IGA accuses Coles, Woolworths of anti-competitive behaviour

IGA supplier Metcash has accused its big rivals Coles and Woolworths of long-term anti-competitive behaviour in line with their market share climbing to at least 70 per cent, pushing for tighter merger and competition laws to ensure independent supermarkets survive.

Metcash Food chief executive Grant Ramage on Thursday said in one instance, his company had been forced to match the price Coles had offered to buy a successful independent supermarket in Brighton, SA — much higher than its market value — then sold it to a new independent operator at a lower price.

Mr Ramage pushed back on suggestions that divestiture laws requiring the supermarkets be broken up would increase competition, saying independent operators should not be left until the last minute to solve issues.

But he has called for tighter merger and regulatory laws, particularly around creeping acquisitions which he said were pushing the power of the big two further.

“The lack of competitive constraint on a duopoly plays out beyond just pricing,” Mr Ramage told a Senate inquiry into supermarket prices.

“It’s also why the chains can cut costs and remove services from their stores, such as purchase delis and replace staff (with) self checkouts apparently with impunity.”

Bosses of Coles and Woolworths will appear at the inquiry on Tuesday.

Mr Ramage’s evidence came after Aldi’s Australian boss said the German-owned supermarket chain’s expansion had been slow but sustainable and was held back by restrictive zoning and planning laws.

But she has told a Senate inquiry into supermarket prices Aldi does not support divestiture powers to break up the big supermarkets because it could have unintended consequences for the grocery sector.

Anna McGrath on Thursday testified Aldi has been focused on sustainable growth, which had been steady since it entered Australia in 2001. But she said finding appropriately zoned land in suitable catchments “was and continues to be a challenge”.

Aldi now has 590 stores in Australia but is not present in Tasmania, the Northern Territory or regions like far north Queensland. In WA, its operations until two years ago were within 2.5 hours’ drive of Perth.

“There’s still some catchments that we would love to be able to access but we still find them very challenging because the zoning isn’t appropriate,” Ms McGrath said.

“Since we entered the market, we’ve invested $7 billion in order to establish our almost 600 stores and the great infrastructure that’s needed. Therefore there is an element of capital that’s needed to be successful.”

Ms McGrath said Aldi’s price gap compared to major competitors was between 15 and 20 per cent, with the average family shopping over the year at Aldi saving more than $2500. But she insisted these lower prices did not affect relationships with suppliers.

Ms McGrath also said it was not necessarily true that higher labour costs for Aldi or its suppliers would mean higher shelf prices for customers.

“For us ... the very core of our business model is to maintain a gap and to have Australia’s lowest prices when it comes to groceries,” she said.

“What we don’t do is have an impact on prices and automatically pass that on to our customers, that isn’t our business model.”

She pushed back on suggestions Woolworths and Coles had blocked Aldi out of the market. “No, that’s not the barrier,” she said.

But Mr Ramage said this had been the case with Metcash and independent supermarkets.

“In the ’80s the combined market share of the two major supermarkets was less than 40 per cent, today’s it’s at least 70 and in some localities over 90 per cent,” he said, adding the growth of the majors had been unchecked in recent decades and still played out today.

“The chains try and buy successful independent stores ... if they can’t buy the store, then they try and buy the property.

“These multiple examples of anti-competitive conduct mean that there is no single solution to addressing their unchecked growth and entrenched dominant position in Australia, but to prevent more of the same, action is needed now.”

Ms McGrath said Aldi had a “uniquely different” business model which was much simpler and more efficient, including trolley tokens, customers packing their own bags and its larger product barcodes.

“Ninety per cent of our product range is exclusive brands ... we work with our supply partners to find efficiencies through the supply chain,” she said. “That enables us to produce a product that is of equivalent or in some circumstances better quality than what’s in the market.”

These lower prices were also partly attributable to keeping operating costs low, such as through efficient supply chains, which meant some markets were still not served by Aldi.

“Within our major cities, there’s still catchments we haven’t been able to penetrate and there’s other areas that we have started to expand into as we get start to get more density into some of the traditional catchments of the major cities,” she said.

“Having the lowest operating costs in the sector, which we do — that means that when we’re identifying where to expand we do need to consider the additional costs and complexities that are involved.”

Divestiture laws forcing the supermarket giants to be broken up in certain circumstances have been debated by some politicians — suggestions the Federal Government has pushed back on.

Ms McGrath said forced sales could have unintended consequences and Aldi would not want consumers to have less choice or fewer jobs in the sector.

Mr Ramage said he did not expect divestiture laws would by their existence create greater competition.

“But I wouldn’t expect that the businesses we work with and represent would be happy to be picking up the supermarkets that Coles and Woolworths didn’t want,” he said.

“We’re calling for greater protection and a fair go for independent supermarkets on the basis of not being predated on by the chains through acquisition, mostly.”

Ms McGrath said many suppliers who started with Aldi when it began Australian operations were still with the supermarket now. The committee heard 97 per cent of fruit and vegetables and 100 per cent of eggs and salmon and meat were sourced in Australia, but Aldi had an Australian-first grocery supply policy. The company did not provide a percentage of groceries sourced in Australia but did disclose it uses international products to shore up its supplies.

“Not all suppliers are familiar with our business model — we’re a limited line discount retail model so we have to put that in perspective.”

Ms McGrath has also backed in tougher unit pricing requirements — such as those that tell customers how much 100 grams or 1kg of a product cost compared to the total product cost.

Mr Ramage said while Coles had reported profit on 2.6¢ in the dollar, “our net profit after tax is less than half of that”.

He said Metcash ran its food division with tight margins to ensure best value for members and independent supermarket owners.

Work in recent years to close the price gap between IGA and the majors to help support independents and reinvest in improving stores.

“As a result, we’re now more competitive and more relevant than we’ve ever been,” Mr Ramage said.

The hearings will resume on Monday with former ACCC chair Allan Fels, along with the Australian Food and Grocery Council, Bunnings, the ACCC, Federal Treasury and the Department of Agriculture, Fisheries and Forestry, as well as three unions.

One, the Retail and Fast Food Workers Union, claimed its members who work for Coles and Woolworths can’t afford to shop there.