One of the things that has me most bemused about the Coalition this year is their continued opposition to and belittling of any initiative to make the retail grocery market more transparent – whether it’s web based price comparison or unit pricing. In concluding a comprehensive post on the ACCC’s report into competition in the sector, Tim Dunlop observes:
One final point for now: on what I’ve read so far in the report, and in the media, too much is made of the conclusion that the market is “workably competitive”. The implication is being drawn is that there isn’t much we can do to improve things and that measures that the government wants to introduce like GroceryChoice, unit pricing, relaxation of some zoning rules etc are therefore pointless. Again with my retailers hat on I would say that the increased transparency provided by some of these measures is precisely the sort of thing that will keep the buggers (like me in a former life) honest.
I can see perfectly clearly that the Liberals are trying to turn food prices into Kevin Rudd’s version of John Howard’s interest rates deception – implying that Labor promised that prices would be lower under a Rudd government. They’re also trying to imply that Rudd and co are “out of touch” – another reversal of the tactics of the ALP last year. But, speaking as someone who does his own shopping and would be very interested in comparing unit pricing on say, instant coffee, and in whether milk and bread are cheaper at the local Coles or the IGA up the road, I can’t for the life of me see how anyone who actually shops is going to think these measures aren’t, well, good things even if they’re not earth shattering. Nor can I figure out why anyone who purports to be in favour of market transparency – as opposed to the self interest of large retailers – could find all this to be some sort of evil and intrusive government action. But maybe Malcolm Turnbull has a different view?
Update: Bernard Keane in Crikey explains why the measures proposed aren’t a stunt.
Elsewhere: More on the report from Joshua Gans.
The other problem the Liberals may run into is that the CPI reports prices for fresh food are falling. So maybe the comparison to Howard’s earlier interest rate good fortune is more apt… Kevin didn’t do anything to deserve it (yet) but food prices are going down and he’ll happily reap the benefits.
Come on Mark. This was not so much a damp squib as a squib at the bottom of a water-filled bucket. Rudd should not be able to avoid the consequences of his shady pre-election commitments just because he delivered them more artfully than did John Howard.
BBB
Update: Bernard Keane in Crikey explains why the measures proposed aren’t a stunt.
How, precisely, should he demonstrate bona fides in this area if you think he promised to keep food prices down, BBB? Introduce price controls?
Howard made an ethereal claim that interest rates would “always be lower” under the Liberals. Rudd and Swan promised to do specific things, which are being done (with some more measures arising out of the ACCC report – including addressing the land issue). Is that one and the same to you?
Well, I know it has been a theme of this blog to state the the Rudd Government is doing things. In fact, they are a hive of activity, and this activity will produce tangible policy some time down the road.
If my memory serves me correctly, the ALP made a lot of noise about prices last year while in opposition. Why would they have done this if they didn’t plan to do something about it?
I like the idea of unit pricing, which will enable those of us who are mathematically challenged to compare prices of products of different sizes.
However, there doesn’t seem to be a lot of tangible action in this area other than this.
When the Rudd Government were talking about attacking inflation, they were also increasing the registration on trucks significantly, thus affecting the cost of food. It’s hard to believe they are about more than spin when this happens. They can either moderate their policy or their rhetoric.
Howard C, I wouldn’t underestimate the possible impact of examining anti-competitive barriers in state and local planning laws and of bringing “creeping acquisitions” under the purview of the TPA in terms of making the market more competitive. Again, I’m questioning whether practical action which does have the potential to increase competition and/or competitive pressures needs to be met with derision.
The other measures might be useful, but GroceryChoice is useless as a tool to find the cheapest supermarket in one’s area.
Christian Kerr nailed it today in ‘don’t metion the recession’
http://www.theaustralian.news.com.au/story/0,25197,24135657-7583,00.html
“Kevin Rudd and Swan have got themselves into a bind. They’ve got the message wrong for both the markets and the mum and dad voters. They’ve talked the economy down. Now, they have to talk it up. They’ve raised expectations they can’t fulfil. And now that they’ve been caught, they offer cliches and gimmicks and blame everyone else. They say there is little they can do.
The markets and the central bankers will make their own judgments. Voters will wonder if they should elect someone with a clue. It might be wiser for the Government to leave the household budgeting to us, and work on the big picture.”
The Rudd government’s response to most ‘problems’ seems to be to have discussion, consult widely, be inclusive of all vested interests and then come out with a ‘policy’ that is least likely to offend anyone. I can see an episode of Hollowmen now… the banks don’t cut rates in line with the RBA – much hand-wringing, discussions about penalties, tougher regulation…. and then eventually the release of ‘bank watch’ where consumers can compare mortgage rates (oh -we’ve already got one).
Unit pricing sounds like a good idea – was great , but I understand that at least one of the major supermarket chains was going to introduce it anyway (which would probably mean that the other one would have anyway).
Mark I think they are doing basket of goods comparisons which means that you won’t be able to compare individual items. And it sounds like the time lag in the information will be long enough that its probably out of date anyway. If this is how it works then its probably just going to be a big waste of money. People can just watch Today Tonight
I’ll just add that the supermarket comparisons appeal to the those in the population who think they’re getting ripped off by woolworth/coles, but as the report found the majority of increase in prices is not due to a lack of competition. So there’s actually little to be gained (amazing similarity to the petrol situation)
Unit pricing is a different matter as it helps those who are mathematically challenged or those who can’t be bothered.
The price monitoring web site is useless because it compares average Coles, Woolworths, independent and Aldi prices over large areas, not specific stores with others “up the road”.
Ans it shows what we already knew. Coles and Woolworths are about the same as each other and they don’t vary much by area (so you pay the same for your WeetBix in Toorak as you do in Dandenong); the independents (as a group) are more expensive than the big 2 and Aldi is cheaper.
Ok, I stand corrected on GroceryChoice.
But, again, Andrew, I’m wondering about your logic (and Christian Kerr’s). Are you suggesting that if the banks don’t move in line with the reserve on rates, the government should compel them to? Do you think this would be received as “responsible economic management”? The upshot of the position – the logical upshot, that is – of the media and opposition appears to be that anything short of massive government intervention is meaningless, and one can only speculate as to how such massive government intervention would be received. Short of that, what’s the basis for knocking things that may have some impact, even if only at the margins?
As they say in question time, are there any alternative policy proposals?
“I can’t for the life of me see how anyone who actually shops is going to think these measures aren’t, well, good things even if they’re not earth shattering.”
Very minor benefits are fine if they incur even smaller costs. But how much is this costing us? And really, are the benefits anything to write home about?
Some serious competition laws would go a long way. And I would cheer them. And their introduction would give the government some cred as far as action goes.
“Short of that, what’s the basis for knocking things that may have some impact, even if only at the margins?”
And if the government were not to introduce election promises, like Fuelwatch and GroceryChoice, wouldn’t that place it in a bad light?
So couple of fairly reasonable consumer awareness proposals have become “the great new devil”.
