They rule food, grog and petrol, now it’s hardware

Simon says:

07:09am | 27/08/09

You know I could drive into any small country town and spit disgust at the duopoly of the two Petrol stations, the two small supermarkets (if they are lucky enough to have one, let alone two), the two pubs… etc
I mean where is the freedom of choice? Why do these store owners run the show?
Frankly the market supports what it can support. The Cole’s / Woollies setup works the evidence is that they thrive.
If you think that companies cannot hold diverse portfolios then clearly the laws governing business in Australia disagrees.

Steve S says:

08:53am | 27/08/09

I agree with every aspect of your article and the damage has been done a long time ago ie the proverbial horse has bolted.  So called shock jock, Alan Jones, has been parroting (pardon the pun) on about it for years and the Howard government just allowed it all to happen and despite K Rudd’s promises prior to the election about he was going to ensure the public were not going to be ripped off by this duopoly, absolutely nothing has been done.  There was window dressing with petrol watch and grocery watch, talk about taxpayers money being peed up against the wall.  The other main problem I see is that the vast majority of people have been hoodwinked into believing the ‘fresh food people’ and ‘lowest prices are just the beginning’ have our best interests at heart.  Certainly there are bargains to be had if you shop smartly and a far greater range of products (think Dan Murphys) when it comes to beers and wines etc but a lot of the time the so called bargains are of a cheaper standard whilst you’ll wind up paying even more if you want the top quality product.  The so-called fuel discount vouchers barely save you enough to pick up the paper and whatever they miss out on the swings, they’ll grab it on the merry go rounds.

Jake Zanoni says:

09:00am | 27/08/09

Soo a major chain entering into an industry already dominated (according to you) by another major chain equals less competition?

Mum and Pop stores are dying out because they don’t provide a service that people want.  People like value for money and many people these days don’t count ‘chattin’ as a service.

People can mourn if they want but sorry, you’ve been outvoted by the true democracy that is a free market.

...well not exactly free but by all means get the Government leviathan out of the way and see things improve

Besides, it isn’t like butchers and bakers don’t exist anyway.  They absolutely do.  The boutiques and quaint antiquities are still there to serve a niche.

As the author alluded to, these chains have revolutionised productivity.  This is how wealth is created and in the long run we all benefit.

Build a time machine, go back to 1950 and see what you can afford to buy.

Hitchy says:

09:44am | 27/08/09

I’ve always taken the view that all banks, supermarkets & insurance companies are ‘bastards’....I’ve also realized that only way to ‘break even’ in one’s dealings with them, is to become a shareholder….at least some of my ‘hardearned’ comes back to me in dividends & capital gains on the share price….& they are VERY profitable, which soothes my aching wallet & feelings of dispair at the ACCC

Marcus says:

09:59am | 27/08/09

To Jake, have you done any research into free markets?  Without any government intervention we end up with the US banking system and hasn’t that been a success story!!!!  The government has to step in and pick up the pieces to keep the entire establishment afloat.  Barriers to competition need to abolished.  This includes ‘collusion’ in supermarkets.  Easy to control the market when there are only 2 players

joe says:

10:08am | 27/08/09

Australia’s duopoly is a disgrace. Coles and Wollies are unionised aren’t they, so Labor don’t care at all about sorting them out.  Bet they give big donations to the ALP also. It only seems Barnaby Joyce speaks up on this issue.

Joe says:

10:10am | 27/08/09

Its the alleged predatory practices that are the worry. Yes we may have cheap petrol/bolts/booze for a few years (well in suburbs with competition that is) but once the independents are gone the duopoly can name their price. This is the worry.

Chris says:

10:18am | 27/08/09

It is time for the Duo Monopoly of Woolworths and Coles to be broken up, Forced to sell up, This is hurting the Country, When is this Australian Government going to see the damage it is causing to the communities around Australia.
We as people in this Country are being screwed to the wall every time we open our wallets and purses to purchase anything. 
This used to be called the LUCKY COUNTRY…Well not anymore.

Jake Zanoni says:

10:39am | 27/08/09

Marcus:  If you reread my post you will note that I referred to getting the Government leviathan out of the way.  I meant this as a reference to burdensome government regulation that stands in the way of competition, itself becoming a barrier to entry.  This is not so much an argument about the ACCC (although yes I’m not convinced of the good it does), as much of the problems are found at the State and indeed local level.

