Shoppers getting little value from the government
One of the Rudd government’s appealing election commitments two years ago was to act on supermarket prices.
Once in power they asked the Australian Competition and Consumer Commission to examine competition in the supermarket sector and promised to establish a web site to provide price information to consumers so they could better choose where to shop.
As then Consumer Affairs Minister Chris Bowen said in the first few months of office: “One of the things we’re trying to do, is give consumers much more information, and when you’ve got more information you’re back in charge. When you’re driving around trying to work out where the cheapest supermarket is, then really, you’re not in charge.”
So far so good. To give consumers power they need the right information at the right time, and they need a decent number of supermarkets competing with each other for their business.
So are consumers in charge yet? Unfortunately no, and the government’s initiatives have hit a few road blocks along the way.
The first version of Grocery CHOICE – the web site established to put consumers in charge – was a bit of a dud. It didn’t provide consumers with the prices in their local store, and it didn’t give prices for the items in the basket of goods they wanted to buy.
Consumer group CHOICE agreed to build a site that actually worked. But the major supermarkets refused to cooperate, and just three days before launch of a much improved service, the government pulled the plug.
A big problem for consumers is that major supermarket chains charge different prices in different stores for no justifiable reason.
Price differences can’t be explained away through transport costs or different rent levels in different locations. Some supermarkets charge more in some locations just because they can. It’s only where there’s local competition – an Aldi or a competitive local fruit and veg store – that prices are kept down.
An effective website would have brought this geographic price discrimination out into the open.
Geographic pricing is unfair for consumers.
Why should consumers in one part of a city pay more than consumers in another part for the same product sold in the same way? And it’s not wealthier suburbs being asked to pay more – prices are just as likely to vary unfairly between two Woolworths 10 km apart in the western suburbs of Sydney or Melbourne.
While outlawing unfair price discrimination may well be justified, it’s not enough – it’s just treating the symptoms rather than the disease.
Australia has one of the most concentrated grocery markets in the world. The two major supermarket chains share around 70% of the market for packaged goods. In the UK the four biggest chains have a 55% share of grocery sales and the three biggest chains share 54% in Canada.
So what is the government doing to reduce concentration? Planning laws are important as access to sites is a key feature of the supermarket industry.
The ACCC has announced that Woolworths and Coles will phase out reliance on restrictive clauses in their leases with shopping malls that limit their ability to lease space to rival supermarkets. Over time this may make it easier for chains like IGA and Aldi to gain access to sites, but it’s not going to seriously impact the dominance of the majors.
There is also talk of reform to State planning laws to make it easier for competitors to obtain sites in shopping areas outside malls.
These proposals are hazy at the moment, and may or may not actually work. The detail of the changes and the political will to see them through will be crucial – and so far we’ve seen neither.
But what about competition law? The ACCC inquiry supported a law to prevent supermarket chains gradually increasing their dominance through buying a store here and a store there.
The government has released a discussion paper on these so called ‘creeping acquisitions’ but so far no action, and there’s no real confidence around that we will see any.
What we really need is strong guidance about the level of concentration we are prepared to see in any local or regional market. We probably need at least four sizable competitors in any area.
This would suggest setting a limit so that where one store has more than say 25% of the market it would be difficult for it to prove there was any public benefit in it being allowed any new sites in that area. But incremental improvement isn’t enough.
The competition regulator needs the power to break up companies where they have too much dominance at a national level. These powers exist in countries such as the USA. They also need to be given the obligation to use those powers where concentration is seen to be harming consumers.
So to put consumers in charge we need real government action on both competition and information for consumers.
In July Consumer Affairs Minister Craig Emerson noted a commitment from the supermarket industry to work on a web site to provide similar information to consumers.
Consumers still need this information - but there is no mention of such a site in the Minister’s recent statements on what the government plans to do about grocery prices.
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