fair competition release: master grocers australia
TRANSCRIPT
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LETS HAVE FAIR
COMPETITION!
The risk of losing retail diversity,
choice and true competition in the
Australian supermarket industry
Independent Liquor Outlets
NATIONAL SUPPORT OFFICEMaster Grocers AustraliaSuite 5, 1 Milton Parade Malvern Victoria 3144Phone: +613 9824 4111 Fax: +613 9824 4022Freecall: 1800 888 479 Email: [email protected]: www.mga.asn.au
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Independent Liquor OutletsMaster Grocers Australia
Who We Are
Master Grocers Australia (MGA) and Liquor Retailers Australia (LRA) is the peak
naonal employer organisaon represenng the independent sector of the
supermarket and liquor retailer industry. MGA/LRA represents independently owned
and operated supermarkets and liquor stores throughout Australia.
These stores operate under banners such as Supa IGA, IGA, IGA Xpress, Friendly
Grocer, Foodland, FoodWorks, SPAR, Supabarn, Cellarbraons, Bole-O, IGA Liquor,
Local Liquor, Duncans and Bolemart.
MGA is a registered employer organisaon and represents its members in relaon to
workplace relaons, training and compliance, and government relaons.
Australias independent grocery retailers employ 115,000 people, generang annual
sales of $13 billion and together, they constute the major compeon for the chains.
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Contents
Foreword ...................................................................................................................... 5
Execuve Summary ...................................................................................................... 7
Introducon.................................................................................................................. 9
1. Market Power and Compeon ........................................................................... 10
1.1 Market Power of Major Chains Connues to Increase ................................. 10
1.2 Eects of Market Dominance ....................................................................... 13
1.2.1 Impact on Grocery Shoppers ............................................................ 13
1.2.2 Impact on Business Costs .................................................................. 13
1.2.3 Impact on Local Business .................................................................. 14
1.3 Floor Space as an Instrument of Market Power ........................................... 15
1.3.1 The Over-Sized Store Strategy .......................................................... 15
1.3.2 The Saturaon Strategy..................................................................... 16
1.4 Floor Space Strategies in Pracce ................................................................. 19
1.4.1 Premium Prices For Sites .................................................................. 19
1.4.2 Compeon and Development Controls ........................................ 19
1.5 Addional Strategies for Market Dominance ............................................... 20
1.5.1 Shopper Docket Schemes ................................................................. 20
1.5.2 An-Compeve Price Discriminaon ............................................ 21
1.6 Previous Eorts to Stop An-Compeve Behaviour ................................... 22
1.6.1 ACCC Intervenes to Prevent Lessening of Compeon .................... 22
1.6.2 Amendments to the Compeon and Consumer Act ....................... 25
1.6.3 Proving Purpose ................................................................................ 25
1.7 Eecve Regulaon for Increasing Market Power ....................................... 27
2. The Role Of Local Government Planning Decisions .............................................. 28
2.1 Local Government Planning .......................................................................... 28
2.1.1 Local Market Saturaon .................................................................... 28
2.1.2 Recommendaons for the Assessment of Floor Space Needs ......... 30
2.1.3 Determining the Impact on the Welfare of Local Communies ....... 30
2.1.4 Ensuring Retail Space Is Commensurate With Demand .................... 32
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2.2 Impact of Over-Sized Stores on Regional Economies and Markets ............... 35
2.2.1 Bermagui, New South Wales ............................................................. 36
2.2.2 Bright, Victoria .................................................................................. 38
2.2.3 Churchill, Victoria .............................................................................. 39
2.2.4 Macksville, NSW ................................................................................ 402.2.5 Summary of Impacts of Over-Sized Stores ....................................... 41
3. Consequences for the overall economy ............................................................... 43
3.1 Key Sources Of Market Power - Economies Of Scale And Scope .................. 43
3.1.1 Exploitaon of Economies of Scale ................................................... 43
3.1.2 Exploitaon of Economies of Scope .................................................. 43
3.1.3 Adverse Eects of Market Concentraon on Social Welfare ............. 44
3.1.4 Adverse Eects on Economic Eciency ............................................ 44
3.1.5 Adverse Eects on Distribuonal Equity ........................................... 47
4. Conclusion and Recommendaons ...................................................................... 48
Appendix 1 - Calculaons of Floor Space Supply .......................................................... i
Appendix 2 - Methodology for Assessing Floor Space Requirements ........................... i
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Forewordby John Wallace1
There is lile public awareness of the adverse eects that the compeon between
Australias major supermarket chains is having on the welfare of Australians. While
perfect compeon between a large number of small suppliers can result in an
ecient allocaon and use of Australias resources, the same is not true of imperfectcompeon between Australias small number of major supermarket chains. Rather,
such imperfect compeon inevitably imposes a cost on the community by reducing
both economic eciency (e.g. by distorng paerns of consumpon, producon,
investment and resource use) and distribuonal equity (e.g. by reducing the extent to
which local governments are able to achieve their equity objecves for the residents
of their respecve regions).
This report, which has been prepared by Master Grocers Australia, raises the concern
that the major supermarket chains are misusing their market power by construcng
and cross-subsidising the operaon of over-large supermarkets in small local markets.
In parcular, the report outlines how this pracce can reduce the welfare of Australians
by reducing economic eciency and distribuonal equity and presents evidence
of this pracce and its adverse eects drawn from both ACCC inquiries and Master
Grocers Australias own research.
As concluded by Master Grocers Australia, this evidence is sucient to warrant further
invesgaon by the ACCC to determine whether the major supermarket chains are
cross-subsidising the construcon and operaon of large supermarkets in small
communies in order to deter new entrants and eliminate exisng competors.
John Wallace
Director
The Economist Network Pty Ltd
1 John Wallace is the director and founder of The Economist Network. He is an economist with over 30
years of experience with economic and regulatory reform both in Australia and overseas. This includes
10 years as an Execuve Director of Ernst & Youngs Economics, Regulaon and Policy group; 11 years
working for the New Zealand government as a consultant to the Regulatory and Tax Policy Division of the
New Zealand Treasury and as Chief Manager of Policy Development for the New Zealand Inland RevenueDepartment; and 10 years working for the Industries Assistance Commission (now the Producvity
Commission).
