ACCC may shackle grocery chains

The findings will be delivered to Competition Policy and Consumer Affairs Minister Chris Bowen on Thursday.

Mr Bowen is expected to release the hotly anticipated document next week.

Citi analyst Craig Woolford said he expected the ACCC to recommend the introduction of a competition test similar to one recently introduced in Britain to limit the growth of supermarkets in areas where they have a dominant market position.

The British test applies to development of new stores of greater than 1000 square metres and considers the market within a 10-minute drive of the site.

The new supermarket is only given approval if the chain is a new entrant, if there are four or more existing large stores in the area, or if there are three or fewer existing large stores and the retailer developing the new store would hold less than 60% of the market.

"The implications for existing dominant retailers such as Coles and Woolworths are negative as the capability to develop new stores diminishes and the net space growth of smaller operators accelerates," Mr Woolford said.

In April, the Federal Government announced that it would make it easier for foreign-owned retailers by giving them five years to develop vacant commercial sites they had acquired, rather than 12 months.

The major retailers will also face pressure over restrictive covenants they include in their property leases with shopping centres to prevent access by grocery rivals.

Woolworths, which operates Safeway supermarkets in Victoria, has admitted including clauses in many of its leases that either give it supermarket exclusivity or trigger a reduction in rent if a rival supermarket is established in a centre.

Mr Woolford predicted the inquiry would recommend restrictive covenants be phased out over the next decade.

He said the impact would be small, given shopping centre-based supermarkets were only a fraction of the total portfolio, and could even be positive for the major players "as retailers should pay lower rents once the exclusivity covenant becomes worthless".

Supermarkets are already grappling with the prospect of unit pricing, which allows consumers to more easily compare prices across different product sizes. In Queensland, unit pricing will soon be mandatory while the Wesfarmers-owned Coles has indicated it will implement unit pricing in all its stores. Mr Woolford predicted it would be among the ACCC's recommendations.

"We estimate grocery industry revenue will fall by $810million, as consumers switch towards the most effective pack size and increase consumption of private-label products," he said.

But the fall would not be distributed evenly, with Coles' existing inefficiencies pushing its profitability down 6% while Woolworths would fall 4% and Metcash 3%, Mr Woolford said.

Other likely recommendations from the inquiry included the easing of zoning restrictions, the creation of an industry ombudsman and the tightening of rules governing the major supermarket chains' negotiations with fresh food suppliers, Mr Woolford said.

KEY POINTS

- Big chains' growth is to be restricted in locations where they already dominate.

- Unit pricing is tipped to be mandatory, costing the grocery industry $810m.