I want to assure you that yes I have done research on free markets and no I don’t accept your assertion that we need Government intervention (beyond a legal apparatus to prevent/amerliorate force and fraud).

As for your specific example, if you look into the issue with a greater level of detail than ‘newspaper headlines’ or Kevin Rudd’s insightful essays, you will find that the GFC was set off by the Sub Prime Mortgage crisis.  The Sub Prime Mortgage Crisis was caused by a Federal Reserve that lowered interest rates too much to desperately keep the economy ‘ticking’, and a US Congress sub prime mortgage scheme that not only subsidised the companies involved and provided lines of credit to the tune of Billions upon Billions of dollars, not only gave an implicit guarantee on the funds, but ACTIVELY encouraged these organisations to continue to fund such mortgages. 

Classical liberals have for centuries warned of the danger of government and big business collusion, which is one of the reasons why they believe in limiting government power. 

In my opinion, its abuse is an inevitability.

http://www.pimpinforfreedom.wordpress.com

Paul says:

11:02am | 27/08/09

Yes Hitchy, I agree just go and buy their shares if you think they are making too much money . Woolies shares $28, yearly dividends <$1. I think the customers are getting a good deal.

Jo says:

11:03am | 27/08/09

I wish the media would take the focus off Woolworths opening Big Boxes (everyone in the hardware industry knew this was going to happen anyway and if it wasn’t Woolworths it would be someone else) and do an analysis on how this is going to effect the independents with Woolworths controlling the warehouses that supply the majority of their hardware stock.

AdamC says:

11:22am | 27/08/09

I am not sure this is too much of a problem. As Clive states in his article, many of the big retailers offer consumers much more competitive prices than independent alternatives. Indeed, if concentration in the supermarkets sector, for example, radically reduced, the big winners would be the product producers, which are also highly concentrated in many categories.

This is also not surprising. Economies of scale are important, probably more so than our high-school economics textbooks suggested. It costs money to establish a business, market it, launch new products and operate a supply chain. These costs naturally decrease in unit terms with scale, hence the consolidation of providers in many areas, including retail and FMCG.

I am simply not convinced that having hordes of small providers with relatively higher unit costs is preferable, from a consumer standpoint, to having a smaller group of large, relatively lower-cost providers with some niche and local competitors. (And, just to pre-empt, I do not work for either WOW or WES, nor any of their suppliers or associates.)

COF says:

12:06pm | 27/08/09

Jake,
regulation of business in this country, besides industrial relations, does not go past measures to combat force and fraud, so I don’t know what other imaginary “burdensome government regulation” you are talking about.

APRA, ASIC and the ACCC protect businesses and investors from wilful theft on the part of the more amoral businessmen and investors out there who feel that the best way to make more money is to manipulate the free market themselves.

Eddy Groves would have walked away with millions of dollars from ABC learning (technically investors money) if he had not been prosecuted by ASIC.

Visy and Amcor would have continued to overprice their customers, in essence wilful theft of equity, had they not been investigated by the ACCC.

In your studies of free markets and microeconomics you would have come across the concepts of perfect competition and the effects a monopoly or an oligopoly have on the efficiency of the market. This is what upsets people, the fact that in essence efficiency of supply is affected by this lack of competition in the retail sector. This is because suppliers to the retail sector, who have no choice but to deal with woolies and coles, are squeezed of their equity to the point where they are unable to do business anymore. This destroys the supply chain in many cases - the retailers have done it so effectively in some industries that they have no choice but to import.

So leave your free market speech for the party room. Meanwhile out here in the real world the retailers are choking Australian business to death.

Jake the Muss says:

02:03pm | 27/08/09

COF:  Firstly I think you have an innacurate view of the scope of regulatory policy (TPA, business guidelines etc) on both a Federal and State/Territory level.  The policy goals extend beyond simple theft and fraud, and include many other concerns such as environmental goals, discrimination (disability compliance etc), as well as the broad and vague concept of ‘fairness’.  Goals that may or may not be laudable, but certainly outside the concept of theft or fraud (unless you want to stretch the definitions to the point of absurdity).