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Forewordby Associate Professor Robin Goodman
Why Planning Policy Should Care About Diversity In The Australian Grocery Market
When urban planners are charged with responsibility for approving applicaons for
new developments there is a large range of factors they must consider. They must
assess the impact on the exisng urban form and character, amongst other things, and
the generaon of trac, noise and other issues which impact on local amenity. The
economic compeon that a new business might provide for exisng businesses is not
generally considered a valid planning issue and cannot be ulised as an argument to
oppose development.
This report demonstrates however, that the pracces of the two corporaons who
overwhelming dominate the grocery market in Australia, are having a serious impact
on exisng town centres in ways which should worry planners.
Local government planners should be concerned about nurturing and protecng the
exisng town centre as a whole. This is not the same as acng to protect individualbusinesses. The value of a thriving town centre, with a concentraon of independent
small businesses, goes beyond the sum of its parts and the value of the businesses
themselves.
Town centres are not only business and employment centres, they are the social hearts
of local communies. Tradional main street retailing provides a reason for people to
gather, a place to meet and socialise, and a chance to connect and maintain a sense
of community. This is parcularly so in small to medium size towns where alternave
gathering places may be some distance away.
The loss of a key shop in a local strip shopping centre may lead to a decline in pedestriantrac and the eventual closure of many businesses, as this report indicates. The large
supermarket surrounded by its sea of car parking does not invite pedestrian trac.
Customers drive in and drive out, making isolated single desnaon visits. Planners
are increasingly seeing a role for themselves in creang places which encourage
walking and decrease car dependence. Main street shopping does this in a way that a
large supermarket does not.
The threat to the viability of small town centres that the arrival of over-sized
supermarkets poses should not be ignored by those in a posion to give approval.
While the arrival of a Coles or Woolworths might seem inially like an economic boon
to a small town, clearly, as this report suggests, the ulmate consequences may in factharm the local economy. The net community benet in the longer term needs to be
clearly assessed.
This report provides some evidence, and raises some important quesons, regarding
the deleterious eects of behaviour of the supermarket duopoly in smaller town
centres. Clearly this is an area where a reconsideraon of the current policy frameworks
is required.
Associate Professor Robin Goodman
School of Global Studies, Social Science and Planning,
RMIT University
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Execuve Summary
The market dominance that Woolworths and Coles has built over the last three
decades (market share of about 80% and rising) is progressively crowding out all
compeon from the market and thus rapidly reducing the choices in shopping
format, product brands, locally derived products and service levels that the shopper
can choose. Similarly, this relentless expansion is denying an outlet for local suppliers
and manufacturers as their products are replaced by overseas sourced ones retailed
as store brands. The impacts on local communies and local economies are oen
abrupt and severe.
Master Grocers Australia believes grocery shoppers should enjoy the benets of
genuine compeon, which consists of a diversity of retail oers, cheaper grocery
products, a greater range of branded products, supported by a supply chain that makes
more ecient use of Australias resources and results in a more equitable distribuon
of the available prots.
This report reveals a number of an-compeve policies and pracces that depend
on enormous market power, including: an-compeve price discriminaon, shopper
docket schemes, store saturaon strategies and over-sized store strategies. These
pracces assist the growth of the dominant players by unfairly handicapping smaller
independent competors.
For example, the major chains have a strategy in which they develop over-large
supermarkets in small local markets, even where there is lile or no populaon growth
projected. This has the eect of prevenng future market entrants and it destroys
exisng smaller competors (and many small and medium specialty retailers who
are not direct competors). Such an-compeve strategies are possible only for themajor chains because they require cross-subsidies over an extended period to sustain
the over-sized store.
The situaon is exacerbated by local government approvals of such over-sized store
developments, with insucient regard for their impact on the viability of exisng
businesses, community amenity or commercial property values. The concept of Net
Community Benet (NCB) needs to nd a more explicit and accountable expression
in planning deliberaons. Consideraons of available choice, demonstrated need,
diversity, escape spending, employment and impacts on exisng retail centres.
Therefore, MGA recommends that the ACCC:
i. determines whether the major chains are cross-subsidising a substanal number of
loss-making supermarkets for an-compeve purposes and determine whether
this is misuse of market power, and
ii. revokes the authorisaons issued to Coles and Woolworths in relaon to shopper
docket schemes between related enes.
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MGA also recommends that the Australian Government:
i. reintroduces a prohibion on an-compeve price discriminaon similar to laws
in other OECD countries;
ii. repeals the provision allowing cross-subsidies between related enes;
iii. develops a Retail Sustainability Assessment to assist local government to determinewhether major retail development proposals are of appropriate size;
iv. recommends to COAG certain specic changes to planning legislaon to encourage
improved planning of acvity centres and new estates, and
v. ensures the ACCC has the legislave power to require prior nocaon by the
major chains of any proposed acquision of a site, lease or exisng business.
(Refer to comprehensive list of recommendaons in Secon 4.)
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Introducon
The Australian grocery market is the most concentrated such market in the developed
world. It is dominated by two large, vercally integrated competors that oer almost
idencal ranges of goods and services and compete vigorously against each other.
They are owned by two massive conglomerates that operate general merchandise,
hardware and oce supplies retail chains, hotels, packaged liquor and gambling, as
well as mining and insurance ventures.
This eecve duopoly has led to a steadily growing series of complaints from suppliers,
manufacturers, smaller competors, public interest groups and customers. The nature
of the complaints covers a broad spectrum of inmidang behaviour, unfair inuence
on decision makers, loss of diversity and choice for customers and unconscionable
terms imposed on suppliers. The complaints have progressively become more
frequent, insistent and widespread, resulng in formal enquiries by the ACCC and the
Australian Senate.
