312 723
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