THE DISTILLERY: Woolworths beef

Jotters consider the ACCC's decision to block a new Woolworths store, with one anticipating a legal challenge.

The competition regulator has stood between Woolworths and a supermarket site in Glenmore Ridge in New South Wales. If Woolies moves in, says the Australian Competition and Consumer Commission, another supermarket won’t be able to do the same. The retail giant already has a spot in the neighbouring Glenmore Park and three other surrounding suburbs.

ACCC chair Rod Sims has set some parameters for Woolworths that it will very likely take issue with in this instance because they have the potential to become precedent. Two business scribes investigate. Also, in a much needed shot from The Distillery this Friday, the anticipated paywall announcement from Fairfax Media gets a workover.

But first, The Australian Financial Review’s Chanticleer columnist Michael Smith says there is a very specific set of conditions that Sims wants to set that Woolworths will want tested.

“What Sims is saying is that he wants three supermarket players in each market, which will have ramifications for Woolworths’ future expansion plans. Woolworths is likely to mount a legal challenge because it fears the ruling will be a precedent for future decisions. The ACCC measures a market in terms of a geographic dimension that has a three-to-five-kilometre radius surrounding the target. Woolworths now fears any plans to open a new supermarket within five kilometres of an existing site will be challenged. There are obvious problems here as every ‘market’ is unique based on its geography. However, Sims himself recognises that the situation varies in city areas where it is harder to travel long distances than in rural areas where a reasonable distance to drive to a competing supermarket could be up to 20 kilometres.”

The Australian’s John Durie, who has been head-and-shoulders ahead of everyone on this story, notes that the ACCC said it had effectively “completed its review by October 2012”. But the timeline was suspended following a request from Woolworths to provide more information.

“The time taken for decisions by the ACCC is a constant cause for complaint, and this one is a case in point. The ACCC wants to make it known it had made its decision in October last year but Woolies kept putting more information up for consideration. Some may say Woolies contributed to the delay, but others may not, given the time taken by the ACCC to assess that information was the real problem. Either way, one year is too long to decide whether a supermarket can go into a new development.”

Meanwhile, in reference to Fairfax Media’s paywall being erected, the publisher’s Elizabeth Knight writes that there’s another sector that has been treated by investors in a similar fashion.

“In many ways listed media businesses have displayed many characteristics of – and been treated by investors similarly to – retail stocks. Until a few weeks ago, the market was factoring in a meaningful cyclical recovery that has not emerged. Results from David Jones and Myer over the past couple of weeks have been telling a similar story – consumers are cautious. And so is the advertising market. Both these industries are structurally challenged – the print media market more so than its television cousins or retail.”

That’s not to say that the television industry doesn’t have something to teach the printing press people, as explained by The Australian Financial Review’s Ben Holgate. The newpaper’s media writer quotes Nine Entertainment boss David Gyngell, who said just two days ago, “chasing revenue is more important than chasing costs”.

“It’s a truism that has finally started to emerge in the Fairfax Media narrative. A key takeout from Fairfax’s investor briefing on Thursday was that the newspaper publishing, radio and digital media company is starting to move beyond an obsessive focus on cost-cutting.”

That’s not to say Fairfax isn’t cost cutting. They’re cutting hard. But the balance they’re trying to strike is between reduction in headcount and increase in online revenue. As Business Spectator’s Stephen Bartholomeusz explains, everyone is chasing the New York Times model, which is a pretty high bar given that it’s a world renowned publication.

“In any event, the fact that both the major print media groups will be charging for digital access gives both Fairfax and News the best possible chance of generating subscription revenue without shedding slabs of their online audiences and advertising revenues. Within the media it is regarded as inevitable, and not that distant, that the print mastheads will disappear, creating a massive challenge to try to create an economic model for digital-only publishing that is viable. There has been considerable speculation that Fairfax will stop printing its metro mastheads, or at least the weekday editions, and shift to online mastheads only once it has shut down its Chullora and Tullamarine printing plants and moved production to its regional facilities as part of the drive to reduce its fixed cost base.”

This morning, Fairfax’s China correspondent John Garnaut writes on…something. It doesn’t matter what it is, read it. He’s that good, The Distillery blindly recommends you read it…

…Alright fine! It’s on the risks facing the Chinese economy, particularly the extent to which debt-fuelled investment is no longer generating significant returns, coupled with some research indicating “China’s enviable 35-year economic record has been shaped by historical forces and patterns that are much greater than the leaders who have traditionally taken credit”.

Speaking of China-related worries, The Australian Financial Review’s 'Drilling down' columnist Jamie Freed has been amused by the panic that has gripped some mining investors about the lower iron ore prices and the billions of losses the big miners will cop.

The reality is the miners were surprised by the first-quarter prices. There’s no losses here, they’re just not getting the returns they weren’t supposed to get earlier.

Elsewhere in resources, Fairfax’s Brian Robins writes about the 'X-factors' that emerge with a potential to undermine growth. For media it’s the internet, ditto for software developers. For Queensland LNG, it’s America’s shale gas. For Australia’s coal industry, it’s cheaper exports from Indonesia.

In company news, The Australian’s Bryan Frith writes on the additional shares that Air New Zealand has ‘bought but doesn’t own’ in Virgin Australia, thanks to a cash-settled equity swap deal with Gresham.

The Australian’s Barry Fitzgerald picks up on some industry chatter that Rio Tinto’s Sam Walsh could double the $13 billion in assets on the block.

And finally, The Australian Financial Review’s Jennifer Hewett again tells her readers, many of which would be Telstra Corporation shareholders, that the fear surrounding the asbestos issues as part of the national broadband network’s rollout are exaggerated.

The core of her argument appears to be that the myth we all have in our heads that a single breath containing asbestos fibres has a sporting chance of giving us cancer is not supported by scientific evidence.

Prolonged exposure is absolutely dangerous, no question. But it’s not as bad as the adrenaline from our 'fight or flight' system inspires us to believe it is.

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