Fear of retaliaon from the dominant buyer of their goods and services, ensures only
a ny part of the complaints by Australian manufacturers and suppliers is made public.
It masks a much wider and deeper level of dissasfacon and alarm with the current
market structure and the trading pracces which naturally grow from near absolute
market power, but are hurng local manufacturers and growers while boosng
imports.
Similarly, the customer is facing increasing market concentraon and loss of diversity
and true compeon. They are increasingly being denied the choices in local
brands and variees they once enjoyed, as store branded generics displace them
from supermarket shelves. Shoppers are nding it harder to access the alternavestore oers, based on convenience and personal service, provided by independent
supermarkets as these stores are being crowded out of the market. Many also resent
being caught up in a spiralling web of cross-promoons involving fuel and other goods
and services.
This report does not seek to present a detailed analysis of the nature, extent and eects
of these an-compeve pracces. Such a task is well beyond the scope of this report
but could well be included in any future detailed inquiry. Rather it draws aenon to
evidence of a number of strategies by the supermarket duopoly which are essenally
an-compeve and damaging to the domesc economy. Master Grocers Australia
urges acon on a number of specic maers to prevent further market concentraondamaging Australian manufacturing and true retail compeon.
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1. Market Power and Compeon
This part outlines the key features of the Australian supermarket
industry and some of the issues which need to be addressed
if genuine compeon is to be sustained. It draws aenon
to the an-compeve strategies and pracces of the two
dominant supermarket chains in achieving a virtual duopoly, theconsequences of this market structure and some implicaons
for federal compeon law.
1.1 Market Power of Major Chains Connues to
Increase
The independent supermarket sector includes more than
4,000 independently owned and operated supermarket and
grocery stores, of which 2,100 are branded and operate under
the banners Foodland, FoodWorks, Supa IGA, IGA, IGA Xpress,SPAR, Supabarn and Friendly Grocer. Independent stores turn
over an esmated $13 billion in retail sales and employ a total
of more than 115,000 people (full me, part me and casual).
They form the largest block of competors against the two
major chains, Woolworths and Coles.
Woolworths and Coles account for about 80 per cent of
the Australian grocery market. This is believed to be the
most extreme example of grocery market dominaon in the
developed world. By comparison, the largest two supermarket
chains in the United States of America account for only 20 percent of the naonal grocery market and in the United Kingdom,
the top ve chains account for about 83 per cent of the market.
This situaon arose over the past three to four decades. In 1975,
Woolworths and Coles jointly held only about 34 per cent of the
Australian grocery market. Their rapid growth since then has
been due to various strategies, including the acquision of green
eld sites, creeping acquisions of independent supermarkets
and the development of an-compeve covenants. However,
as evidenced in this report, store acquisions and developments
by Woolworths and Coles since 2009 together with a signicant
number of new store proposals, suggest their current combined
share most probably exceeds 80 per cent.
The following diagram illustrates the two major chains growth
in market share from 1975 to 2009. More recent store openings
and acquision of sites by the two chains is likely to have
translated into further sales increases and further market share
growth, pushing the chains market share beyond 80 per cent,
with the prospect of further growth in the coming years.
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Figure 1 - Source: Accenture2
Accenture Australia noted3:
Market share stascs and trends across the grocery channels and even within
the key supermarket channel, are hard to stabilize, due to dierent methodologies
and data coverage across dierent sources. As such, the focus is on range of
market share as opposed to exact measures.
Market share rankings in the supermarket sectors are quite consistent, with
Woolworths, Coles and IGA being the order of the major players.
Combined market share of Woolworths and Coles ranges between 77 and 80.4per cent. Shares for IGA banners range from 11.3 per cent (various publicaon
and esmates from Metcash) to 14.4 per cent (Euromonitor).
The market share discussion in the supermarket sector gives rise to the much-
discussed level of industry concentraon in this sector. Indeed, Australia has the
most concentrated supermarket sectors in the world - whether one takes the top
two or top three or top ve players into account in the analysis.
2 Accenture Australia, The Challenge To Feed A Growing Naon, (November 2010), p273 Accenture, Op. Cit., p26
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During the 1990s, Woolworths in parcular adopted a whole of stomach approach
in expressing its market share. It redened the market by including sales through
restaurants, take away shops, hotels and clubs, delicatessens, greengrocers, butchers
and such other food retailing. By enlarging the market size in this way, its market share
would be made to appear smaller.
In the supermarket channel, however, the data more commonly used internaonallycomprises sales of branded packaged groceries, which constute by far the largest
department in a supermarket and are therefore a proxy for total sales. On that
measure, the combined market share of the major chains is about 80 per cent.
While Aldi and Costco have a place in the Australian retail grocery market, neither is a
direct competor for full line supermarkets. Costco has only three sites (Melbourne,
Sydney, Canberra) and Aldi, with about 260 stores in NSW, the ACT, Victoria and
Queensland, sells a limited range of mainly private label packaged groceries. The 2008
UK Compeon Commission grocery market inquiry4 classied Aldi, Lidl and Neo as
limited assortment discount stores and did not consider them genuine compeon
for full line major supermarkets and disregarded them during the inquiry.
4 UK Compeon Commission, The Supply of Groceries in the Uk Market Invesgaon, (30 Apr 2008)
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1.2 Eects of Market Dominance
1.2.1 Impact on Grocery Shoppers
UBS Investment Research reported on 22 November 20115 that as a business,
Woolworths achieved one of the highest prot margins in the world for FMCG retailers
(EBIT %), coming second only to Walmart in the US. UBS noted that the high margins
achieved by Coles and Woolworths were highly unusual and were the outcome oftheir signicant market concentraon. UBS also idened that this level of market
concentraon has resulted in:
Less compeve grocery prices (due to less need to reinvest in price).
Lower levels of innovaon (including in markeng, loyalty and private label
development compared to oshore peers).
