The recent three-day-only offer by Coles to provide higher discounts on petrol purchases bundled with higher spending on groceries signals an interesting change in industry dynamics. Coles is seeking to recapture market position in groceries lost in recent years. Predictably, its move was quickly matched by Woolworths, the market leader.
Consumers able to make large purchases over the three days will likely benefit from the promotion, although compensating changes in grocery prices and in the regular capital city petrol discount cycles will affect this. Coles and Woolworths may gain market share from their smaller competitors, including specialist retailers like fruit and vegetable retailers and butchers. Independent petrol retailers will be under even greater market pressure to survive. Losses made by Coles and Woolworths on petrol sold at discounts of 25 -40 cents per litre will no doubt be subsidised by higher grocery prices.
Although on the surface the move by Coles and Woolworths looks like a welcome increase in competition, in fact it is likely to attract substantial interest from the regulator. It will further increase barriers to entry to these industries.
The ACCC is currently examining the competitive implications of the Caltex, lin ked to Woolworths, proposed takeover of Mobil retail outlets and, before these recent pricing moves, it had indicated that it would be closely reviewing the shopper docket schemes affecting grocery and petrol retailing.
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Whilst the shopper docket schemes have been considered pro-competitive up to now, this has been a controversial position. The more concentrated grocery and petrol retailing become, the less likely it is that the shopper docket schemes will be in the public interest. As the major retailers more aggressively pursue these schemes it is quite likely that the ACCC will start to take a more negative view of them.
More than this, the ACCC may decide that it should finally take a stand and oppose mergers in these industries, like the Caltex-Mobil proposal, which further entrench the market power of major players.
Quite rightly, CHOICE has used the publicity surrounding the increase in shopper docket discounts to highlight the weakness in grocery industry price competition. Consumers would be far better off with more active price competition generally than they would be with an expansion of the shopper docket schemes.
If the Government is not prepared to support greater price transparency as a means to do this through the introduction of Grocery choice, perhaps the ACCC could do something about it. Maybe authorisations for shopper docket schemes and mergers could be made conditional on participation in Grocery choice?
David Cousins is a Professor at the Monash University Centre for Regulatory Studies