Will the watchdog snap the retail chains?

Despite countless inquiries over several decades that have concluded there is no need to legislate to prevent so-called ‘'creeping'' acquisitions by the major supermarket chains the issue is, yet again, back on the national agenda.

Today it was Australian Competition and Consumer Commission chairman, Rod Sims, who raised the issue, devoting a significant slab of an address to CEDA to the topic and making it clear the commission is paying increased attention to ‘'incremental'' acquisitions in the grocery, liquor, home improvement and petrol sectors.

This is a hoary old issue that has been continuously looked at by federal parliamentary committees and by the ACCC itself. They have consistently concluded that restricting the chains would damage the interests of consumers and the economy.

The debate took on a quite aggressive tone recently when Master Grocers Australia said it had evidence that Woolworths and Coles were opening over-sized and unprofitable stores in marginal sites just to kill off smaller competitors. It promised to release a report supporting its claims next month.

It doesn't, of course, make any sense that either Woolworths or the Wesfarmers-owned Coles would deliberately create unprofitable stores in order to drive small supermarkets out of marginal locations, but the smaller independent banner groups are finding themselves caught in the cross-fire of the price-driven battle between Woolworths and the newly-competitive and very aggressive Coles.

Without the scale of the chains, which have ploughed billions of dollars into improving their productivity and their offerings, the independents have been steadily ceding share to the majors – and more recently Aldi – over recent decades. That can happen in competitive markets.

Sims explained the ACCC's rekindled interest in the issue of creeping acquisitions by saying they were important at both the local and national level.

The chains, he said, were increasing their participation in the liquor, grocery and home improvement sectors, particularly via small acquisitions, a trend that benefitted from their substantial economies of scale and scope. Barriers to entry for groups wanting to replicate their market positions were increasingly high and there were often local barriers like access to sites.

When they acquired an independent player they removed an alternative from the market with a potentially different product range and service offering, reducing consumer choice as well as competition generally, he said. That competition was unlikely to be replaced by another entrant.

All that's true, but there is no law against incremental acquisitions and, indeed, federal parliament has, as indicated, considered the issue and rejected it.

There are laws against acquisitions that substantially lessen competition in a market and against abuses of market power but unless the market is going to be defined in terms of a suburb, or less, it is difficult to see how they can or should be used to effectively cap the chains' footprints.

Sims said the sector was reaching a ‘'critical decision point.''

‘'Either we can ignore the many current local acquisitions by Wesfarmers and Woolworths and in, say, five years see what market structures we have in key sectors or we can examine each local acquisition now, as best we can and within our legislation, to see if there is a substantial lessening of competition.''

‘'By opposing those acquisitions which substantially lessen competition in a local market … we hope to not only assist local communities by protecting competition but also ensure better national market structures than would otherwise emerge.''

It is unclear how trying to slow the expansion of the two most efficient supermarket operators – lessening their ability to compete with less efficient operators – benefits competition. The most recent ACCC inquiry into grocery retailing, in 2008, was more critical of the independents' wholesaler, Metcash and its margins than it was of the two big chains.

The reality is that they do compete ferociously and have driven food price deflation, creating considerable consumer benefit, while greatly improving the productivity of the supermarket sector. If more competition is needed in grocery retailing the answer doesn't lie with independent operators but with making it easier for Aldi to gain access to sites and encouraging Costco's expansion.

The chains are far more worried about competition from those two groups than small supermarket operators.

Trying to limit the expansion of the chains equates to protectionist measures for less competitive businesses, which isn't in the best interests of the community or economy. It would also, perversely, adversely impact the value of the independents' own businesses if the chains – the most deep-pocketed of potential buyers – were somehow prevented from making incremental acquisitions.

By itself the extra scrutiny from the ACCC and a strengthening of its voluntary regime under which Woolworths and Wesfarmers give it notice of impending acquisitions, isn't particularly harmful or threatening.

The fact that the issue still has legs, that the independents are revving up their campaign again and that the ‘'David versus twin Goliaths'' and urban giants versus regional battlers characterisation of it might well resonate within this peculiar national parliament that we have should, however, give the chains some cause for concern.