Woolworths and Coles supermarkets operate praccally idencal business models. As
their combined market share connues to increase beyond 80 per cent, compeon
and diversity in the Australian grocery market connues to decrease towards a point
where the market can no longer be deemed workably compeve. That situaonwill leave shoppers with lile or no genuine choice and at the mercy of a duopoly with
no eecve real downward pressure on prices. In addion, upstream businesses, such
as producers, suppliers and service providers will also face very limited buyers for their
products and services (monopsony).
Once competors have been driven out of a market or signicantly weakened, the
new entrant is then free to increase prices without the constraining inuence of
compeon.
1.2.2 Impact on Business Costs
Market share growth has also contributed to the related vercal integraon of other
services, such as, but not limited to, freight, banking services including EFTPOS, IT
and ulies. Woolworths is the biggest user of freight services in Australia. When
Woolworths or Coles negoate with any supplier of goods or services they demand
and receive the best price due to their size. While suppliers of goods or services are
able to use the chains volume to gain economies of scale within their own sectors,
they then have to make their prots on the balance of goods and services sold to other
customers at higher prices. Thus the gain to Woolworths and Coles is in fact borne by
other businesses.
5 Ben Gilbert, UBS Investment Research,Australian FMCG Market, Exploring Treasure Island - Mach II, (1
Jun 2012)
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The UBS study (see above) also conrmed that the high level of market concentraon
resulted in pressure on suppliers (allowing the major chains to extract more
advantageous trading terms from suppliers).
1.2.3 Impact on Local Business
The ACCC in the past has not been concerned with situaons where one competoreecvely replaces another in a dened market. However, this behaviour has a
cumulave eect on local business, similar to that of creeping acquisions on
independent grocers and other SMEs in local markets. This is parcularly so now, as
it is being used widely by the major chains as a means to eliminate compeon and
grow market share.
There have been many examples around Australia which illustrate the adverse
consequences of such developments. A most harmful consequence is oen the loss
of local jobs, not only in compeng grocery businesses, but among unrelated retail
businesses and suppliers of goods and services, because of signicant changes to
customer trac ows. A new large supermarket can draw the majority of pedestriantrac away from established retail outlets in the central business district. This is
parcularly so when the new development is located at some distance from the town
centre. Occupancy levels, employment, commercial rents and commercial property
values in such places are likely to fall signicantly as a consequence.
The demise of local independent supermarkets to the benet of the major chains can
also impact local business in other ways. Independent retailers provide the opportunity
for emerging small suppliers to establish new products and services. Small suppliers
do not inially have the ability to supply the major chains, as they cannot produce the
necessary volumes or meet other supply requirements. Local service providers (e.g.,
accountants, community banks, cleaners, transport providers) and local producersand manufacturers also lose an important trading partner when an independent
supermarket closes.
Oen the arrival of a new major supermarket forms part of a new retail centre. Typically
these new centres are supported by naonal chain specialty shops. As a result towns
risk losing their local and oen unique independent retail oerings, reducing choice
and diversity for local communies. Recently at Coolum, Queensland, Coles bought a
shopping centre and refused to renew the lease of an independent competor who
had been trading there, eecvely acquiring his market share and good will without
compensaon of any kind.6
6 Coolum Up In Arms As Coles Shuts Out IGA Store, Courier Mail, (23 May 2010)
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1.3 Floor Space as an Instrument of Market Power
The nature of commodity retailing dictates that locaon and retail space are most
important consideraons in the success of retail business.
During the late 1990s and as late as 2007, Woolworths and Coles engaged in signicant
programs of creeping acquisions. Indeed, according to the ACCC, from 1993 to 2007,39 per cent of all new store openings by the chains arose from creeping acquisions.7
Currently, Coles and Woolworths combined have more than 160 conrmed new store
proposals across Australia, totalling around 375,000 square metres of addional retail
oor space over the short term.8 This excludes rumoured and undisclosed proposals,
as well as store expansions. Should all of these known proposals reach fruion, their
current combined oor space would increase by about ten per cent.
A recent report by the Commonwealth Bank,9 points out that Woolworths is currently
accumulang about $1 billion worth of property per annum. While the report raises
concerns about the Woolworths strategy, it points out that Woolworths is aiming foran exceponally high forecast space growth rate of 3.0 per cent per annum, of which
2.5 per cent will come from new stores. By comparison, Coles long term oor space
growth target is two per cent per annum. The number of Woolworths supermarkets
is esmated to grow from 878 now to 1148 by 2021. This compares to populaon
growth of only 1.4 per cent per annum in Australia and the rise of on-line retailing,
which will oset the need for some retail space. Yet retail oorspace connues to be
built faster than populaon growth, according to a report of a BIS Shrapnel study:
Retail Property Market Forecasts and Strategies, 2012-2022.10 The two big chains are
using their copious acquision of sites to enforce further growth in market share and
market power.
1.3.1 The Over-Sized Store Strategy
The development by Woolworths and Coles of over-sized stores in numerous small
local markets has become an established paern from which it may be inferred that
the conduct has purpose. Our case studies indicate that it brings about a substanal
lessening of compeon over me.
The Commonwealth Bank report points to Woolworths investment in what it calls
marginal locaons and accords with MGAs asseron that over-large stores in small
local markets are unsustainable without cross-subsidy.
7 ACCC, report of the inquiry into the Compeveness of Retail Prices for Standard Groceries, p428
8 MGA calculaons based on various industry sources
9 Commonwealth Bank, Global Markets Research - Equies, Woolworths Limited, When Woolies Becamean A-REIT, (1 June 2012)
10 Z. Fielding, Shop Space Grows Despite Slow Sales,Australian Financial Review, (11 July 2012), p46
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While Woolworths and Coles dominate the Australian grocery market, their
supermarket businesses are divisions within major retail conglomerates which, are
rated by Deloies 2012 Global Powers of Retailing11 study as the 18th and 21st largest
retail enterprises in the world, and serve a populaon of less than 23 million. As such,
they have the capacity to cross-subsidise their over-large, loss-making supermarkets
indenitely, or unl smaller competors are driven out of the market. These competors
are not only independent supermarkets, but butchers, greengrocers, delicatessens,passeries, milk bars and any other specialty retailer of food and grocery products.
