A political hot potato for Coles and Woolies

Allegations leveled against Australia's supermarket duopoly remain largely unproven, but as political pressure ramps up ahead of the election industry regulation is likely to take centre stage.

Last year, when the perennial topic of Australia's supermarket duopoly was put on the table, Coles and Woolworths weren't happy.

Coles protested that: "For the last three years, Coles has worked hard to lower prices for Australian shoppers, saving more than $500 million off their grocery bills last year alone."

Woolworths took a more aggressive line: "Despite having regular dialogue with the Australia Food and Grocery Council and the Australian Competition and Consumer Commission including a meeting with the new chairman, not a single allegation has been put to us and we are extremely disappointed at having to once again defend ourselves against unsubstantiated rumours."

One can feel their pain. What group of professional business people wants to answer vague claims that they're somehow ripping off Australian consumers, or pushing suppliers to the wall by using their buying might to do 'take it or leave it' deals?

And if consumers aren't aware of the pain themselves, where's the problem? Aren't supermarkets just like banks – strong, robust and 'reassuringly expensive' by global standards?

It now looks as if the 2013 federal election will be a place for all these questions to come to a head. Two developments are likely to make this year exactly what ACCC boss Rod Sims predicted it would be – the year of supermarket regulation.

The first development comes from fledgling political party, the Bank Reform Party, which is running senate candidates in New South Wales, Queensland, Victoria, Western Australia, the ACT and Tasmania. Besides wanting more competition in banking, the party is campaigning on "supermarket, fuel and energy sectors, legal reform and boosting consumer protection".

The BRP yesterday released a 'three pronged plan' to prevent Coles and Woolworths squeezing suppliers on price in anti-competitive ways (to date a charge mostly based on unproved assertions – more on that below).

BRP's plan consists of:

– "an independent tribunal to develop and reach consensus on a simple and enforceable 'Fair Go Code' to ensure there is no abuse of supermarket power. A new Competition Ombudsman with confidential complaint provisions will be introduced."

– "a workable test for small and medium businesses with significant penalties for breaches needs to be inserted into the Competition and Consumer Act to give the ACCC teeth".

– "unconscionable conduct needs to be  defined in plain and simple language  so the ACCC can express clear-cut guidance and the courts can resolve disputes quickly and inexpensively".

The BRP policy essentially reflects the recommendations of a joint parliamentary committee inquiry into the food processing industry, released last August.

While it ticks the boxes set out by senators in that inquiry, the question of whether it will cut through with voters who may not see, or feel, any problem at the checkout is another matter.

As the inquiry noted, "perhaps the 'pendulum' has shifted too far in favour of the consumer".

That is, "down, down, prices are down" as the Coles jingle incessantly tells shoppers while they walk the aisles, but so are profits in the food processsing industry.

As Kate Carnell, AFGC's chief executive, told the inquiry, the clock is ticking: "In five years' time, we will be talking about when we used to have a food manufacturing industry in Australia and how unfortunate it was that it closed."

The problem for Coles and Woolworths in repelling these kinds of attacks is that very few instances of abuse of market power have been documented.

That's where this year's second major development comes in. The Council of Australian Small Business Associations is planning a round-table for June where more of the accusations against the duopoly will be aired – if not by the aggrieved parties, then at least by the industry groups that represent them.

This only highlights the need – addressed in the BRP policy – for a better way for the ACCC to handle anonymous complaints. At the release of the inquiry report last year, committee chair Senator Richard Colbeck said suppliers were operating in a "climate of fear".

COSBOA executive director Peter Strong says numerous groups/politicians have said they'll be at the round-table: the Master Grocers Association, ACCC, Treasury, Productivity Commission, Senator Nick Xenophon (who has long campaigned on this issue), Bob Katter, the CFMEU, the ACTU, United Voice and even Woolworths itself have said they wish to attend.

Strong says there are numerous issues that have been brought forward by members of COSBOA's constituent industry groups:

– Suppliers' inability to pass on energy cost increases. Strong says suppliers have been asked to hand over detailed accounts and business plan information to 'prove' that power bills caused the price rises.

– Members have complained that their labelled products are sold in-store at prices below Coles/Woolworths 'no frills' own-brand products.

– Suppliers complain they're unable to speak out for fear of retribution.

– Strong says even "several mulitnational companies" have complained to him that they can't speak out for fear of retritbution.

These types of allegations are not new, and Strong has an open mind about them being disproved. COSBOA is currently putting together an independent research project to look at the claims, the results of which should inform debate at the round-table.

Put all this together and it looks like Sims was right – 2013 will be a big year in supermarket industry regulation. If there is nothing wrong with two companies holding 80 per cent market share, nothing will change.

However, if market abuses, or unconcionable action are taking place in a 'climate of fear', expect the likes of the BRP, Xenophon and Katter to move the debate to the centre of the political stage in the run up to the September 14 election. 

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