What we all need to know, with all the opposition squawking, is how much they are being driven by their business mates, who have managed to set up a pretty ‘closed shop’ on petrol and groceries.
Maybe, the next ‘watch site’, should be devoted to the day to day money transfer of Companies/Unions to Political Parties.
Well, they’re being introduced, Howard C, so you’ll get the chance to cheer.
In the mean time the rest of us will have to be content with absurd arguments which contradict themselves by claiming the government isn’t acting when it is, or that any action is inadequate when compared to some completely unspecified “substance”.
How about PokieWatch? – see how fast money moves from the pubs and clubs straight into the coffers of various political parties.
Aldi is cheaper, and the best way to do something about making the big behemoths be competitive would be make the shopping centres let in Aldi and whoever else wants to sell groceries with weird names out of cardboard boxes dumped on the floor.
I love Aldi. Aldi, are you reading? Please sell canned chickpeas, it’s the only thing I go to coles for now.
Youse all don’t get it.
This is a brilliant move. If Aussie Mum (with the 5 kids, the Tarago and Nana in her wheelchair at the back) can drive kilometres to save 5c a litre, she’ll also drive 5 kilometres to go to the neartest Coles/Woolies when she reads the price differentials.
Ok, so the numbers are a month old. So what? Most desperate shoppers won’t care. They’ll be wanting to punish the one who’s behind the other by $4, and they’ll let store management – at both ends – know about it if they’re smart.
Don’t forget petrol, which is where the brilliance comes in. A goodly proportion of petrol sales is now done through supermarket-linked sites. But if Aussie Mum and brood (plus Nana in tow) go to the opposition, what’s the bet they’ll be buying the opposition’s petrol, too, with their shopper dockets?
Maybe she’ll just give up on Woolies/Coles and go to Aldi instead. I personally didn’t realise they were about 25% cheaper, and (so I’ve also learnt today) their queues aren’t slow… they’re fast.
Lotsa potential here for a revolution in shopping. Maybe not for those who are financially well0ff, but who is nowadays?
If Aussie Mum really does exist, she’ll be on the net tomorrow looking for the best performer in her area, all the better to punish the price-gouging local supermarket, and to let them know why she’s punishing them. And that goes double for petrol.
Don’t forget: saving 2% per week on $100 worth of groceries is the same thing as saving 5c a litre off your weekly tank of petrol.
And the Libs are pooh-poohing Grocery Choice? At their peril, I would say.
Mark, the derisory commentary about this is quite simple, and not at all contradictory: (1) as the ACCC now agrees, grocery prices were, and are, determined by competitive forces that actually exist in the Australian marketplace, rather than low levels of competition (e.g. duopolitic practices), (2) Rudd and Swan skillfully led the Australian public to believe that they would do something, anything, about high grocery prices, knowing full well that they wouldn’t end up doing anything that would substantially affect those prices (indeed, there isn’t anything they can do, since controlling grocery prices would require interventions that would shred the ALP’s economic credentials to pieces and involve market-wrecking on a massive scale); (3) Rudd and Swan are now implementing the least-resistance strategy – all show, so they can tick off the grocery box on their pre-election commitment list. It’s the right result (if you look past the outrageous cost of the exercise). Tinkering at the margins can’t do that much damage, and there is always something to be said for regulation that is really about disclosure (e.g. unit pricing). It’s the deception that should concern us.
Now I suspect that Howard C will have to wait a while for competition laws that would qualify as “serious” from his perspective. The only thing announced that I can think of is the creeping acquisition stuff (I’m happy to be pointed to other proposals though). This will have little to no bearing on the grocery sector, since the ACCC has already, and rightfully, said that creeping acquisitions by Coles and Woolworths are not a concern.
Finally, you’ll recall all those changes that the Liberals (in pre-election idiocy mode) made to the misuse of market power provisions so that it would be easier to nail Coles and Woolworths and others on predatory pricing. They removed the need for the ACCC to establish market power, substituting a lower “substantial market share” test. Remember? Well, it’s soon to be gone. The shameful rubbish that Costello and Joyce got through is about to be undone by the ALP. Full credit to them, I say.
BBB
I shop aldi and save , what about you????
The problem is that Rudd is wasting political capital on stuff that (i) will actually make SFA difference ans (ii) is perceived to make SFA difference.
ALDI is the great hope in all this. They are much, much cheaper and their presence really does put the acid on the big 2. You can see it by the introduction of home brand stuff by Coles and Woolworths, in direct response to ALDI. Why pay $3 for a name brand bottle of soda water when you can pay $1.50 for a Coles home brand? Same with sugar, milk, eggs, toilet paper, whatever. It’s the same stuff.
Meat and fruit & veg is another matter, but you don’t have to get that from the supermarket.
What laura at 18 said. Aldi are cheaper by a country mile and their quality is superior. But I don’t care about the chick-peas.
BBB, what “outrageous cost of the exercise”? Do you mean the cost of the report? Or is it the “outrageous cost” that retailers are complaining they might bear for providing more transparent pricing information?
I live in the bush, had a look at the site today, and it’s as helpfull as tits on a tarantula. No help with my Foodworks local supermarket, and none with the “big two” that are a 200k round trip. I don’t actually hold the govt. responsible for increased prices but I am mightily pissed off with them spending a shitload of taxpayers dollars to set up this site that benefits obnly those who live in large urban areas.Bit like the fuel watch really.($1.63.9 in Bombala today)
The only good thing to come out of this , oh god, what should we call it, errr, grocery enquiry, is the unit pricing. I might be getting truly forgetfull, but I’m sure one of the monopoly actually had this years ago and scrapped it.
Mark, I mean the costs of the inquiry itself, for example all the public and private sector lawyers and economists, all the ACCC staff time, etc. I would think that the costs of implementing transparent unit pricing will be insignificant for the Coles and Woolworths of this world. I do wonder how far unit pricing will reach, though. Hopefully milk bars, very small groceries, etc. won’t have to do it. That would be an unjustifiable burden.
BBB
From what I read in the Fin today, which had a much better coverage of all this than “oh it’s a stunt!” and the other crap in the News Limited papers, and actually took it seriously, BBB, small shops will be exempt for at least twelve months from unit pricing.
Personally, if there are persistent fears that there are big anti-competitive issues in a particular industry, I have no problem with the ACCC spending money to inquire into it. Whether retailers hire economists and lawyers or whatever is hardly the issue for taxpayers – perhaps for shareholders! There’s a big degree of public interest in fair market practices in the retail grocery industry – I don’t see anyone on this thread disagreeing with that.
So Robynne, enlighten me: how much of ‘our tax payer dollars” did this cost? You don’t know, do you?
Your point about the efficacy of the scheme is fair enough – for you. But remember 80% of Australia live in urban areas, and I’ve got a feeling Rudd was probably thinking about them, and those electorates in particular, ever twas, ever will be.
I started to work at the headquarters of one of the two major supermarkets a couple months ago. Make your guesses about my bias based on that.
A few things struck me. Firstly, it is not a company with alot of fat around the place. Compared to other places I have worked at they are pretty light on the fringe benfits like long lunches on the Amex corp credit card.