The development of over-sized, cross-subsidised stores in small local markets is a
similar form of conduct to creeping acquisions, pracsed by both chains. As we have
seen from the closure of independent supermarkets and other specialty food retailers
following the entry of over-large chain stores, the result is both a substanal lessening
of compeon in those markets and a corresponding growth in market concentraon
for the major chains.
It is within the power of the ACCC to determine whether the major chains are misusing
their market power by building such oversized developments and driving out exisngand future competors. To facilitate such a process, the ACCC should also require
mandatory nocaon by the major chains of any proposed acquisions, including
exisng businesses, new leases or green eld developments.
1.3.2 The Saturaon Strategy
There is a second complementary strategy in which the major chains saturate a
local market with mulple supermarkets and liquor stores, for which no commercial
purpose would seem to exist apart from keeping competors out of the market. Some
examples are shown in Figure 2.
11 Deloie, Global Powers of Retailing 2012, Switching Channels Report, (January 2012), pG11
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Bathurst, New South Wales: Woolworths has two stores
separated by a street and a pedestrian crossing.
Yarrawonga, Victoria: Woolworths stores 200 metres apart.
Karingal, Victoria: Woolworths has two stores in one
shopping centre.
Hurstville, NSW: Coles store in the Wesield Shopping Centre
and another in retail space above Hurstville railway staon.
In Launceston, Tasmania, the combined market share of the chains exceeds 90
per cent and it is dicult to drive around the district without passing major chain
supermarkets every few minutes. The populaon of Launceston is 65,000 and that of
the Greater Launceston catchment is 100,000, yet it is serviced by four Woolworths
supermarkets, ve Coles supermarkets and one Supa IGA, all within a circle with a ve
kilometre radius (see Figure 3). A sixth Coles supermarket is pending (at Mowbray)and a potenal seventh may be developed (at Prospect).
Figure 2
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The hyper-concentraon of the retail supply of groceries in the Launceston market
can be readily demonstrated quantavely by evaluang a market concentraon
algorithm, such as the commonly used Herndahl-Hirschman Index12 (HHI). Indeed,
evaluaon of the HHI in these markets conrms that the overall market for groceries
is becoming further concentrated with the development of over-large stores in small
local markets as a result of local government planning decisions.
Figure 3
12 See, for example, Stephen A. Rhoades, The Herndahl-Hirschman Index, Federal Reserve Bullen, 79
Board of Governors of the Federal Reserve System, USA, (1993)
WOW Riverside
Coles Racecourse Crescent
Coles NewsteadColes Charles Street
Coles Wellington Street
Coles Kings Meadows
WOW Kings Meadows
Coles Mowbray
WOW Mowbray
WOW Prospect
5km Radius
Woolworths
Coles
SupaIGA
Kings Meadows 1 1 -
Prospect 1 - 1
City - 2 -
Racecourse - 1 -
Newstead - 1 -
Mowbray 1 - -
Riverside 1 - -
Sub total 4 5 1
Pending (Mowbray) - 1 -
Sub total 4 6 1
Greater Launceston Total 11
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1.4 Floor Space Strategies in Pracce
1.4.1 Premium Prices For Sites
Woolworths and Coles can aord to pay signicant premiums to acquire sites - either
green eld sites, exisng leases, creeping acquisions, or sites for redevelopment -
greater than can be aorded by an independent competor. Their dominant posionsin the market and their potenal to cross-subsidise unviable large stores is supported
by their extensive network of stores and/or revenue from related retail enes and
gambling. The premium paid is then oset by their ability to lessen compeon and
consequently not have to compete on price in the medium term.
1.4.2 Compeon and Development Controls
The regulatory framework that has allowed this market share growth includes vesng
the responsibility for controls of land use zoning and development at local and state
government levels, while the over-arching Compeon and Consumer Act at the
federal level.
It is inconsistent for governments to purport to foster genuinely compeve markets,
and yet allow the hyper-concentraon of the Australian grocery market to connue in
the name of compeon. This issue is central to the interpretaon of compeon.
While Naonal Compeon Policy was introduced in the mid-1990s, compeon is
not dened in Australian compeon law. It is therefore dicult for stakeholders to
engage in producve discussion because for each compeon is in the eye of the
beholder. Some hold that unfeered development is sucient to ensure compeon,
while others see that same conduct as leading to further market concentraon, greatermarket power for the chains and a consequent lessening of compeon.
Furthermore, economists tend to interpret compeon solely in terms of price
compeon. In their eyes there is erce compeon now because the two chains are
engaged in price wars for some basic products. However, marketers and the general
public have a more praccal denion of compeon that includes consideraons of
range, service and convenience. Viewed in this way, the current situaon is not one
of vigorous compeon but rather one of decreasing compeon with two centrally
planned and praccally idencal retail oers being rolled out across the naon, sing
the opportunity for diversied oers to compete in the market.
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In this way, the pro-compeon spirit of the Australian Compeon and Consumer Act
is being frustrated in many places by state, territory and local government planning
decisions which, in general, take no account of compeon issues, resulng in a net
an-compeve result.
Detailed case studies demonstrang actual instances of the over-sized stores and the
saturaon strategies are presented in Part 2.
1.5 Addional Strategies for Market Dominance
1.5.1 Shopper Docket Schemes
Among the other advantages handed to the major supermarket chains were
authorisaons by the ACCC to issue shopper dockets, by which grocery purchases
earned discounts from specied outlets for motor fuel purchases.
Such bundling schemes are designed to increase the willingness of consumers to
purchase not only products from the major supermarket chains, but also to purchase
fuel from those specied service staons where the credits can be claimed (i.e., these
schemes allow for the inter-temporal and inter-regional bundling of products,
which generates further economies of scope. See Part 3). That is, they are intended
to alter paerns of consumpon in favour of the major supermarket chains and their
associated service staons, even though these outlets may not be the most ecient
suppliers of those goods and services.
