Increasing sales and aggressive expansion at Australia’s two largest retailers is all very well and good, but what about everyone else in the supermarket sector? just-food.com’s David Robertson takes a look at the critics who say the duopoly must end.
The success of Australia’s two major supermarkets in the past year has been impressive but their dominance is having a damaging effect on the rest of the food industry, claim critics.
Woolworths and, to a lesser extent, Coles Meyer have enjoyed over a year of double-digit growth. Woolworths earlier this month reported a 24% increase in first half profits with forecasts for full year profits between A$500m (US$250m) and A$522m – up from A$428m last year. The group is also tipped to hit sales of A$24bn and there is no sign of its growth slowing.
This has been great for shareholders but the competition is less enthusiastic. According to research by AC Neilsen in March 2001 the A$61bn grocery industry in Australia was split between Woolworths with a market share of 37.4%, Coles on 33.5%, Franklins with 11.6% and the independents with 17.5%.
Franklins was sold by its Hong Kong owner Dairy Farm International last year with many of its stores going to the big chains. The elimination of the third biggest chain has consolidated the power of the top two, and the market shares of Woolworths and Coles Myer are now 41.2% and 34.5% respectively. Analysts predict that they will soon have an 80% duopoly of the market.
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By GlobalDataInsatiable appetites
The independents have also benefited from the break up of Franklins – their share is up to 24.3%, but there is concern that this is a temporary improvement only. With such a stranglehold on the industry there is a worry that Woolworths and Coles will be able to squeeze the independents out – or even simply buy them up.
Woolworths has already made its plan to add bolt-on acquisitions clear and it is adding about 20 new supermarkets a year. It is also moving into petrol and liquor as well as retail electronics and there are even rumours that it may buy the David Jones department store chain.
“They have insatiable appetites, which is good for them as companies but you’ve got to look at what is good for consumers,” says Alan McKenzie, spokesman for the National Association of Retail Grocers of Australia (NARGA).
“There is a big gap between the top two and the rest. Unless some measures are put in place to level up the playing field there will be a big squeeze on the smaller independents.
“The independents’ market share has gone up because of Franklins but that could be short lived if the big boys fire back – they are more dangerous than ever.”
Investigation
The independents have been lobbying the government to investigate the duopoly – and both supermarkets are under constant supervision by the Australian Competition and Consumer Commission for potential misuse of market power.
There has been a minor victory for the smaller players as the government promised before last year’s election to investigate deficiencies in the Trade Practices Act which is expected to cover issues like misuse of market power and predatory pricing. The Australian senate is also due to look at issues relating to competition law and, in particular, merger law.
“We are not going to give up until we get some sort of substantive reform that attacks this issue at its heart,” adds McKenzie.
Dominance debate
Woolworths does not accept that it is all-powerful and has produced its own figures to prove it. Woolworths uses data compiled by analysts Jebb Holland Dimasi which shows that its market share has risen to 27.6% from 25.6% last year and 23.6% four years ago. Coles has 22.3%. These figures, says Woolworths, show that it isn’t too dominant.
But the independents counter that the Woolworths figures are based on all grocery items sold – so the supermarket is comparing itself to local butcher shops, fruit and vegetable shops and even liquor stores. AC Neilsen aims only to show one-stop shopping figures.
Opportunities?
It is true that the departure of Franklins has given new players an opportunity to enter the tightly controlled Australian market. South Africa’s Pick N’Pay has bought out 60 Franklins stores and West Australia’s Foodland is buying 50.
German discount supermarket Aldi has also opened, or is in the process of opening, about 40 stores. But even with these new additions there is still little to threaten the dominance of the big two. According to NARGA figures Aldi would need 400 stores, 10 times more than it currently controls, simply to achieve a market share of just 5%.
NARGA also points out that in other countries market share is spread more evenly, with the top five grocery retailers controlling 34% of the US market, 56% of the Canadian market and in the UK the top three control 52%. But with the top two claiming 76% of the Australian market (and rising) there is little chance of anybody catching them in the near future. All the smaller retailers can hope for is a little government involvement to calm the aggressive expansion of Woolworths and Coles.
By David Robertson, just-food.com correspondent
