Coles and Woolies are still getting away with it
So how do companies like Coles and Woolworths protect themselves from competition?
Well it’s simple really. All they need to do is keep out new competitors through a variety of practices designed to lock out any potential new rivals.
For starters, Coles and Woolworths have been entering into leases with shopping centre landlords preventing the landlords from allowing other supermarkets into the shopping centre.
These restrictive lease terms have become widespread and have made it extremely difficult for new entrants, such as ALDI and IGA, to break into shopping centres.
With the ACCC itself having identified around 750 such restrictive lease terms it’s clear that Coles and Woolworths have become very effective in extracting such restrictions from shopping centre landlords.
Sadly, this has long been happening under the nose of our competition regulator – the ACCC.
In fact, the restrictive lease terms favouring Coles and Woolworths have been used for so long that there are some real questions to be asked as to why the ACCC didn’t move long ago to stamp out these restrictions.
Restrictive lease terms are arguably a breach of our competition laws and a failure of the ACCC to remove these restrictions years ago has been costing consumers dearly.
We all know that any restriction on competition is detrimental to consumers so there is no excuse for the ACCC’s failure to act a lot sooner to stop companies like Coles and Woolworths from being protected from competition as a result of restrictive lease terms.
Even after the ACCC finally identified restrictive lease terms as the “single most important issue” facing the supermarket sector, the ACCC still took another year to finally act on the issue.
When the ACCC did finally act they fell well short of what is needed to inject real competition into the supermarket sector.
Not surprisingly, Federal Competition Policy and Consumer Affairs Minister Craig Emerson sang the ACCC’s praises. Sadly, however, the Minister also fell well short of what’s needed to shake up the supermarket sector to deliver a much better deal for consumers.
So what did the ACCC do? Well, it negotiated for the immediate removal of 80% of restrictive lease terms involving Coles and Woolworths in shopping centres.
This removal is long overdue recognition by both the ACCC and by the Federal Government that these restrictive lease terms have been detrimental to competition and consumers by locking out new competitors to Coles and Woolworths.
But what about the other 20% of restrictive lease terms? Well, these restrictions will continue to operate for upwards of 5 years.
Why 5 years? Well, that’s the “negotiated outcome” with Coles and Woolworths and, again raises serious questions about the ACCC’s approach to the whole issue of restrictive lease terms
From a consumer perspective, it’s clearly very disappointing that these 20% of restrictive lease terms will continue to operate to the detriment of competition and consumers. Given that restrictive lease terms are potentially in breach of our competition laws, all restrictive lease terms should have been removed immediately.
With Australia consistently having some of the highest levels of food inflation in the OECD, it’s critical that Minister Emerson and the ACCC take a holistic approach to dealing with the market dominance of Coles and Woolworths.
Dealing only with restrictive lease terms is just part of the picture. Much more needs to be done to promote a strongly competitive supermarket sector and to help push down grocery prices.
Sadly for consumers the ACCC and Minister Emerson have fallen well short in a number of key areas.
First, the ACCC only “negotiated” an outcome with Coles and Woolworths regarding the restrictive lease terms with no commitment having been secured from Shopping Centre landlords that the landlords will make space available to new competitors to Coles and Woolworths.
It’s one thing to remove lease restrictions, but it’s another matter for competitors to get space in shopping centres to be able to compete in the centre with Coles and Woolworths. If new competitors can’t get new space in shopping centres following the removal of the restrictive lease terms, then the so-called removal of the restrictions will fail to achieve anything other than window dressing.
Second, we need a plan from the Minister and the ACCC to deal with restrictive covenants which prevent land outside of shopping centres being used for new supermarkets competing with Coles and Woolworths. These restrictive covenants equally raise strong concerns under our competition laws and represent an additional way that companies like Coles and Woolworths can protect themselves from competition. All restrictive covenants relating to land should also be removed.
Third, we need a plan from the Minister and the ACCC to deal with the substantial land banks that Coles and Woolworths have accumulated enabling them to lock up possible development sites. These land banks also prevent the entry of new competitors across existing and developing suburbs. Land banks are yet another example of how companies like Coles and Woolworths try and protect themselves from competition.
Finally, Minister Emerson needs to legislate against the practice of creeping acquisitions whereby Coles and Woolworths can further protect themselves from competition by acquiring independent retailers in a piecemeal fashion that means that such acquisitions can get around our current competition laws.
For the sake of consumers and a strongly competitive supermarket sector Minister Emerson and the ACCC must move quickly against all these and other practices used by companies like Coles and Woolworths to try and protect themselves from competition.
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