The Distillery: Supermarket gripes

The extent of the dominance of Australia’s big two supermarket chains is rarely far from the headlines. So it was yesterday as the government pledged to level the playing field, Senator Nick Xenophon again bemoaned their power and Australian Competition and Consumer Commission boss Rod Sims launched a stern defence of the watchdog’s handling of their growth.

The latter was largely the focus of the press, with one commentator saying it’s only a matter of time before there is action. Another scribe, however, takes a broader view, arguing a focus on just supermarkets wastes the opportunity provided by the government’s competition law review.

The Australian Financial Review’s Matthew Stevens takes time to outline the issues the ACCC has been confronting this year in its misuse of power inquiry, which is now due for publication in March. Stevens notes the watchdog has two points of inquiry in play.

“First, the ACCC is assessing allegations that employees of the supermarkets have demanded ‘various payments’ from suppliers that are ‘above and beyond’ the routine of the supply chain. At the same time the regulator is assessing whether major chains are misusing their very obvious market power by discriminating in favour of increasingly ubiquitous house brands.”

It’s the issue of shopper dockets, however, that had Sims riled, with Stevens noting he was “peeved warnings on their use had been ignored”.

Fairfax’s Elizabeth Knight believes that prosecution, negotiation and legislation are in the sights of policymakers and regulators and “it’s a race to see who gets there first”. Given yesterday’s presentation from Sims, the ACCC may be closest and Knight, like Stevens, expects action on shopper dockets.

“The tone of (Sims’) 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.”

Business Spectator’s Stephen Bartholomeusz adds that while yesterday’s spotlight was understandably on the major supermarket chains, it would be a missed opportunity should the focus not extend beyond this area through the government’s review of competition law.

“One only has to look at a topical sector – dairy – to compare Australia’s shrinking share of global export markets (which halved in the decade to 2012) with the performance of New Zealand’s industry, which increased its share from 30 per cent to 37 per cent over the same period. The discussion would also need to include an examination of the structural changes occurring in retail both here and offshore.”

Indeed, the dairy sector – and the broader agribusiness industry – has been receiving plenty of coverage over the past month. Expect plenty more to come, with the AFR’s Greg Earl suggesting rising demand for food, and specifically ‘safe’ food, has put targets on the back of Australian companies from an acquisition standpoint.

“The recent food scares in China and other parts of Asia have prompted talk about regional standards harmonisation to deal with the rising role of trade but when even the European Union can’t implement agreed standards, it seems unlikely that Asia will make fast progress in such a culturally sensitive area. That will put even more value on companies which can deliver safe, traceable food across a geographically and climatically challenging part of the world.”

Fairfax’s Malcolm Maiden, meanwhile, sticks to the current debate surrounding the dairy sector and delves into the different viewpoints of the players in the Warrnambool Cheese and Butter takeover battle. Contrary to other commentators, he concludes that strategic stakeholder Kirin Holdings has an interest in getting involved with Saputo given the leverage it wields. Indeed, the Canadian dairy group’s proposal is compelling for two key parties.

“For the farmers and arguably for Lion… Saputo somewhat counter-intuitively offers a simple outcome: a change of control, but maintenance of the existing matrix of competing buyers and industry partners.”

In economic news, The Australian’s David Uren reflects on the current state of Australia’s financial system and makes the case that the imminent inquiry into it must take the continued independence of the RBA as its starting point. All in all, the system works well at this point in time, Uren says.

Finally, the AFR’s Chanticleer columnist Tony Boyd explains why the Nine Entertainment listing will be a crucial test of what has fast become a “bull market in new listings”, while The Australian’s Richard Gluyas finds the “pragmatic beast” in private equity.