By issuing the authorisaons,13 the ACCC acknowledged that the pracce was an-
compeve. But Secon 90(5A) of the Compeon and Consumer Act (formerly the
Trade Pracces Act) allows the ACCC to grant an authorisaon on the condion that:
the provision would result, or be likely to result, in a benet to the public and
that the benet would outweigh the detriment to the public constuted by any
lessening of compeon that would result, or be likely to result.
The ACCC has never validated the supposed public benet(s) which were said to
be delivered by shopper dockets and probably could not, since it would be nearly
impossible to idenfy whether the prices of some or all of a large supermarkets
30,000 product lines might have been increased to cover the petrol discount.
13 ACCC, Assessing Shopper Docket Petrol Discounts And Acquisions In The Petrol And Grocery Sectors,
(Feb 2004)
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ACCC acknowledged economists Joshua Gans and Stephen King (later an ACCC
commissioner) who argued that in the long run consumers would pay more for both
petrol and groceries because of the an-compeve eects of the shopper docket
schemes.14
Perhaps in recognion of the an-compeve contradicons entailed in the
authorisaons, the Act was later amended to specically allow such arrangementsbetween related enes. Nevertheless, the pracce remains an-compeve in eect
and not in the public interest and MGA recommends the ACCC should revoke these
authorisaons.
1.5.2 An-Compeve Price Discriminaon
An-compeve price discriminaon occurs when a supplier sells to certain customers
at one price and to other customers at higher prices, unrelated to economies of scale.
An-compeve price discriminaon is prohibited by compeon laws in every OECD
country except Australia and New Zealand.
The Hilmer Report15 on Naonal Compeon Policy in 1993, recommended that
the then secon 49 of the Trade Pracces Act, dealing with an-compeve price
discriminaon, be repealed. It was repealed in 1995 without parliamentary debate on
the merits of maintaining a prohibion on an-compeve price discriminaon.
This delivered massive compeve advantages to Woolworths and Coles, strengthening
further their market power and assisng them to grow their market shares. To this
day, suppliers who refuse to deliver an-compeve discriminatory (lower) prices to
the big retailers are at risk of having a product line or their enre range deleted.
Yet, as former WA Senator Dee Marges has pointed out, food price inaon began
to overtake the Consumer Price Index soon aer and Franklins, previously a vigorous
competor, went into terminal decline around the same me.16 The predicted
outcomes of Naonal Compeon Policy and the changes in the compeon
environment which derived from it have never been adequately reviewed or tested in
the light of the evidence.
In an aempt to redress this, the non-government senators of the Senate Economics
References Commiee recommended on November 2011:17
Recommendaon 1
1.45 Amend secon 46 of the Compeon and Consumer Act 2010 to eecvely
prohibit an-compeve price discriminaon. Consideraon should
be given to relevant legislaon in place in the United States and United
Kingdom, and the reintroducon of an eects test as per secon 49 of
the Trade Pracces Act 1974.
14 Gans, J. S. and King, S. P., Paying for Loyalty: Product Bundling in Oligopoly, (12 October 2004)
15 Australian Government, Independent Commiee of Inquiry report, Naonal Compeon Policy Review
(1993)
16 Marges, D., Naonal Compeon Policy and the Retail Sector,Journal of Australian Polical Economy,(No. 67), (Winter, 2011), pp83-5
17 Marges D., op. cit.
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The price advantage owing from an-compeve price discriminaon - say, eight per
cent in beer terms of trade - delivers a benet at the beginning of the retail supply
chain which can never be recovered by a competor. For example, if an individual
chain supermarket has inputs totalling $10 million in wholesale value, this equates to
an extra $800,000 in beer trading terms than is available to an independent store of
similar size.
Note also, that this an-compeve advantage applies not only to goods purchased
for resale. It applies also to all other associated costs of doing business, such as, but
not limited to, transport, electricity, refrigeraon and air-condioning installaon and
maintenance, cleaning services, sta training, sta uniforms, store t out, in-store
consumables, and so on.
1.6 Previous Eorts to Stop An-Compeve Behaviour
1.6.1 ACCC Intervenes to Prevent Lessening of Compeon
In 2008, the ACCC used its powers under s50 of the (then) Trade Pracces Act to block
proposed Woolworths supermarkets at Wallaroo, South Australia, and Karabar, New
South Wales. This was a change from earlier narrower interpretaons of s50 and
highlights broader adverse impacts on compeon.
As the Marn report18 observed:
The ACCC decision in 2008 to oppose a proposed Woolworths acquision of an
independent store site at Karabar in Queanbeyan, NSW (just over the south east
border of the ACT) demonstrated the extent of market and compeon analysis
applied to the with and without tesng of independent acquirer alternavesfor the site.
An implicaon for ACT region supermarket compeon is that two earlier ACCC
clearances are likely with the benet of hindsight, to have been rejected under
current intensive analyses. In these instances Woolworths acquired, rstly four
group centre independent Cannons store sites in 1996 (three in Tuggeranong
and one at Kippax) and, secondly an IGA store site at Charnwood group centre
in 2004. This has created the situaon where the ACT currently has only three
independent full line supermarkets compared to 21 run by the two major chains.
However, while the ACCCs acon here aempted to address the substanal lesseningof compeon (see discussion below on Wallaroo and Karabar) its acons did not set
a new direcon. It seems s50 has been successfully used only on a few rare occasions
and that legislaon needs strengthening to stop the an-compeve behaviour of the
major chains.
18 Martin, J., Review of ACT Supermarket Competition Policy, (September 2009), p17
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1.6.1.1 Wallaroo, South Australia
In 2008 the ACCC undertook a review of the proposed acquision of a 3200 square
metre supermarket lease in Wallaroo in South Australia by Woolworths.19 Wallaroo is a
small regional town about 160 kilometres from Adelaide. An independent supermarket
of 1400 square metres serviced the town. The incumbent supermarket operator had
also declared an interest in acquiring the lease and planned to open a new 2,500square metre supermarket.