Secondly, you may consider those people amoral but I would certainly label them immoral, although depending on the specifics perhaps not what I would want to be actionable behaviour.

Re Eddie Groves:  Nowhere have I said that ASIC should not exist.  I think people like Eddie Groves should be held to account and I think if proven, his actions are a perfect example of the kind of thing that I think should be actionable.

As for the ACCC, I also did not suggest it should not exist.  I have problems with some aspects of the TPA however the TPA largely codifies common law and principles that again fit into the scope I gave above.  I’m not convinced though that the ACCC and in some cases ASIC, actually helps.

I think the issue here is a case of ‘what is seen and what is not seen’.  As I stated above, classical liberals concerned themselves with big government and big business because they knew the danger of the two getting together.  Consider industry bodies/industry laws/industry regulations and who has been behind them or supported them.  They become compliance weapons against smaller operators.  Mum and Pop certainly cannot afford a legal department.  You can point to the ‘successes’.  What about the failures and the opportunity costs?

Besides the Federal bodies you mentioned, the regulatory burden for businesses continues.  Taxation and tax complexity, compliance issues, rates, licenses and registrations, are all relevent.  People don’t talk about simplification simply to save money on printing law books.

Yes I am familiar with perfect competition, and I’m sure you are aware that it is a hypothetical.  An impossibility in the real world but a tool used to devise principles that can be adapted and applied to the real world.  I understand that monopolies and oligopolies increase prices compared to monopolistic competition.  I think the line is gray, I think that in the short term the greatest barriers to entry are derived from the Government, and I think in the long term it is a minor issue (particularly when considering technological advancement and changes in product demand).

The real world is a rebuttal to your claims.  The major two have a large share and that is something of an issue but the market will respond.  Look at Aldi, look at IGA, look at Costco.  Participants are starting to enter because they see the opportunity.  My goal is to speed this process up as much as possible by removing impediments and costs.

I don’t know what you mean about ‘party room’.  There’s no party here, I don’t celebrate the demise of businesses.  I empathise with failed and failing businesses.  I am not a stranger to business failure.  Ultimately though, they are simply a misallocation of resources.  ‘Creative destruction’ (the economic concept) is a good thing.

By the way, how is your time machine coming along?

http://www.pimpinforfreedom.wordpress.com

Jack says:

02:56pm | 27/08/09

That’s some fine muckraking, Clive… but they dont really ‘pocket’ 70c for every supermarket dollar, do they? I assume they have suppliers, employees and landlords that like to be paid.

But I guess ‘major chain makes net profit of 3.28% of sales’ doesnt quite have the same alarmist ring to it, does it now?

Oh, and they paid a total dividend of $1.04. That’s about 3.6%. Yup, they sure are gouging you everyday hardworking aussie battler larrikin fambaly etcs.

Jack says:

03:10pm | 27/08/09

(btw, I am referring to WOW above)

Kinda disappointed. I expect this kind of thing from the Daily Telegraph, not the Australian.

JoJo says:

03:20pm | 27/08/09

COF, you are right on the ball. Jake does not know what he is talking about! Duopolies are bad from whichever way you look at them…..basic economics…....

Martin Doyle says:

03:28pm | 27/08/09

For wholesalers to compete on a level playing field you would think it would be against the law for a retailer to also be a wholesaler too. Seems like it’s anticompetitive to other wholesalers, and corrupting the market. The ACCC needs to explain why the playing field is not even for all wholesalers.

stephen says:

03:35pm | 27/08/09

I’m wait’n to rock up to the newest woolies hardware, and the salesman has a tag on his lapel which reads : if we don’t have the pickaxe for you, WE’LL SURE AS HELL GET IT IN.
Now that’s service.

Jake the Muss says:

03:42pm | 27/08/09

JoJo:  I want to reassure you that i do not believe that duopolies are good.

I simply don’t think the present policies being put forward are appropriate and/or effective.

John says:

03:44pm | 27/08/09

Don’t forget that they are one of the biggest players in the Pokies’ industry.

Jack says:

03:51pm | 27/08/09

Martin, so if my little sister makes some lemonade, she shouldnt be allowed to sell it as well?  And god, I am so sick of that little baker on the corner, selling bread to me AND to other stores! Better shut down all those farmers’ markets too, those dirty commie farmers are producers, wholesalers AND retailers!