Secondly, they are surprisingly efficient. The headquarters I work at has about 3000 people working there which sounds likes alot, but when you consider that they supply a considerable fraction of all the food eaten in Australia its actually a pretty small number, especially when you compare it to the big banks or the finance industry. You see that all around the place with huge operations being run by surprisingly small teams.
The real problem with the big two is that they just so big. They get such huge economies of scale out their enormous size that the little guy can’t compete. They have IT systems as big or bigger than the banks, warehouses of staggering size (one in Brisbane is bigger than 20 football fields) and they are able to build new stores as quickly and easily as we buy a coffee and doughnut. Modern technology has allowed them to grow to enormous size without the usual diseconomies of scale causing them to become less efficient.
I don’t know what can be done about this, but my point is that I don’t think any sort of competition policy is going to make much difference. The basic problem is that the smaller stores and chains don’t have the scale to compete. (Aldi is not a small store. Its part of a worldwide chain)
“You can see it by the introduction of home brand stuff by Coles and Woolworths, in direct response to ALDI. Why pay $3 for a name brand bottle of soda water when you can pay $1.50 for a Coles home brand?”
I doubt that’s driven by Aldi. These types of products screw their suppliers, not competitors. They are actually even more profitable (for the supermarkets) than the name brands.
The Australian Consumers Association thinks that the recommendations are a good idea, and surely their view has more credibility on this issue than the Liberal party and associated News Ltd hacks.
It’s also highly amusing to see the ususual suspects suddenly concerned with government spending, when such concern has lain dormant for the past 11 years.
Monopoly news, petrol, grocery and politics.
No wonder the country is going to hell in a handbasket.
I just don’t get it.
“I can’t for the life of me see how anyone who actually shops is going to think these measures aren’t, well, good things even if they’re not earth shattering.”
I haven’t seen anything, by anybody that can see past the ACCC’s spin.
The labour goverment touted that they were going to do something about grocery prices before the last election. This inquiry shows that this promise was nothing more than an “election stunt”, and this inquiry and its subsequent report shows that the Rudd government had no intention of upsetting the supermarket giants.
What did Samuels say? “the market is workably competitive”, on one hand and on the other he says” Coles and Woolworths price match rather than price compete”. Mr Samuels goes on to say “While small independent retailers provide a competition alternative, they do not contribute significantly to price competition”
How can anybody, least of all Mr Samuels who is fully involved in retail, then say that the market is “workably competitive”, when it is obviously not? That is nothing but spin!! Australia has the worst concentration of market power in this industry in the world. In no other country on earth does just two supermarket chains control 80% of the business. How can healthy competition exist in such an enviorment?
In his summary Mr samuels states “the ACCC does not consider that any specific recommendations on predatory pricing in the grocery sector are warranted.”
The supermarket chains contol and stifle compeition through the use of geographical price gouging, while in other areas the prices are higher to offset the competitive loss. My own submission to the inquiry asked that this not only be outlawed (as it currently is in Canada), but that each supermarket should be required to report accurate gross profits. Not the creatively accounted profits that are shown now.
I ask that people question this – “If gross profit is reduced to such a vicous level in one store to stifle the competition and increased in others to compensate, should not supermarkets be required to report factual profits so that consumers can see the truth of profits?”
If Mr Samuels were a solicitor or a barrister in court, his questioning of the supermarket representitives on this matter would have disallowed. Mr Samuels disgracefully “led” the witness.
Not one bit of investigation was carried aout by this inquiry unless there was evidence produced. If there was no evidence, the matter was ignored. It doesn’t matter that there were numerous complaints about the supermarket buying practises, it doesn’t matter how many complaints there were about any subject you can name. No evidence submitted, no action was taken to investigate,
Why? There was not enough time, and the Rudd government knew it long before they asked the ACCC for the inquiry.
Mr Samuels and the ACCC have shown themselves to be nothing but ‘paper tigers.’ They have shown themselves to be ignorant of all matters retail, they have shown themselves to be blinded by ‘spin’,or have they been directed by the Rudd government not to yoset the status quo.
This report will change nothing. Why do you think Woolies share prices have shot up? I cannot think of any other reason why people of this standing in the Australian community could possibly reach the conclusions they have in this report.
As far as food retailing is concerned, the ACCC is about as much use as an ashtray on a motorbike!!
Bill, the ACCC reached their conclusions by researching thoroughly, questioning market participants thoroughly, considering a large body of submitted material and, most importantly, actually analysing real-world pricing data from across Australia. The data speaks for itself. Why won’t accept the science on this? Don’t give in to competition denialism.
‘Workable competition’ is something of a term of art. In a world where perfect competition is impossible, ‘workable competition’ is the best we can hope for. ‘Workable competition’ means actual real competition that benefits consumers, albeit in a less than perfectly efficient manner. But credit to you, you’ve highlighted an absurdity in Samuel’s remarks (yes, there is spin, but more to salvage the ACCC and its masters’ political position in the face of overwhelming evidence that there is in fact no detrimental supermarket duopoly in Australia). Samuel says that Coles and Wollworths are price matchers, not price competitors. In a market where prices rise and fall, mainly due to specials, on a weekly basis, price matching and price competition is the same thing. Samuel is saying, incredibly, that if Coles drops their price for bread, and in response Woolworths matches that price, there is no competition. In fact, that is the essence of competition. So we do have real competition in the grocery sector, but Graeme doesn’t want that to be the lead in press reports. Can’t blame him, can you?
As for your claim that price discrimination by Coles and Woolworths on a geographic basis stifles competition generally, I’d love to see the full analysis on that. There’s probably a Nobel prize up for grabs on that one.
You’re right that this inquiry will change nothing. And for all the right reasons.
BBB
PS: ‘price gouging’ does not mean having very low prices.
BBB. Price matching is NOT what you say! Price matching is when one retailer sees a price goes up and matches it even if in his heart he knows he doesn’t have to! That is how profit margins in MSC have increased as this report shows. If the NRL or the AFL were to remove ‘salary cap’ restrictions on just two of it teams, the competition would soon just involve two teams, who then become complacent. There would be a danger of match colusion, match fixing and exploitation of the players because of a lack of alternatives. BBB. to say that “there is in fact no detrimental supermarket duopoly in Australia” is a nonsenical argument. Blind freddy can see thay! There is no “workable” competition between MSC in Australia. The MSC guard their market share at all costs and price gouging is how thay do it. The independant retailer doesn’t really bother anymore, to compete I mean. Metcash and John David before them got rich on the back of the independent. They do this by not passing on the “trading terms” they receive from suppliers. The independent doesn’t have a chance. One of the reasons is that the suppliers do not give metcash all the discount money they give the MSC, the other is Metcash makes too much profit. But I digress, price gouging is employed to halt competition. Even if the MSC in question achieves an unworkable profit because of it, they can and will offset this loss of profit in another store. Usually the competition will fade away, but occasionally they will persist, eg. ‘Aldi’, ‘Harris Farm Markets.’ Nothing will get a greater reaction form the MSC than trying to pinch their market share. They do not engage in predatory pricing, just price gouging. This is how the independant retailer dissapeared. The MSC know full well that all they have to do is “price gouge” the competition into oblivion because they have a major advantage over their competition, “one stop convenience shopping”. If the independent can’t compete in price he can’t compete at all.
