It’s official. We are getting ripped off on food and grocery prices.
A review of OECD statistics over the past 10 years clearly demonstrates that Australia consistently has some of the highest levels of food inflation in the developed world.
This is a wake-up call for Federal Minster for Competition Policy and Consumers Affair, Craig Emerson. The evidence of the power of the supermarket duopoly is now overwhelming and the Minister must move quickly to inject new competition into the Australian grocery sector.
The OECD numbers are a timely reminder that duopolies are not good for competition and consumers.
It is a fundamental economic reality that consumer prices go up as markets get more concentrated. With fewer and fewer players in a market there is greater opportunity for the remaining players to act as a cosy club.
With Coles and Woolworths having such a stranglehold over the market, its clear that Mr Emerson needs a plan of action to deliver greater price transparency to consumers and more diversity in the supermarket sector.
Mr Emerson must honour the Labor Government’s pre-election commitment to do all it can to put maximum downward pressure on grocery prices.
Mr Emerson can tear down the supermarket duopoly by strengthening Australia’s competition laws and ensuring that Coles and Woolworths give their customers full price transparency.
Mr Emerson can ask Coles and Woolworths to put all their supermarket prices on a publicly available website. As part of their commitment to customers, Coles and Woolworths could develop their own websites where they would put all their supermarket prices online for customers to check before shopping.
Despite the failure of the Federal Government’s Grocerychoice website, the Government must not walk away from the need to give consumers full access to supermarket prices. Coles and Woolworths can and should give their customers full price transparency on a website in “real time” so consumers can find the cheapest individual supermarket in their local area.
Mr Emerson can remove all remaining restrictive leases that currently prevent new competitors from entering shopping centres to challenge Coles and Woolworths. The recent removal of 80% of restrictive leases involving Coles and Woolworths in shopping centres was long overdue recognition that these restrictive leases have been detrimental to competition and consumers and have been helping to push up grocery prices.
There are another 20% of restrictive leases that will continue to operate for upwards of 5 years. It’s very disappointing that these 20% of restrictive leases will continue to operate to the detriment of competition and consumers. Given the strong competition concerns regarding restrictive leases, all remaining restrictive leases should be removed immediately.
Mr Emerson can do much more to promote a competitive grocery sector and to push down grocery prices.
Mr Emerson needs to seek a commitment from Shopping Centres that they will make space available to new competitors to Coles and Woolworths. It’s one thing to remove lease restrictions, it’s another matter for competitors to secure space in those shopping centres to be able to compete in the centre with Coles and Woolworths.
Mr Emerson needs to remove all restrictive covenants which impose restrictions on the use of land outside of shopping centres preventing new competitors from taking on Coles and Woolworths. These restrictive covenants strongly favour Coles and Woolworths and must go.
Mr Emerson needs 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. Like restrictive leases, land banks are a barrier to entry to new competitors and raise competition issues.
Mr Emerson needs to stop geographic price discrimination. That is the practice where Coles, for example, may charge a different price the same product in different locations depending on the intensity of competition in the particular local market. So in markets where there are strong price competitive independents consumer prices are lower. The problem is that in markets where there are just the duopolists prices can be higher for the simple reason that competing aggressively on price when they are the only two in the market just cuts their profit margins.
Sadly, geographic price discrimination can also be used to drive independents out of the market. Once the independents exit the local market consumer prices will go up.
Mr Emerson needs to deal with creeping acquisitions so as to prevent Coles and Woolworths from undermining competition by acquiring independent retailers in a piecemeal fashion that means that those creeping acquisitions are not caught by the anti-merger provisions of the Trade Practices Act.
Mr Emerson needs to add a general divestiture power to Australia’s competition laws. The United Kingdom and the United States have a general divestiture power that can be used to break up dominant companies that are behaving in a manner that is detrimental to competition and consumers. Senator Conroy has already set a precedent by wanting to break up Telstra. The rest of the Government could follow Senator Conroy’s lead on this all important issue for consumers.
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