Supply chain integration is a good thing. It keeps costs down for the consumer. Bet you would have a whinge if prices went up because you added another middleman who needs to make a return on his invested capital, and therefore needs to add a profit margin.

The only thing the ACCC ‘needs’ to do is to ignore stupid suggestions from people that cant distinguish between vertical and horizontal market conduct. Or even understand basic trade practices law.

COF says:

03:51pm | 27/08/09

Jake,
forgive the party room comment, it seems that every opinion maker on a particular side of the political spectrum seems to espouse “less regulation” under any circumstances while the other is in complete opposition. I am for neither, and am in fact a true conservative - I believe it should stay the same. In the end politics with regard to business and all subjects has become what is essentially a philosophy dialectic - two extreme positions battling each other, which in fact moves both sides further to the truth, a good thing.  It is important, however, to acknowledge that neither knows the truth, and neither is a complete worldview.

In essence I am not advocating any action on the part of government here, the TPA may have its faults but something like that needs to be in place. As you would have seen from the Amcor/Visy example recently, the majority of damage done to businesses that breach the Trade Practices Act is done in the civil law courts anyway - Visy was fined 30 million, but both Visy and Amcor (who the ACCC let go) have been subject to a neverending string of viable class action lawsuits from their customers (200 million from Cadbury Schweppes alone, let alone Nestle, Effem, Coke, Pepsico, Unilever etc). Without the initial action of the ACCC, these people who had a right to their money would have been unaware of the anti competiive practice against them and would have continued to be ripped off for their cartons. If there were a large amount of small to medium manufacturers in the carton industry, there would have been no point to Amcor and Visy inflating their prices - the other manufacturers would have got the work. This is an example of how better, if not perfect, competition works in real terms, and I can add many more - the machine tooling industry is in perfect competition in this country and is one of the most efficient bare bones industries in the country - incredibly difficult to make a large amount of capital out of. So perfect competition is anything but a pipe dream, and there are only grey areas if you want them to exist.

You are beginning a semantic argument by calling tax law a “regulation” as tax still has to be paid regardless of the behaviour of a business. Reducing or increasing tax or rates belongs to another debate. Licences and registrations, while tedious I agree, are in fact similar to tax in that all companies require these anyway, again regardless of behaviour. This is not regulation, and we are concentrating here on what should and should not be done to avoid oligopolies such as that in the retail industry.

I certainly do hope that other competitive retailers increase their market share in the Australian market, but I also hope that the Trade Practice Act and its relevant authority, the ACCC, are there to ensure the major retailers play by the rules and do not subject them to predatory pricing, secondary boycotts, price fixing etc. You mention creative destruction, using it as an example of where it applies to the misallocation of resources. Competition is important as it ensures that creative destruction only occurs where there is a genuine misallocation of resources, and not in highly efficient enterprises that are being strung out by monopolies and oligopolies.

It’s supply side economics - efficiency of supply leads to cheaper prices and in essence a better off nation, especially in the important market commodities such as those sold by the major retailers. Competition regulation ensures that supply is efficient to the consumer. Maybe that means I belong in the 80’s, so my time machine must be a DeLorean.

WB says:

04:14pm | 27/08/09

JoJo, which economics class did you take? Duopolies, as are mono/oligo/pure comp, indicate a form of competitiveness in the market. All of which have pro/cons from both the supply and demand side. Mono/duo-polies are not inherently bad; it just means there are a limited number of suppliers. If demand is high, that gives those guys suppliers particular bargaining power. However, if demand decreases, for example with fixed phone lines/Telstra, bargaining power shifts away from the supplier. (although it won;t happen tomorrow, just watch Telstra’s mono/oligo-poly deal with that decline).
Martin, a retailer being a wholesaler or vice versa is simply vertical integration. Besides, how many ‘small’ ‘wholesalers’ don’t also sell directly to the retailer. Example, you reading the newspaper online is basically the reporter/editor cutting out the middle men printer, distributor, transport, and newsagent… don’t the newspapers have vertical integration down to perfection? My local chippie also works for a fish wholesaler. Let’s all boycot the local chippie and get ACCC to investigate!!

