They rule food, grog and petrol, now it’s hardware
Were you so inclined, you’d have to work pretty hard to boycott Woolworths and Wesfarmers. For a start, it would be tough to eat. Woolworths and Coles (owned by Wesfarmers for the past two years) pocket 70c of every dollar spent in supermarkets in this country.
It would also be difficult to get drunk. Buying booze means handing over an average of 45c of every dollar to the big two, which own Dan Murphy’s, BWS, Liquorland and Vintage Cellars.
Picking up petrol on the way home delivers another 44c of every hard-earned to a service station owed by Coles or Wesfarmers. Think you’re safe in a department store?
Woolworths owns Big W and Wesfarmers own Kmart and Target. Between them, they’ll take you for an average 62c of every dollar (90c if you remove the upmarket Myer and David Jones).
And if you want a sociable drink to forget the whole experience, there’s a reasonable chance you local is owned by one of the two biggest pub owners in the land – Woolworths and Wesfarmers.
News yesterday that Woolworths is moving into the hardware business, where Wesfarmers’ Bunnings is already the biggest player, represents another step on the long march towards market dominance and duopoly – oligopoly if you’re lucky – in just about every important sector of the retail economy.
Don’t think the big two will stop here. Woolworths recently moved into upmarket, gourmet food retailing through its Thomas Dux Grocer experiment, while both players would pounce on any change in the law to get into pharmacies.
There’s no suggestion that Woolworths and Wesfarmers collude in any way to screw consumers. They’ll tell you the rivalry is fierce, although the competition regulator prefers to describe the situation in many markets as “workable” rather than robust. The Australian Competition and Consumer Commission’s latest inquiry into the grocery sector, commissioned by the new government last year, found there was nothing fundamentally wrong with competition in the market.
There’s also no suggestion that Woolworths and Wesfarmers do not, at times, deliver great value and services for consumers. The “big box” warehouse-style outlets – Dan Murphy’s in liquor and Bunnings in home improvement – have revolutionised their sectors and have, by and large, been good for shoppers. It will be great to have Woolworths and its US partner Lowe’s challenging Bunnings’ free run in the hardware space.
It’s where we go from there that’s troubling. You don’t have to collude to stifle competition. Simply having two dominant players is usually enough. Unlike companies in other sectors, such as property, media and banking, the big retailers have pursued their expansion strategies in Australia rather than look overseas. The effects have been enormous.
Firstly, many independents have been driven to the wall. According to IBISWorld – the helpful provider of the market share stats above – independent grocers held 60 per cent of the market in the 1970s. By the mid-1990s, the chains dominated. In that period, countless small family-run butchers, bakers and greengrocers vanished from the nation’s high streets. Suppliers, even big ones, found themselves squeezed by the buying muscle of the chains.
The same thing has been happening in liquor as some smaller operators are bought by the big two, who embarked on their booze expansion in the late 1990s and early 2000s, and others collapse. Independent, mum-and-dad hardware stores fear the same shockwave is coming to their industry, if it isn’t already here.
As the big chains get bigger, the so-called “barriers to entry” for any new competitors get higher. The German-backed ALDI chain has successfully brought its discount grocery brand – and excellent, cheap nappies – to Australia. But, really, you’d have to be pretty brave and extremely wealthy to go up against Woolworths and Wesfarmers in any of their markets.
And as Woolworths and Wesfarmers creep their market share higher, the chance of new competitors coming in, and the incentives for the big two to aggressively compete, fade.
The wasted $13m thrown at the GroceryChoice website was clearly not the right way to tackle companies as big as Woolworths and Wesfarmers, with almost $100bn of annual sales between them. I doubt we can rely on the goodwill of Woolworths and Wesfarmers, who have their own shareholders to consider. That leaves Graeme Samuel and his competition cops at the ACCC. Good luck.
Don’t miss: Get The Punch in your inbox every day
Read all about it
Up to the minute Twitter chatter
RT @Rob_Stott: Like a lot of Republicans in the US, it's much easier to support gay marriage when you're no longer in a position to do anyt…
The latest and greatest
Good morning Punchers. After four years of excellent fun and great conversation, this is the final post…
I have had some close calls, one that involved what looked to me like an AK47 pointed my way, followed…
In a world in which there are still people who subscribe to the vile notion that certain victims of sexual…