Hardware stores that are anything but Danks
A couple of week ago our competition regulator – the ACCC – expressed some serious competition concerns with Woolworths’ proposed takeover of Danks - the wholesaler to over 1500 independent hardware retailers.
Although the ACCC views are “preliminary,” the competition concerns it expressed should be sufficient to stop the Woolworths takeover of Danks under Australia’s anti-merger laws.
Clearly, the ACCC needs to stop watching and move quickly to protect competition in hardware sector. Indeed, the ACCC can, and should stop, the Woolworths takeover of Danks.
Why? For the simple reason that Danks is a strong independent wholesaler that offers its independent retailers competitive prices on the supplies the retailers buy from Danks.
In fact, at the moment the hardware sector is highly competitive because there is a diversity of independent competitors supported by a strongly competitive wholesaler such as Danks.
These independent competitors can currently buy at very competitive prices from an independent wholesaler like Danks, which then allows them to compete aggressively with Bunnings and with each other. That keeps everyone honest at the moment and ensures that consumers are getting the lowest possible prices.
Now, the Woolworths hardware play runs the very real risk of changing that market dynamic to the detriment of competition and consumers. Why? Simply because of the way Woolworths has structured its hardware play.
First, Woolworths wants to “get into” the hardware market in a “big way.” Fine, you might say, but remember that Big W and, to a lesser extent, Woolworths supermarkets are already in the hardware market.
Walk into any Big W and in one corner you will see a hardware store full of power tools, ladders, nails, screws, electrical and garden products.
Is Big W competitive on hardware prices? Sometimes. How’s it on service? Well, patchy from personal experience. That’s assuming you can find an experienced person available to offer advice. Not always a safe assumption!
Compare Big W with your local Bunnings. Yes, it’s a big box full of hardware surprises, but how does it rate on price and service. Again, from personal experience Bunnings is not always competitive on price and its service can be patchy.
Try walking around a Bunnings or a Big W and it’s sometimes very difficult to quickly find an experience person ready to answer those curly hardware questions.
Yes, you may find enthusiastic young people running around a Bunnings or a Big W but all too often they have far less experience in dealing with tough hardware questions than do local hardware retailers.
Yes, there are very experienced advisers at Bunnings, but there is often a queue of customers waiting to talk to them. Those experienced advisers can do a wonderful job, but sadly there never seems to be enough of them!
Selling hardware and giving advice is a lot harder than just selling groceries. That’s where the local hardware store has a considerable advantage over the likes of Bunnings.
Even on price, you find that the independent hardware retailer can be just as competitive. Why, because at the moment the independent hardware retailer can buy at very competitive prices from independent wholesalers such as Danks.
So, why is the Woolworths play a Trojan horse? Let me explain.
First, Woolworths is proposing to add “big boxes,” that is, big warehouse-type places that feel like walking through a cave system. Like cave systems they can be a lot of fun exploring, but you can easily lose yourself and family members.
Now the Woolworths’ big boxes are designed to compete with Bunnings. Nothing wrong with that, provided, of course, that Woolworths (and Bunnings for that matter) doesn’t engage in any anti-competitive conduct. In that regard, there are two immediate areas of concern involving the possibility of predatory pricing and price discrimination.
Predatory pricing would cover those situations where Woolworths chose to sell products below their cost for a sustained period of time to eliminate a competitor. This would be illegal under the Birdsville Amendment to our competition laws. Predatory pricing is bad for competition and consumers because we know that prices to consumers go up when competition is destroyed by the predatory pricing.
Anti-competitive price discrimination would involve Woolworths supplying its own big boxes at a lower price than it would supply independent retailers buying through a Woolworths-owned Danks.
So, if Woolworths was to use a newly acquired Danks to charge independent hardware stores a higher wholesale price than Woolworths would supply its big boxes, then clearly those independents would not be as competitive as they could be. That would mean less competition and higher prices for consumers.
In practice, a Woolworths takeover of Danks raises very significant competitive and commercial potential conflicts of interest for Woolworths. Woolworths would, through Danks, be supplying independent hardware retailers who, in turn, will be competitors to the Woolworths-owned big boxes. Will Woolworths play “favourites” with its big boxes or will it discriminate against individual Danks-supplied independent retailers?
More dangerously for competition and consumers, Woolworths taking over Danks would significantly reduce the options available to independent hardware retailers wishing to switch to another wholesaler if the independents were not happy with the wholesale prices that Woolworths charges them after the Danks takeover.
It doesn’t take much to realise that there are very strong arguments suggesting that the Woolworths takeover of Danks could substantially lessen competition in the wholesale market, as well as the retail market, in breach of our anti-merger laws.
On this basis alone the Woolworths takeover of Danks could and should be totally stopped by the ACCC. Anything less from the ACCC would simply be a bad outcome for competition and consumers.
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