Wills says:

04:17pm | 27/08/09

Recently I had to get a flourescent light set up in a hurry and I walked to a nearby lighting specialist, found what I want and paid $61.00. The next day I had to get some timber from Bunnings and again, it was within walking distance. Lo and behold, the EXACT IDENTICAL light set up I bought the previous day was retailing for $37.00! While I have sympathy for the little guy in his empty-most-of-the-time shop, the extra $24 is a bit too much for me to bear. I don’t think my family will shop there again. Yes, I do have WOW, WES and the banks in my portfolio.

JoJo says:

04:47pm | 27/08/09

Jake thanks for your reassurance, I must admit to not having time to follow the rest of your debate with COF but I am finding it endlessly fascinating and informative….
WB good comment…..I guess there was a little more normative opinion coming in there from me rather than fact…..monopolies/duopolies just remind me of big brother too much. It just feels inherently bad to have two entities in virtual control of such large markets like that. Too much power. And that never seems to be a good thing. Whoops no fact in that comment at all! I’ll get back to work now and stop throwing in random comments…....

Jake the Muss says:

04:50pm | 27/08/09

COF:  can respect your position and probably with your last post I’d say that our opinions are not as starkly different as I originally thought they were.  Yes you are a true conservative and I must admit I am something of a radical lad.

HAHA I’ve decided I quite like you now.  Especially because of the DeLorean crack.

It is approaching semantics but I do believe taxes/compliance etc are relevant to competition.  Mainly to buttress my point about how different sized firms have different capacities to wear burdens of this nature.

Martin Doyle says:

04:53pm | 27/08/09

Jack, the article is about Woolworths, I am not opposed to your local pastry shop. But when you see Woolworths buying equity in breweries (Gage Roads Brewing), geez you wonder if there are any boundaries. Perhaps their next step is for Woolies to buy some vineyards, then you would have no middleman at all. But then again, I suppose if it means cheaper grog then you could be right.

Rob Banks says:

04:57pm | 27/08/09

I haven’t paid a cent to Woolworths or Coles in over a decade. I can do that easily because I don’t drink and I don’t drive. I get my grocery supplies from another company and I have a few to chose from. Hardware is another matter, it’s only been recently that I have refused to shop at Bunnings and boy am I glad about that. Bunnings should be charged with false advertising, they do not have tradesmen working there and the very few that are can’t be very good at their job can they or they wouldn’t have settled for a lower income.

Peter B says:

05:41pm | 27/08/09

This article focuses on the sales side. What about procurement? The standover tactics used by Coles and Woolworths borders on criminal. A big step has been to introduce their own product brands like select. Just have a look at the shelves. Suppliers are in market share freefall. So much for competition these guys will not stop until it is all theirs. The monsters are getting bigger. At what stage does Australia introduce anti-trust laws?

Martyn says:

05:50pm | 27/08/09

If we went back to the bad old days we would be paying a lot more at the shops. Major suppliers are able to buy in bulk and pass on the savings to the shopper. To easy

Brenty says:

06:42pm | 27/08/09

Thank God I bought shares in the float!

Charles Costello says:

09:51pm | 27/08/09

About the only serious opposition to this duopoly will come from the fledgling online shopping site which also allows participants to profit share - something the big retailers only do for shareholders. Trouble is a five-letter-word and generation old myths send people scurrying back like servile peasants to the big two. It seems like the majority of the population are happy to work for forty-five years in jobs that underpay them and to seek temporary respite in a culture of complaint about the prices they pay for basic goods and services. The rule should be: if you complain about what’s happening, do something about it. Otherwise, shut up!

DaZZa says:

03:41pm | 28/08/09

“The rivalry is fierce” - maybe it is, at a corporate level - but have you ever walked through Coles and Woolies and compared prices of identical products? Chances are the price will be exactly the same - where’s the rivalry in that? And if there is any rivalry, it’ll only last until Woolies and Coles are the last men standing - then they’ll sit back, smile, and screw everyone even more than they are now. And the ACCC is too gutless to do anything about it. Bring on more Aldi stores, and more Costco warehouses - given the option a decent sized of one of them close to home, I’d never shop at Woolies or Coles again.

MsMonaLoudly says:

02:06am | 01/09/09

this whole debate is really silly no one is forcing you to shop anywhere you don’t want to. wow and wes don’t come around to my house, kidnap me and take me to their stores.