The ACCC expressed a number of concerns with respect to the proposed acquision
by Woolworths, in parcular that:
in the absence of the proposed acquision by Woolworths, it was likely that another
supermarket operator would be willing and able to operate a supermarket on the
site
it was likely the incumbent independent supermarket would exit the market if the
proposed Woolworths acquision proceeded; and
the catchment for local supermarkets was commonly taken as a three to ve
kilometre radius but consumers in regional areas had a greater willingness to travel
for the purpose of grocery shopping as well as a greater need to travel between
towns for other purposes.
In this case the ACCC considered the relevant market included the neighbouring town
of Kadina, about nine kilometres from Wallaroo. It expressed the view that, if the
transacon proceeded, Woolworths would operate two large full line supermarkets
at Wallaroo and Kadina and, since it was unlikely that another supermarket operatorwould open another new full line supermarket within two to three years, Woolworths
would then operate the only two supermarkets in the district, resulng in a substanal
lessening of compeon.
Woolworths subsequently decided not proceed with the proposed acquision and
the ACCC did not proceed to a nal view on the proposed acquision. The ACCCs
Statement of Issues was a departure from earlier decisions (such as the Woolworths
acquision of the Cannons business in the ACT and southern NSW) and indicated a
new approach by the ACCC in reviewing local supermarket compeon issues.
19ACCC, Statement of Issues, Woolworths Limited - Proposed Acquisition of a Supermarket
Lease in Wallaroo, South Australia (26 Nov 2008)
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1.6.1.2 Karabar, New South Wales
Also in 2008, the ACCC opposed the acquision by Woolworths of the Karabar NSW
Supabarn supermarket.20 The Karabar Supabarn was an independent supermarket and
retail liquor outlet located about two kilometres from the town centre of Queanbeyan
in New South Wales.
Some of the key issues of relevance contained in the ACCCs Public Compeon
Assessment included the following:
The Karabar supermarket was approximately 1,250 square metres and the ACCC
did not consider that it provided a strong compeve constraint on the major
supermarkets in neighbouring Queanbeyan and Jerrabomberra.
The ACCC considered there was strong evidence that in the absence of the proposed
acquision by Woolworths, the supermarket would be acquired by another
independent operator and upgraded to a full line supermarket. The ACCC also
considered that such an upgraded supermarket was also likely to draw customersfrom further away.
The ACCC also noted that many consumers shopped at more than one supermarket
each week and there were consumer benets in having access to a larger number
of separately owned supermarkets in a local market.
The ACCC also concluded that it was unlikely any other site would be available in me to
prevent a substanal lessening of compeon in the local market. The likely purchase
and expansion of the Karabar supermarket by an independent group was deemed
to entail a higher level of compeve tension in the market than if it had beenpurchased by Woolworths, which also owned the nearby Jerrabomberra supermarket.
The ACCC found that if both supermarkets were operated by Woolworths there would
be no incenve for compeon between them.
20ACCC, Statement of Issues, Woolworths Limited - Proposed Acquisition of the Karabar Supabarn
Supermarket, (4 June 2008)
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1.6.2 Amendments to the Compeon and Consumer Act
In the period aer 1975, when Woolworths and Coles grew their respecve market
shares to the current dominant posion, there was lile change in compeon law,
with the single major excepon being the counterproducve repeal of the an-
compeve price discriminaon provisions in 1995 (see secon 1.5.2).
In June 2011, the Australian Government introduced amendments to the Compeon
and Consumer Act 2011. The amendments passed both houses in November 2011 and
included replacement of references to a market with references to any market
in subsecons 50(1) and 50(2).This amendment claried the ability of the ACCC or a
court to consider mulple markets when assessing mergers and acquisions.
It also ensured that businesses cannot challenge a decision to block an acquision on
the grounds that the substanal lessening of compeon was in one or more markets
other than the primary market relevant to the merger or acquisions (subsecon
50(6) was also amended to delete the word substanal in relaon to the scope of a
market).
The amendments were intended to provide greater certainty in acquisions in local
markets and to remove the risk that a court might take the view that acquisions in
geographically conned (i.e. local) markets might not be considered substanal and
therefore not fall within the scope of Secon 50.
These amendments apply to the independent grocery sector as they ensure that
the ACCC or any court can connue to examine acquisions in all markets including
relavely small markets. The Chairman of the ACCC recently highlighted in a speech
the intenon of the ACCC to scrunise mergers and acquisions in local markets:
The ACCC will also increase its scruny of mergers in local markets. The ACCC
has been parcularly acve in reviewing local grocery store and liquor license
acquisions in the past, but we will be considering whether local market
acquisions in other sectors may warrant more aenon. We may, for example
take a larger interest in the merger of two service staons in a local town, if that
might adversely aect compeon
Mr Rod Sims, Chairman of the ACCC, 27 August 2011
1.6.3 Proving Purpose
In examining the provisions of the Compeon and Consumer Act 2011 to cases
involving claims of an-compeve behaviour and misuse of market power, it is
somemes claimed that the requirement to show that the acons were engaged in
for an illegal purpose (such as eliminang or substanally damaging a competor)
is too onerous.
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In his 2003 Review of the Compeon Provisions of the Trade Pracces Act 1974,
the former High Court judge Sir Daryl Dawson wrote21 in relaon to misuse of market
power:
The diculty in proving purpose may be doubted. Not only may purpose be
inferred, but the proof that is required is on the civil standard of the balance of
probabilies only, and not on the criminal standard of proof beyond reasonabledoubt. The purpose does not have to be the sole or dominant purpose. An
admission of purpose is not required, much less an admission in the documentary
form of a smoking gun.
Since the scope of the secon was claried in Queensland Wire, 22 a number of
cases have demonstrated that proof of purpose need not be an obstacle in the
applicaon of the secon (see Box 3.1).