The hype going on about ‘unit pricing’ hides the real issues behind the usual ‘spin’ smokescreen from the ACCC.
BBB. You say “the ACCC reached their conclusions by researching thoroughly” I say research my foot!!! In his report, when referring to ‘fresh foods’, Mr Samuels states “The ACCC accepts that many Australian farmers are suffering and low prices for their product may be a significant contributing factor. However, the extent to which the market power of retailers contributes to this problem is limited.” This one comment indicates to me that this inquiry has been influenced by either supermarket ‘spin’ or the Rudd government’s influence on this inquiry. Did the ACCC ask the suppliers of fresh foods to the MSC for their trading terms and prices to the MSC? Did they then compare these prices with the wholesale prices the independent retailer pays in the central markets for their produce? OF COURSE NOT! If they had, the ACCC would have been forced to agree that the above comment by Mr Samuels is plainly wrong and untrue! Did the ACCC ask if the cost saving of direct supply to MSC by fresh food suppliers by growers was enough to justify the much lower prices that the MSC are able to extract by buying direct from the farm gate? NO! If they had the reccomended actions of the ACCC may have include complete transparency in fresh food buying by the MSC. Another thing the ACCC does not recognise is that fresh food profits acheived by MSC are what enabled them to put their competition in packaged groceries out of business in the early ninties. None of these fact were addressed or considered by the ACCC. Mr Samuels only considered “the past few years” as directed by the Rudd government who knew quite well that hardly a thing had changed in the supermarket industry in that time. IT all happened before that. If you really want to know why there is no competition in the supermarket industry, you must look back further than that.
2001 – Woolworths —An Overview
Over the five or six past years, Woolworths Ltd, has achieved some pretty impressive results.
They have closed down the grocery discount chain of Jewel.
They have closed down the grocery discount chain of Franklins.
They have pushed Davids Holdings out of grocery wholesaling
They are now listed in the top fifteen companies in Australia.
They are undisputedly once again the number one food retailer in Australia.
Not a bad achievement for a company that in 1988, had a three million dollar overdraft and was almost insolvent.
To be able to understand how they have achieved this we need to take a trip back in time.
The year is 1987. The Executive Chairman of Woolworths, Paul Simons, who had rejoined the company after some years as the CEO of Franklins Supermarkets, pondered the problems confronting him. Woolworths were in big trouble. Sales were down. Profit was down. Their main profit making division, BigW, had just finished a disastrous year. Woolworths had actually posted a loss in ’86.
Paul Simons saw his main competitor, Coles Ltd. outperforming him in sales and profit. He also saw that, because of their low overheads, he was unable to compete, not only with his former employer Franklins, but also Jewel Food Stores.
These two supermarket discount chains, in particular Franklins, were surging ahead in market share, and Paul Simons saw these two discount chains, not Coles, as the root of all the problems now confronting Woolworths.
Why would anyone want to head a company in such dire straits? His previous employer, Franklins were performing well, so well in fact, that they now controlled 50% of market share in metropolitan Sydney, and were making moves into Victoria, South Australia and Queensland.
Paul Simons own expertise had overseen a steady growth in sales, and profit, and even without his leadership was continuing to rise.
So why would he leave Franklins to actually rejoin a sinking ship?
The answer was simple. This task was personal. He had something to prove. He had previously been CEO of Woolworths, and had left after a serious disagreement with the then Chairman, Sir Theo Kelly. Their disagreement had been about the management of the company, and the direction in which the company ought to head to be able to withstand the onslaught of Coles and the discount chains.
Paul Simons rejoined Woolworths with a definite plan, but not only was there a definite plan; there was also a tight time schedule. He set to work without delay.
He would start by increasing the sales and thereby, the profitability of his Big W division by remodeling and revamping those stores with the discount image and competitive pricing. Roger Corbett would handle that part admirably.
The problems of management were ones he was well able to fix. He wanted a new, young and vital team, and the pain he caused many people by forcing ‘sideways’ management moves, and early retirement, was just the beginning.
But he also knew that these things in themselves, would not be enough to rescue Woolworths from its present dilemma.
He knew that to be able to win market share from the discount chains of Franklins and Jewel, he had to reduce grocery prices. This was something he couldn’t do without increasing profit margins somewhere else.
Therefore his main thrust in the battle to win market share would be through the supermarket division, or more to the point, through the ‘Fresh Food’ departments of Fruit & Vegetables, Meat, Delicatessen and Bakery, within, the company’s supermarket division.
He knew that if he could increase market share in the highly profitable ‘Fresh Food’ departments of his supermarkets, that extra profit would more than make up for the reduced profit in groceries he knew he would have to absorb to compete successfully with Franklins and Jewels supermarkets in Australia.
He reasoned that if he was careful, he could achieve this before Coles woke up to what he was about, and he knew that Franklins and Jewels had no way of competing in these areas because they did not carry ‘Fresh Foods’.
He launched “The Fresh Food People” marketing campaign in late ‘88. This campaign was to be a many faceted campaign.
At the same time a chain of events began on the share market, which would prove to be very propitious for Paul Simons:
(a) Industrial Equity acquired controlling interests (39.8%) in Woolworths.
(b) Industrial Equity acquired 100% of Woolworths.
A new image began to appear in Woolworths. Small stores that did not have enough space for Paul Simons plans were either sold off or changed to the “Best for Less” division. ‘Fresh Food’ departments, that is, Meat, Fruit and Vegetables, Serviced Delicatessen and Bakery, were increased in size.
But the main spearhead of his campaign would be Fruit and Vegetables and Meat, these departments received even more increased space. Fruit and Vegetables departments were doubled or tripled in size.
Paul Simons knew only too well that the reputation of supermarkets in the specialized areas of ‘Fresh Foods’ was not good, in fact it was so bad he knew he had to ‘fool’ the public. The public had to believe that Woolworths were doing something else.
Each ‘Fresh Food’ department was remodeled, but most importantly, re-named.
The objective of renaming his ‘fresh Foods’ departments was to give the public the false impression of a store within a store. The Fruit and Vegetables department became ‘The Blue Mountain Fruit Co.’. The Meat department became ‘Mario’s Meats’, the Serviced Delicatessen department became ‘Jim and Hesters Deli’, and so on.
There were many members of the public who believed that these departments had actually been ‘leased out’ to ‘Fresh Food’ experts.
Paul Simons had embraced deceit in advertising.
In the area of advertising Paul Simons increased the budget substantially, the end result being TV advertising and huge double and triple page newspaper advertisements reserved exclusively for ‘Fresh Food’ departments.
There were no suppliers to pay for these advertisements, as was always the case in groceries.
