Supermarket saga hots up
When it comes to dealing with potential misuse of market power by the big supermarkets, which is the best way forward - to prosecute, to negotiate or to legislate?
The government made it pretty clear on Wednesday it was prepared to take action to level the playing field between the large supermarkets - Coles and Woolworths - and their suppliers.
It's a sufficiently large stick that it might engender new resolve in the retailers towards finding agreement with suppliers on a code of conduct (which would be administered by the Australian Competition and Consumer Commission). The ACCC has prosecution in its sights. It's a race to see who gets there first.
The government announced a review of competition (which includes more than just the supermarkets and their suppliers) in the run-up to the election, but it won't take place until next year.
For most of this year ACCC has been undertaking an investigation into alleged misuse of market power by big supermarket chains and unconscionable conduct in dealing with suppliers. This was supposed to have been over by Christmas but has now been pushed out until March. The regulator says the delay is the result of complexities and the challenges of gathering evidence.
The supermarkets will be taking the view that it's a difficult case to mount and the regulator is having difficultly locating a smoking gun.
For their part the supermarkets are keen to get a code of conduct worked out as soon as possible and say they are 95 per cent of the way there. But as with most contracts, the devil in the negotiations is in the last 5 per cent. The supermarkets have an aspirational time target of Christmas as well. But no promises.
There have been several draft versions that the ACCC has seen and is not particularly impressed with. Given it's a code that will be enforceable under the competition law, it's understandable the ACCC wants it to be easily enforceable.
ACCC chairman Rod Sims is also concerned that the code does not require all retailers to sign up. So it covers only 80 per cent of the supermarket industry.
At a Food and Grocery Council industry forum on Wednesday, Sims amped up the rhetoric against supermarkets, rejecting their views that increased regulation should be discouraged in order to let the free market work.
The tone of his speech suggested he was champing at the bit to launch a legal case. But he is correct that legal action aimed at the conduct of supermarkets and their contracts with suppliers is complex. The ACCC might instead (or as well as) mount an action around the supermarkets' use of shopper dockets for petrol discounts and its alleged anti-competitive effect.
Sims has already fired off plenty of warning shots to Coles and Woolworths, but the practice of fuel discounts continues.
Indeed, there has been so much critical noise around the behaviour of supermarkets from the regulators and suppliers that the ACCC would look toothless if it did nothing. Therefore there is plenty of pressure on Sims to prosecute.
While he says he is not lobbying for additional competition legislation, what regulator doesn't want more in its armoury? If the ACCC can't get a successful prosecution up against the supermarkets, it would be a ripe time to hit up the Coalition for stronger legislation.
The combination of the new government, the ACCC and grocery manufacturers all in pursuit of supermarket blood suggests it will be hard for Coles and Woolworths to escape unscathed.
Wesfarmers boss Richard Goyder was the lone voice this week defending the supermarket giants, saying that Aldi was growing its market share in Australia in groceries, while Amazon competed with its other brands such as Kmart and Target.
He also repeated the chant that complaining about cheaper groceries is a strange way to look after the interests of consumers.
Meanwhile, the Australian Food and Grocery Council 2013 report found its manufacturers were dealing with rising input costs on everything from commodities and labour to energy and additional compliance costs and faced retail price deflation, which cut margins.
But there are signs of significant growth potential, according to the group's chief executive, Gary Dawson.
The report says there has been a 26 per cent increase in capital spend in food manufacturing as suppliers increase investment in productivity initiatives such as automation.