Playing favourites should not be the business of government
There's a bit of attention being paid to how much Woolworths is losing on its Masters investment and why Woolies is being less than totally open about it. The market knows more about Masters from the accounts of its American 15 per cent shareholder, Lowes, than from its Australian 85 per cent parent
that declines to break out its performance.
That 15 per cent stake lost Lowes $US15 million ($16.5 million) in the May quarter, up from $US10 million in the preceding quarter and the same as the May quarter last year. Divide by 15, multiply by 100 and translate into real money and, at $110 million a quarter, it looks as if Masters is an expensive business.
Just how expensive, Woolworths isn't saying other than to disagree with such simple maths and with that of a couple of analysts who reckon it's far from cheap with losses forecast in the hundreds of millions of dollars for the next few years.
A theory retailed to me by a retailer is that Masters making a profit or not is not the point for Woolworths, that there is a bigger game afoot. With Wesfarmers' Coles hurting Woolworths' fabulously profitable supermarkets by getting its act together and becoming more aggressive, Woolworths wants to hurt Wesfarmers' fabulously profitable Bunnings with the very attractive (to consumers) Masters offering. It's a theory that helps explain the relative luxury of Masters. I've only visited one for a sticky beak but found it impressive. The place made Bunnings look like the cold sheds they are. The Masters store felt more expensive yet had the same prices.
And Masters is showing a desire to get right into Bunnings' face, not dividing up the geography as a comfortable duopoly should, but going head-to-head in a way that consumers enjoy but should also ensure low margins - or none.
Which is where Queensland's Sunshine Coast Council comes in as an example of government folly. On the eve of Noosa de-amalgamating, the worthy councillors of the Sunshine Coast unanimously voted in March to play favourites, protecting Bunnings and Mitre 10 from the threat of a Masters store in Noosa and deciding where their constituents would be allowed to shop.
"There is a massive war between Coles and Woolies and I don't want Noosa to be collateral damage in this crazy war," Noosa hinterland councillor Tony Wellington recently told Brisbane's Courier-Mail.
A number of councillors spoke against the Masters-Bunnings rivalry including Caloundra councillor Tim Dwyer, who warned small business was being picked off as the Woolworths-Coles duopoly sought to control the market. Woolworths' application was rejected despite recommendation by council officers to approve it because it was in keeping with council plans for the area.
In the same story, the Courier-Mail recorded the irony that council voted to allow a $350 million mall expansion in Maroochydore to enable a David Jones store to open.
It's easy to dismiss such stuff as typical of wacky local government, but it applies to the higher levels as well. Federal, state and local are all guilty of ignoring the Productivity Commission's guidance that it is not the role of government to prevent competition, but to free up businesses so they can compete.
If Wesfarmers and Woolworths want to compete hard, even to the point of Woolworths effectively subsidising Masters' customers, it is not the proper business of government to protect whoever the incumbents might be. At the state level, big rezoning decisions and trading hours policies routinely favour the incumbents over competition, with consumers paying for it.
Federally, there's an argument that what Canberra is doing with the car industry is a bit like the Sunshine Coast Council. Instead of Bunnings and Mitre 10, the government has been playing favourites with Toyota, Holden and Ford - or perhaps the AWU - by transferring the odd billion from taxpayers to the multinationals instead of letting market forces take their course and allowing consumers to benefit from the big subsidies other governments pay car companies.
Michael Pascoe is a BusinessDay contributing editor.
Frequently Asked Questions about this Article…
Masters is Woolworths' upmarket hardware chain launched to compete with Wesfarmers' Bunnings. The article says Woolworths has invested heavily in building impressive, higher‑end stores. Some retailers and analysts believe the rollout may be strategic — aimed at hitting Bunnings — rather than simply focused on short‑term profit, which helps explain the scale and cost of the expansion.
Woolworths has not been breaking out Masters' results, so the market has been watching Lowe's (Lowe's 15% US shareholder) disclosures. Lowe's reported a US$15 million loss on its 15% stake in the May quarter (up from US$10m previously). Market commentators have extrapolated that to suggest Masters could be losing the equivalent of around US$110 million a quarter at 100% ownership, and some analysts forecast losses in the hundreds of millions over the next few years — though Woolworths itself disputes simple extrapolations.
Yes. The article describes Masters as going head‑to‑head with Bunnings rather than carving up territories, offering a more attractive store experience at similar prices. For consumers that typically means better choice and store experience, but such direct rivalry can also push margins down for both competitors.
The Sunshine Coast Council unanimously rejected Woolworths' application to open a Masters store in Noosa, reportedly to protect incumbent players like Bunnings and Mitre 10. Council members framed it as avoiding collateral damage from big retail rivalries, but the article argues the move limited competition and effectively chose where constituents could shop.
The phrase refers to federal, state or local governments making policy or planning decisions that protect incumbent businesses (for example by rezoning, trading‑hours rules or subsidies) instead of allowing new competitors to enter freely. For everyday investors, such decisions can affect competitive dynamics, pricing power, profit margins and long‑term growth prospects for firms in affected sectors.
Yes. The article notes that Masters' entry into direct rivalry with Bunnings is likely to produce low margins — or none — as both chains compete on store experience and price. Intense competition typically squeezes margins even if it benefits consumers in the short term.
According to the article, Woolworths has declined to break out Masters' performance and has disagreed with simplistic extrapolations. That means investors are relying on third‑party reporting (like Lowe's disclosures) and analyst estimates, making it harder to assess the precise financial impact of Masters on Woolworths' results.
Yes. The article compares the Sunshine Coast decision to federal actions supporting Australia's car industry, saying Canberra has in the past channelled taxpayer billions to automakers such as Toyota, Holden and Ford rather than letting market forces play out. The piece uses these examples to argue governments often intervene in ways that protect incumbents rather than promote competition.
Call 1300 880 160
Start a chat
Schedule a call