The capital expenditure involved in the re-vamping of BigW and the remodeling of the ‘Fresh Food’ departments had been enormous. But the next phase of ‘The Fresh Food People’ marketing campaign was to be by far the most expensive part of his marketing campaign.
It was launched in ’89 and the coming destruction of a way of life, the crushing of so many independent retailers hopes, dreams and livelihoods, did not seem to matter.
At the same time two more very propitious events occurred on the stock market for Paul Simons.
(a) The Adelaide Steamship Co. bought Industrial Equity through complicated dealings by its subsidiaries, 33.3% by Tooth, 33.3% by David Jones Ltd, and 33.3% by Adsteam itself.
(b) In 1989 Woolworths Ltd. was de-listed on the stock exchange.
Now, hidden nicely behind the Adsteam Group, Paul Simons was in a splendid position. He knew what he had in mind was not going to be easy, and it was going to cost a lot, quite a lot, millions of dollars in fact.
But he had two major advantages over his competitors.
(1) He had no shareholders to be accountable to.
(2) He did not have to make public the profit results of his company.
Over the years, while he was previously CEO of Woolworths, he had tried to increase sales in ‘Fresh Food’ departments without success, and he knew the reasons why.
He could not absorb, for a sufficient length of time, the lower profit levels needed in a sustained battle against the independent retailers for ‘Fresh Food’ market share without seriously affecting the overall profits of the company.
He knew something else too.
He knew that pound for pound, the independent Fruit and Vegetables, and Meat retailers, who held more than 60% of market share, would beat the supermarkets hands down. They were specialists. Expert small retailers. They could not only work longer and harder than any supermarket employee would dream of, they would mortgage everything they owned, taking financial risks the supermarket executive would not even contemplate.
But most of all they were fierce competitors.
With their specialized skills, and in the case of fruit and vegetables, a central marketing system unique in the world, he knew these people had ‘earned’ their market share.
The independent ‘Fresh Food’ retailers had always been able to withstand any assault the supermarkets had made against them in the past.
Paul Simons knew he had neither the time nor the expertise in his company to attain the same level of loyalty and trust the public had placed in the independent ‘Fresh Food’ retailer.
He knew they would fight hard to retain their livelihood, and they had something else.
A level playing field when it came to buying their product.
They could buy their product at the same prices as the supermarkets.
Paul Simons didn’t like level playing fields. His inability to buy ‘Fresh Foods’ at the ‘best price’ put him at a disadvantage that he didn’t like.
But he also knew something else.
When it comes right down to it, the general public’s only loyalty is to their wallets.
This had been proven in groceries, and his previous employer, Franklins, was a case in point. The public didn’t mind putting up with dirty scrappy stores, cluttered isles and bad service, as long as they saved money at the checkout.
To gain market share in ‘Fresh Foods’ he had but one choice to make.
Paul Simons would ‘buy’ the business.
Retail prices in all ‘Fresh Food’ departments were reduced across the board. In their huge newspaper advertisements, major selling lines were sold at or below cost price.
Woolworths simply operated at such a low level of profit in all ‘Fresh Food’ departments (particularly fruit and vegetables and meat) that the independent ‘Fresh Food’ retailers found that to meet these prices their profit levels dropped dramatically. Those independent ‘Fresh Food’ retailers who did not compete, saw their sales dropping dramatically.
In 1989, in addition to deceit in advertising, Paul Simons embraced predatory pricing as an integral part of ‘The Fresh Food People’ marketing campaign.
No independent could have stopped Woolworths from taking market share. Anybody who tried, and there were plenty, came up against a juggernaught that only hastened the inevitable. Woolworths religiously checked their competition daily, meeting any price the independent threw at them, then added a few more specials as well.
In 1989/’90, it is rumored that Woolworths lost several million dollars, just in the NSW fruit and vegetable division alone.
This policy could only have one result.
Independent ‘Fresh Food’ retailers of Fruit and Vegetables and Meat anywhere near Woolworths began to disappear.
The attack on the independent for market share was relentless, and was sustained until Woolworths were once again listed on the stock exchange in ‘93.
Even after this, any aggressively trading independent was not allowed to operate anywhere near a Woolworths supermarket.
Try and find an independent Fruit and Vegetable operator in a shopping center with Woolworths. Butchers are scarce too. An aggressively trading Butcher or Fruit and Vegetable operator in a shopping center with Woolworths is non-existent.
Over the years the severe cost to the independent has been seen many times on news and current affair programs.
Their complaints of predatory pricing fell on deaf ears.
As if all this wasn’t enough, the independent had, and still has a serious weakness.
Small business can’t work together. That’s why they call them independent. So secretive, so fiercely independent in fact, that they don’t trust anyone to represent them. Their experience in small business assures them that this person is only there for their own interests.
They mind their own business; they fight their own battles.
The independent retailer had and still has, no political ‘clout’.
Because of this, politicians, bureaucrats, and the public alike ignored the plight of the independent ‘Fresh Food’ retailer.
Paul Simons smiled broadly; he had no real opposition to what he was doing in the market place.
By the time the ACCC was formed in 1995 the battle for market share in ‘Fresh Foods’ was already won, and the ACCC took the same stance as The Trade Practices Commission had always taken. It did not have the power to act on behalf of the independent and when referring to section46 of the Trade Practices Act, (Misuse Of Market Power); the ACCC has quoted on many occasions just how ambiguous the Trade Practices Act is in this area. What is the market area? Was it the shopping center itself? Was it the shopping center catchment area? Was it the suburb? Was it the town? Was it the city? State? Country?
On the other hand, Paul Simons seemed to have no such difficulty.
The ‘market area’ for ‘Fresh Foods’, in particular, Fruit and Vegetables and Meat, was anywhere near enough to a Woolworths supermarket for a customer to have a choice.
In other words, if you didn’t want to buy ‘Fresh Foods’ while shopping at Woolworths, the objective of the ‘Fresh Food People’ marketing campaign was to ensure that there was little or better still, no alternative.
With the advent of extended hours opening by supermarkets, Paul Simons knew perfectly well just how important ‘one stop convenience shopping’ was becoming. While other areas were experiencing downturns in trading figures, large shopping centers were showing 25% increases.
The ‘Fresh Food People’ marketing campaign achieved exactly the results that Paul Simons wanted. Sales in ‘fresh foods’ increased dramatically every year.
With increased sales came buying power.
If there was one thing Woolworths had always been good at, it was the ability to use buying power to negotiate the best buying price.
Back in ’75, when the Trade Practices Act was passed into law and the Trade Practices Commission was formed, Woolworths, along with all supermarket chains and grocery wholesalers, had found it easy to manipulate Section46 of The Trade Practices Act; by pressuring grocery suppliers to give better prices through the use of other discounts, such as advertising discounts, settlement discounts, warehousing discounts etc. The list of hidden discounts, (which in real terms simply amounts to a better product price) supermarkets and wholesalers receive from suppliers, is endless, and by far the largest discounts were ‘co-op’ advertising.
But Woolworths had not been able to achieve this same level of manipulation in their buying of ‘Fresh Foods’, simply because they did not have big enough sales. They just didn’t have the buying power.
