It's competition, not carbon, that matters

The supermarket duopoly's impact on consumers and small business shows it's urgent for the Abbott government to get its hands dirty on competition policy.

Competition policy. Not carbon. Competition. That's something that actually matters, though you'd hardly know it when month after month, year after year, all we've heard about is the 10 per cent increase in our quarterly power bills due to the carbon tax. 

Yes, that's about $50 per household per quarter. That is what has crippled the political process for three years. 

So why try to change the topic now to ‘Things That Matter’ (to reprise an old Coalition campaign slogan)? Well, simply because they cost us much more money. Yes they do. 

A clever colleague told me a few days ago that he'd "made the switch to Aldi" – the cheapo supermarket chain that is not yet available in all states. 

After shopping there for a few weeks he did what he claims was a "like for like" spreadsheet of products and prices and discovered that the $100 he spent at Aldi would be $142 at Coles or Woolies. 

If he is right, that's $42 a week, or $546 a quarter. That's more than ten times the power bill increase my friend would be paying, on average, due to the carbon tax. So what really matters to his family?

As a frequent Aldi shopper myself, I pointed out that I then trudge round to Coles to get the cereals the kids like, the crackers I like, and, umm, some fresh coriander perhaps?

Aldi's business model cuts choice down to the bare minimum and undercuts Coles and Woolies dramatically on costs, and therefore on price. But when that is taken into account, does that mean the majors are 'uncompetitive'?

Many small business owners think so. For one thing, the supermarket business is as much a real estate business as anything. If there is no room to build a super-cheap Aldi, time-poor customers pop down to one of the two majors (I do it all the time – Aldi is a 15 minute drive away).

And this, according to participants at a competition policy summit hosted by the Council of Small Business of Australia last week, is causing a crisis of small business collapses. 

The summit, which was attended by Senator Nick Xenophon (whose balance-of-power role in the new senate won't be clear until the outcome of court challenges to the WA senate recount are concluded), asked two key questions, proposing that they be answered by "an independent researcher":

"Do we have a problem with productivity and our future standard of living that is impacted by the dominance of the duopoly?" and "Does the duopoly use market power, dominance and fear for business purposes and if so is this at the expense of the economy?"

Now those might sound like loaded questions to any Wesfarmers or Woolies shareholder – they are obviously based on the premise that there is a duopoly – but attendees did not think so. 

One told me there was "obvious distress floating around" and "desperation" among SME attendees. 

The Abbott government is conducting a review of competition policy, but one delegate said: "Many at the meeting weren't sure we had time to wait for a root and branch review of competition policy."

The meeting reportedly heard that "with the duopoly having somewhere around 80 per cent of the market, then each extra 1 per cent they gain means 5 per cent of the remaining smaller players disappear... and that’s not coming from Aldi or Costco so it’s really hurting our remaining small retailers."

COSBOA chief Peter Strong said the meeting was introduced to the term 'duopsony', which is "an economic condition, similar to a duopoly, where there are only two large buyers for products or services. Members of a duopsony have great influence over sellers and can effectively lower prices for their supplies".

In a note this week, Strong asked: "What does this dominance, this duopsony, mean for the supply chain? It is the end of any real business to business negotiations and the end of being in control of your own business. You, as a manufacturer or supplier, will be relying upon the benevolence of the duopsony/duopoly. It doesn’t matter if you are a smart, clever, innovative business manager, they’ll still eventually get you."

Strong points out that this situation is a comfortable one for Australia's biggest union, the Shop Distributive and Allied Employees Association, which he says has little interest in protecting small businesses when it can organise and collect union dues from Coles and Woolies' giant workforces.

Strong argues: "If the SDA gets a pay rise then smaller businesses will close. If penalty rates stay high or increase with pay rises then many small business will close, at least on Sundays and public holidays. When opening hours for the duopoly were deregulated then the duopoly increased market share and the SDA increased membership. This means that Coles and Woolworths have increased their market share not by improved services or better products but by attrition and an ability to manage increased costs that competitors cannot handle.

"This is no conspiracy theory. I do not believe that the SDA, Coles and Woolies conspire on these points. Indeed the duopoly fight hard against pay rises and the SDA tried to stop the broadening of opening hours in Western Australia. Sadly for small business they all failed and we now have higher wages and longer opening hours which means greater market share for the duopoly and increased membership for the SDA... There is no conspiracy here just a failure of competition policy."

The drums are beating on competition policy and, like it or not, the Abbott government will face louder calls over the next few years for action to stop SMEs being squeezed to the point of collapse. 

But then it is not all bad news. Efforts by both the majors to help beleaguered food processors and farmers in the packaged fruit and vegetable industries are a welcome sign (How Coles and Woolworths are revolutionising food processing, October 31).

Coles and Woolies know the landscape is changing. What we don't know yet is what role the Abbott government is prepared to accept in catalysing that change.