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Business

Feb 14, 2006

Retailing's tough guys: Woolworths, Coles and Metcash

There are two constant trends in Australian grocery and liquor retailing that, at some future stage, will have very serious implications for competition policy. The trends

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There are two constant trends in Australian
grocery and liquor retailing that, at some future stage, will have very serious
implications for competition policy.

The trends are the big two getting bigger,
taking market share from independent channels, and a never-ending squeeze on
suppliers’ profit margins and the control of their businesses.

The power of the big two, Woolworths and
Coles Myer, is a constant source of pain for many suppliers. In the grocery
field in particular, suppliers are on a hiding to not much and that is being
extended into the alcohol business as the near-duopoly extends its reach. If
you get around the suppliers, you will pick up stories that forever go
unsourced – even the big multi-nationals are too scared to complain
publicly when most of their market depends on the sometimes thuggish retail chains.

The ACCC’s Trade Practices triumph over
Woolworths in the Safeway case
and the churlish response by Woolies’ CEO Roger Corbett provided a window into
the bully behaviour. Note that Corbett was unrepentant beyond losing the court
case.

So far, consumers have been the winners
from the big chains’ rollout. The profits from bashing suppliers have been split
between the retailers and the consumers. Consumers, by definition, are the ACCC’s
main concern, but the small business lobby keeps chipping away at the political
masters to get them to show more interest in abuse of market power.

The economic text books say that, at
some stage, a duopoly will result in consumers being screwed too. The one
takeover-too-many by Coles and Woolworths, though, will mean the ACCC will be too
late to do anything.

Interestingly, the ACCC has used the
profitability of Metcash – the main wholesale supplier of independent grocers
and liquor shops – as the mine canary to
warn of Coles and Woolworths becoming too powerful. The argument runs that if
Metcash is reporting higher profits, the Big Two can’t be totally dominating
the market.

But now it seems Metcash’s profit growth
comes from using the same tactics on suppliers as the Big Two and being equally
ruthless with its own key customers – an almost captive market of independent
grocers.

The following three stories are minor
illustrations of what is going on…

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