The ‘Fresh Food People’ marketing campaign changed that dramatically.
This was what Paul Simons wanted the most.
He was now able to bypass the central marketing system. The major proportion of his Meat and Fruit and Vegetables purchases now came direct from the grower, and his buying price was a private matter between Woolworths and the grower.
This enabled Woolworths buyers to exert pressure on the grower (Supplier) for much better prices than those the independent ‘Fresh Food’ retailer had to pay within the open market system.
Independent retailers had always been at a disadvantage when compared to the supermarket chains.
They did not have access to cheap loans to expand their businesses.
They did not have the enormous monetary gifts from grocery suppliers known as ‘co-op advertising discounts’, which virtually made their advertising cost free.
They did not have cheap rents. Most independent retailers were paying well in excess of 10% of turnover as rent, while supermarket chains paid as little as 2 to 3%.
They could not operate on low wages; most independent wages were nearly twice the cost of supermarket chains when calculated as percentage of turnover.
Now they could no longer compete in selling price.
By late 1992, Paul Simons had destroyed the independent’s last bastion of defense. They could no longer purchase their stock at the same price as the supermarket chains.
The independent ‘Fresh Food’ retailers had lost their level playing field.
Growers (suppliers) of ‘Fresh Foods’ were soon, and still are, crying foul, about Woolworths buying practices, and abuse of market power.
By late ’92, sales and profits of ‘Fresh Foods’ were at an all time high, and together with Roger Corbett’s success in ‘Big W’ sales and profits, Paul Simons had brought Woolworths well and truly out of the red, and right on schedule.
In ’93 Woolworths were re-listed on the stock exchange and were once again Australia’s number one food retailer.
The architect, navigator and pilot of the resurgence of Woolworths would not however stay to witness the destruction of his former employer.
Wrapped in the warmth of personal achievement, and basking in the revered glow of the financial and corporate business community, Paul Simons happily retired in late ’95.
By this time, Coles had finally woken up to what was happening, and with the employment of Dennis Eck got back into gear. Although they did not have the resources to wipe out ‘Fresh Food’ competition anywhere near them as Woolworths had done, they happily went along for the ride.
‘The Fresh Food People’ were now ready for the next part of their plan. It was time to take on Franklins and Jewel.
The attitude of the general public toward Franklins and Jewel began to change. The impression was emerging that Franklins and Jewel Supermarkets were no longer the cheapest. Some even believed they were putting up prices. From ’95 on their market share steadily shrank.
The first to see the writing on the wall was Jewel Food Stores. Their owner and operator, Jim Fleming, was an old and wily campaigner. He was another person who had left Woolworths after disagreements with Sir Theo Kelly. Their rivalry in the retail business was legendary. He had left to start the ‘Jewels’ chain of supermarkets and his contacts were still good; he could see that he was losing market share and the reasons why, long before anyone else.
He bailed out in ‘95, selling his chain of discount grocery stores to his supplier, David’s Holdings, the largest grocery wholesaler in Australia.
John David very quickly found out two things. Firstly that retailing was a whole lot different to wholesaling. But most of all he found that he couldn’t compete with Woolworths and make anywhere near the sort of profit he was used to making. His market share was falling. Sales had dropped 12% in just one year.
In ’96 he bailed out too, selling 78% of his family company to South African ‘Metcash’. Jim Fleming quickly grabbed his chance to unload his David’s shares (part of his deal to get rid of Jewel) at the same time.
After seventy years of wholesaling, (but with a family fortune of around 240 million) no member of the David’s family is involved with the business.
Franklins took a different direction. They tried to increase their ‘Fresh Food’ market share by expanding their successful marketing campaign from New Zealand. It was called ‘Big Fresh’. They reasoned that if Woolworths could do this, so could they. They reasoned that they could then reduce their grocery prices even further, and remain the cheapest grocer.
It failed. They had neither the slick marketing campaign, nor the expertise and there were too many stores where it just wouldn’t work.
In late ’98 they employed Ian Cornell to take over the top job. He had been Chief General Manager of Supermarkets in Woolworths, but he had been no match for the political boardroom maneuvering of Roger Corbett when it had become time for the appointment of a new Woolworths CEO. He was hardworking and loyal and the owners of Franklins expected great things, but it was too little too late.
Between ‘95 and 2000, Franklins market share had fallen by 14%, but worst of all, by dropping their grocery prices to try and maintain their ‘we are the cheapest’ image, their profits suffered dramatically.
By 2000 their profits had dropped by a massive 48%.
Franklins bailed out too. 66 of their best stores have been sold to their archrival, Woolworths. The rest to Coles, Pick ‘n Pay, and anybody else who wanted them.
Since 1998, Woolworths have increased their number of supermarkets by 26% and their supermarket retail space by 30%.
Woolworths now control around 40% of food retailing market share.
Woolworths now purchase 25% of all Fruit and Vegetables, and 14.3% of all Meat produced in Australia.
Woolworths have achieved all of this simply by increasing market share in
“FreshFoods”.
By ’99, the concentration of market power by Woolworths and Coles had become so extreme that pressure from all directions convinced politicians this was something they could no longer ignore. An Inquiry into the Retail Industry was carried out by the Senate.
The ACCC said, in its submission to the inquiry, that it had an objective to enhance the welfare of Australians through the promotion of competition and fair trading, and to provide consumer protection.
But it washed its hands of the plight of all independent retailers in its submission to the inquiry, when it said,
‘From a competition perspective, even if the independent sector were less competitive as a consequence of its market share, the ACCC believes that an issue would only arise if there were a lack of competition between the chains.’
The reason for this comment is obvious. The ACCC was making it quite clear that the definition of ‘market area’ in the Trade Practices Act was so ambiguous that it could only act on abuses of market power on a national basis.
The Government’s 1999 response to the Retail Inquiry decided to refer only to the Grocery Retailing sector. Although in Australia, the concentration of market power in food retailing is the worst in the western world, politicians wanted nothing to do with this can of worms. Politicians made it clear that they would prefer the retailing sector to be ‘Self Regulated.’
The ‘Fresh Foods’ retailing sector was ignored by one and all.
In his ‘Supplementary Remarks To The Report’, a member of the joint select committee, Senator Andrew Murray, touched the very core of the ACCC’s inaction in food retailing, when he said, ‘The regulator (The ACCC) needs to have the ability to appropriately define the Retail Market’.
Unfortunately, Senator Murray’s remarks referred only to Section50(acquisitions), not Section46(abuse of market power) of the Trade Practices Act. This move it seems was to protect the liquor industry only. (It did not acheive a thing!) The liquor retail industry was, and still is, in danger of ‘takeover by creeping acquisition’. Supermarkets had, and still have, a policy of ‘if you can’t beat ‘em, buy ‘em’ in liquor retailing.
One of the results of the inquiry was that the ACCC, is making moves to close the gate of manipulation of The Trade Practices Act, in groceries, thirty years after the horse bolted.
On the 8th Feb 2001, the Australian senate agreed to an order that a report be presented to the Senate, as soon as practicable after 30th June 2001, by the Commission, on the prices paid to suppliers by Australian grocery retailers for the goods they resell, and whether retailers and wholesalers of a similar scale are offered goods on like terms and conditions.
But once again Woolworths seems to have been have been lucky.
In their August 2001 discussion paper of these orders of the Senate, the ACCC once again washed its hands of the independent ‘Fresh Food’ retailer, when it noted: ‘The comparison of prices paid for fresh Fruit and Vegetables and Meat at the farm gate, to the price paid by the consumer at the end of the supply chain is an important issue, but considered a detailed analysis of that issue beyond the scope of the inquiry. Therefore the inquiry would exclude fresh Fruit and Vegetables and Fresh Meat.’
The area of profit, so vital to Woolworths overall results, ’Fresh Foods’, had been protected once again.
In the meantime the plight of Fruit and Vegetable and Meat growers (suppliers) has become extreme. A survey carried out by senator Cherry, and made public at election time 2001, showed that retail prices had increased in some areas of ‘Fresh Foods’ in supermarkets, by as much as 23%, while returns to the growers had actually decreased by as much as 16% over the past five years.
An article in ‘The Land’ newspaper on 7th February 2002 quoted the Treasurer, Mr. Costello as blaming ‘seasonally adjusted’ fruit and vegetable prices as the main reason for inflation in the December quarter. ‘The Land’ went on to say that fruit and vegetable prices had increased on the previous year by 15.6%, but that this increase had not been seen by wholesalers or growers.
Woolworths are now achieving profit margins in Fruit and Vegetables and Meat, which can only be seen as unconscionable, with some markups of 1000%, while markups of 3-400% are common, making Fruit and Vegetables and Meat a luxury item for the average Australian.
But Woolworths would like more, and there is a reason for this.
There is a new player in the market of discount groceries.
Aldi.
But Woolworths are not overly worried, the enormous sales and profits now being made in ‘Fresh Foods’ should be more than enough to enable Woolworths to take on Aldi, (who do not carry ‘Fresh Foods’), in a battle for grocery market share.
Of course there is another casualty that will emerge from this dogfight between Aldi and the supermarkets. It is of course the people that can least afford the fight. It is Metcash and the people they supply; The Australian Independent Grocery Retailers.
QUESTIONS – WOOLWORTHS OVERVIEW
(a) The purchase of Woolworths by Industrial Equity in ’88, and their subsequent removal from the stock exchange in’89, put Woolworths in a position where it did NOT have to make public its profit and trading results. Was this a corporate strategy to hide the enormous losses that Paul Simons knew Woolworths had to take to achieve his objectives in ‘Fresh Food’ market share?
(b) What were the deals and agreements made between these two companies?
(c) The heavy losses made by Woolworths in ‘89/’90 seemed to coincide exactly with the purchase of Industrial Equity by Adsteam. Was this another actual move by Paul Simons in the corporate strategy of ‘The Fresh Food People’ Marketing Campaign? Just what exactly were the profit results of Woolworths Ltd during the four years ‘89/93?
(d) Through ‘creative’ accounting Deloitte Touche Tohmatsu (Accountants) falsified Adsteam profits for ‘89/’90. Was this to hide the fact that Woolworths had made considerable losses affecting the profitability of Adsteam? Or was this move designed to ‘loose’ the enormous losses of Woolworths in the quicksands of Adsteam?
Hey!!! BBB whatsamatter??? Cat got your tongue???
Hi Bill, I hadn’t seen your responses. Thanks for bringing them to my attention so gracefully. You seem unhappy that suppliers of goods to the supermarkets, e.g. farmers, don’t get very good terms (at least in their view) and that the supermarkets don’t “pass on” the effect of these terms to customers. All I an say is that this view is not backed up by the actual pricing data obtained from careful study of the real world, as opposed to the world of primary producers which seems to exist in parallel. In view of the fact that the ACCC has, quite rightly, concluded that Coles and Woolworths engage in genuine competition with one another at the retail level, their bleeding of suppliers is a clear good for the people who matter: ordinary households. Who knows, perhaps Coles and Woolworth will decide to backwards integrate into fresh food production; then we’ll really see some results for the consumer!
Cheers
BBB
Hello BBB. I really feel sorry for you mate! Who was it who said ‘there are none so blind as those who will not see’? You my friend are either employed by the supermarkets or are totally stupid! Just how much evidence do you need?
The two options posed above are not mutually exclusive.
BTW, a great analysis, which I fould very interesting and informative. You obviously know what you are talking about, but regarding Franklins, I should point out that it does exist in some form since our local is a beautifully appointed Franklins store.
Adrian
When Woolworths put Franklins out of business, some of those stores were bought by a South African company called Pick’nPay. There were approx eighty stores in all. They decided to keep the name and still operate today as ‘Franklins’, but have nothing to do with the original Franklins who were owned by Hong Kong Dairy Company. The store you refer to is one of these. Pick’nPay have had real problems. They used to be supplied by ‘Metcash’ the ONLY grocery wholesaler in Australia. Now why do you think there is only ONE grocery wholesaler in Australia? Because the ACCC did not think there was anything wrong with Metcash buying out their competition and becoming a monoply. And these people are the gaurdians of competition in Australia!! God help small business!! Can you believe that?? Metcash,like John David before them, do not pass on all the hidden “trading terms” they receive from suppliers. That’s the reason why the IGA (Independant Grocers of Australia) can’t compete with the MSC, and that’s the reason why the independant retailer has virtually dissapeared. Pickn’pay have ongoing legal action against Metcash, basically because they believe they have been “ripped off” by Metcash. They now own their own warehouse and are still struggling because they will never be able to ask suppliers for the “trading terms” that the MSC get from suppliers, why? Because these are confidential terms between the supplier and their customers. In my submission to the inquiry I asked for these to be outlawed, and that all monies given by suppliers to their customers be included in buying price. These hidden discounts are the way MSC, Metcash and John David before them have thumbed their noses at Section 46 of the Trade Practices Act 1974.(abuse of market power)since its inception. Mr Samuels not only does not believe that these “trading terms” are neccessarily bad for competition, but thinks it’s OK for the MSC to have this powerful and unfair advantage over their competitors. A very very important point is made here! The ACCC does not care if the independant is unable to compete, only if the MSC are in competition with each other! That’s the stance they’ve always taken and the result is that now they have a duoply in Australia that is unsurpassed in any country on planet earth. This duoply is so powerful it is able to cause shifts in the economic price index which have nothing to do with inflation or anything else, and it is the reason why grocery prices in Australia are rising faster than any country in the OECD, and Mr Samuels says “I don’t see anything wrong”! One could be forgiven for thinking that Mr. Samuels has never left “the big end of town”, and I think that every independant retailer in Australia could be forgiven for thinking that politicians(who make the laws) and the ACCC(who supposedly enforce the laws) receive a wage from the MSC.
Who was it who said “too much power corrupts.”
Hey don’t pity me, Bill. Pity the poor fools out there who haven’t yet caught on to the fact that real-world data shows conclusively that Coles and Woolworths compete on price! These are usually the same guys who: (a) are desperate to show everyone their ignorance of economic principles such as functional dimensions of markets and competition laws relating to misuses of market power; and (b) think that the world owes independent grocers a living, despite their inability to match it with larger businesses who, as the ACCC has shown, are at each other’s throat every single day, despite heroic attempts by the ill-informed to label them monolithically as the “MSC”. Oh, wait… carry on.
Oh, and I’m not on the payroll of any supermarket, so I guess that makes me just, like, totally stupid, like!
BBB
BBB
One of your problems is that it seems that you are not much more than an intelectual snob. Your use of words indicates that to me. I have never said that Coles and Woolworths do not compete on price. I have simply quoted the ACCC in saying that the MSC (and that is another term that most people use to abbreviate Major Supermarket Chains), who are Coles and Woolworths, tend to sometimes be price matchers. The lack of competition in the supermarket industry makes MSC “lazy” competitors.
With great intelectual aplomb you have mentioned market dimensions and market power.
To be able to prosecute anyone of “abuse of market power” the first thing that has to be done is to be able to define that market. If you feel as a retailer that the MSC have abused their market power, and ask the ACCC to interverne, the first question the ACCC will ask is “what is the market”. The ACCC has never been able to define just what exactly is ‘the market’. The politicians know that, but have always ignored this when it comes to any review of the Act, eg. the present inquiry in question.
It is very obvious to me BBB that you do not know anything about “abuse of market power” as defined by the Trade Practices Act 1974.
The first step in any competition analysis is to define the relevant market.
The purpose of market definition is to determine the boundaries of a given market. Only then will it be possible to analyze the prospects for competition in the market, opportunities for particular firms to acquire and exercise market power, and implications for consumer welfare.
A market exists where buyers wishing to buy a good or service come into contact with sellers wishing to sell that good or service, so that transactions occur. For competition purposes, a market includes all those suppliers, and buyers, between whom there is close competition, that is:
All those goods or services that are close substitutes in the eyes of buyers, and
All those suppliers who produce (or could easily switch to produce) those goods or services.
There is no definition of market area in The trade Practices act.
Mr. Samuels, and Alan Fels before him, know this and have not made any reccommendations to have the “market area” defined, and for very good reasons. They know that their buddies, “the MSC”, would be liable for prosecution under section 46 for ‘abuse of market power’ almost every day with their constant tactic of ‘geographical price gouging.’
BBB, are you aware that there has NEVER been a successful prosecution of Section46 of the Trade Practices Act 1974(abuse of market power) in food retailing??
BBB Do you really think there has never been a complaint??
Regarding your ill informed comments about independant grocers. This shows one thing. You have no real knowledge of food retailing at all. I suggest you read my comments to Adrian above, then Mr Samuels report to find out why the independant grocer is battling to compete with the MSC, then be a good boy and leave the real discussion about food retailing to the people who know something about it.
Yes BBB, I do pity a person who does their best to bury a subject with psuedo intelectual bullshit so as to hide the truth; that they are not in possession of the facts.
In short BBB, you are just sooooo, like full of shit!! Tell me BBB which supermarket chain pays you? Or is it both!!
“Tell me BBB which supermarket chain pays you? Or is it both!!”
Both!
As for pseudo-intellectual bullshit, well…
“Mr. Samuels, and Alan Fels before him, know this and have not made any reccommendations to have the “market area” defined, and for very good reasons. They know that their buddies, “the MSC”, would be liable for prosecution under section 46 for ‘abuse of market power’ almost every day with their constant tactic of ‘geographical price gouging.’”
It is not for the ACCC to define the relevant market – that is for the Federal Court to decide. Of course, the ACCC doesn’t mind telling us all its opinion on this – see, for example, this public competition assessment: http://www.accc.gov.au/content/index.phtml/itemId/808640/fromItemId/751046). The ACCC routinely defines grocery markets narrowly. So you’ve screwed that one up pretty comprehensively. For good measure you’ve shoehorned in a conspiracy theory. You know, some try to talk the talk, but don’t quite get there. I’d put you into that category. Others, like me, have a clue (now THAT is intellectual snobbery).
I think we’d better leave it there, mate. Neither of us are going to budge on this one.
Cheers
BBB
Perhaps I can continue this discussion with someone else then. This blog is open until the 16th Sept, seems a shame to let it go to waste. I’m sorry if I upset BBB but the facts speak for themselves, and BBB I have never said that the ACCC should define the market, only that Mr. Samuels should RECCOMMEND that it should be properly defined. Why you continually misquote me shows that you will stoop to any length for your MSC buddies.
Here then are the facts:-
A. The ACCC has stood by and allowed a vibrant and competitive supermarket food retailing industry to degenerate into a duoply.
B. The ACCC has never tried to stop this happening.
C. The ACCC is a government department who publicly says that it is not there to look at individual competitors, it is there to look at competition, and in doing so publicly admits that it cares nothing for the individual independant retailer.
D. The ACCC has allowed a total monopoly in grocery wholesalers in Australia to develop from five grocery wholesalers in 1993, down to just one by 2008.
E. The ACCC does not believe that there should be any changes made to the Trade Practices Act to curb ‘geographical price gouging’.
F. The ACCC thinks that it is OK for the MSC to drop their prices to “price gouge” the competition into submission, even if it makes that particular store unprofitable, and be able to increase prices elsewhere to offset that loss.
G. The ACCC even thinks that its OK to manipulate cost of stock prices to each store so that the loss or excessive profit can be hidden.
H. The ACCC thinks that it is quite OK for the MSC to abuse their market power by engageing in “trading terms” from suppliers which are not only unavailable to all, but which give them an unfair advantage in competition.
I. The ACCC does not think that the “market area” should be defined in food retailing, and most certainly does not think that “price gouging” the competition into submission is in anyway wrong.
J. The ACCC has proven itself to be an unashamed supporter of “the big end of town” to the detriment of small business.
K. As far as food retailing is concerned, The Trade Practices Act 1974 is as much use as an ashtray on a motorbike, the ACCC a useless piece of furniture, and Mr Samuels an impostor and disgrace to the word “competition”.
L. The ACCC and the Rudd government have the chance to right some wrongs at the moment. Without a doubt, the discussion on supermarket domination in food retailing will never be an issue again, it’s old news, and the people who it affects will probably not bother again. They are small business people, the backbone of Australian business, and they are the people who the ACCC, the Government and the media have abandoned.
M. Australia must be the laughing stock of the retailing world. Concentration of market power is encouraged in this country. Our advertisements to overseas business should be “COME TO AUSTRALIA! OUR GOVERNMENT HAS LAWS TO HELP YOU BECOME A MONOPLY!!
“Why you continually misquote me shows that you will stoop to any length for your MSC buddies.”
Hey, I didn’t say they were my buddies, I just admitted that they pay me to stand up for them on the internet. Stop misquoting me!
BBB