21 Dawson, D., et al., Review of the compeon provisions of the Trade Pracces Act, Ch. 3.
22 Report of the Trade Pracces Review Commiee C of A. (Jan 2003), Ch. 3
Box 3.1: Is proving purpose a problem?
Queensland Wire Industries P/L v. BHP: BHPs purpose in refusing supply to Queensland Wire was
found to be to prevent Queensland Wire compeng as a manufacturer and wholesaler of star
pickets.
Melway Publishing P/L v. Robert Hicks P/L: the evidence of employees suggested that Melway had
the requisite an-compeve purpose. The acon was unsuccessful because Melway was found
to have not taken advantage of its market power.
ACCC v. Boral Ltd: Boral was found to have used its market power against a competor for each
of the three proscribed purposes in secon 46. The evidence on purpose was based on internaldocumentaon. The decision is on appeal to the High Court.
ACCC v. Universal Music Australia P/L: Hill J inferred that the refusal to supply had the purpose of
prevenng the entry into the wholesale market of potenal competors. The decision is on appeal,
which will address the issue of whether Universal and Warner had substanal market power.
ACCC v. Australian Safeway Stores P/L: Safeway was found to have not taken advantage of its
market power. Although the trial judge concluded it was unnecessary to address the issue of
purpose, he found a proscribed purpose could be inferred from the conduct concerned in two of
the ten alleged breaches. Otherwise, it was found that there was substanal evidence that the
purpose of Safeway was pro-compeve. The decision is on appeal.
Rural Press Ltd v. ACCC: Rural Press and Bridge Prinng were found to have the purpose of deterring
or prevenng Waikerie Prinng from engaging in compeve conduct in the relevant market. The
appeal to the full Federal Court turned on whether Rural Press and Bridge Prinng had taken
advantage of their market power.
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Finally, in relaon to purpose, it should be observed that the ACCC has, under
secon 155 of the Act, extensive powers to compel the provision of informaon
and the producon of documents. These powers are not available to a private
ligant but should, in the ACCCs case, aord an invaluable tool in elicing
evidence to prove the necessary purpose where it exists.
The Commiee is not persuaded that proving purpose is an unnecessarilyonerous hurdle for the ACCC. Whilst proving purpose may be more dicult for
an individual ligant who does not have the invesgave powers of the ACCC,
secon 83 of the Act enables an individual to rely upon the ndings in an acon
brought by the ACCC under secon 46.
MGA suggests, in line with the above legal opinion, that proof of purpose need not
be a prohibive obstacle, especially where there is plenful evidence of repeated
occurrences in similar situaons with similar protagonists and similar outcomes.
1.7 Eecve Regulaon for Increasing Market PowerIn a free market it is natural that competors take advantage of any strategy or
tacc that advances their market posion, usually within the bounds of regulaon.
As competors grow their market share and assume greater market power, new
strategies or taccs, as described above, become available to them that are not
feasible for smaller competors. It is then up to the regulators to ensure that this
disparity does not se genuine compeon to the detriment of the consumer and
the broad economy.
It is within the power of the ACCC to determine whether the major chains are misusing
their market power by adopng an-compeve strategies such as operang shopperdocket schemes between related enes, cross-subsidising loss-making supermarkets
and building oversized developments designed to drive out exisng and keep out
future competors.
To facilitate these determinaons the ACCC should require mandatory nocaon
by the major chains of any proposed acquisions, including exisng businesses, new
leases or greeneld developments.
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2. The Role Of Local Government Planning Decisions
This part outlines the extent to which development of over-large stores and the
saturaon of markets with too many stores is occurring in pracce. It discusses the
adverse eects of these pracces.
2.1 Local Government Planning
2.1.1 Local Market Saturaon
The major chain supermarkets are opening new supermarkets in locaons unable to
support the addional oor space. A snapshot of the extent of individual locaon over-
supply is provided below showing seven examples in Table 1, followed by a summary
of the implicaons, the tesng methodology and the MGAs recommendaon for a
oor space needs assessment. The tesng methodology is explained at Appendix 2.
Locaon Retail Space Over Supply
Churchill, Vic 52%
Gloucester, NSW 38%
Bright, Vic 34%
Macksville, NSW 14%
Tura Beach, NSW 57%
Wongaling Beach, Qld 31%
Pisworth, Qld 35%
Table 1
(For methodology and detailed calculaons see Appendices 1 & 2)
The outcomes of this local market saturaon by the major chains is clear:
These locaons are ooded with supermarket oor space that can no longer be
economically jused by the local populaon (now or in the foreseeable future).
As a result the once protable exisng supermarket(s) have been substanally
impacted.
In some cases the impact has been so severe that it forced the immediate closure
of the local independent supermarket (eg Tura Beach, NSW).
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In other cases, sales reducons for the exisng independent supermarkets of 50%
have occurred. Impacts of this magnitude are not sustainable.
Not only does the major supermarket compete with the independent supermarkets,
but due to its size and product oering, it also competes head to head with the
local butcher, deli, pharmacy, baker and other small businesses.
Where once there was a thriving independent supermarket in town, in many cases
it has been either replaced or severely impacted by a major chain supermarket,
oen in an out-of-centre locaon (eg Macksville, NSW). This has consequences for
the specialty retailers, service providers and local manufactures and producers that
rely on the either the direct trade with the independent store or the foot trac
that delivers the customers they need to survive.
The resultant over-supply of supermarket oor space also acts to prevent new
competors from entering the market because the barrier to entry becomes too
high.
In these locaons it cannot even be argued that there will be sucient populaon
growth over the foreseeable future to support this addional oor space.
However, even if there were to be strong populaon growth, sucient to support
the new supermarket in a few years me, the exisng independent usually does
not have the resources to survive the intervening unprotable period.
These new major supermarkets are therefore trading at unsustainable levels.
Their connued survival relies on cross-subsidisaon from other protable stores
in the major chains network and from other related business streams (eg petrol,
gambling).
The Australian consumer suers from this strategy. In order to cross-subsidise these
stores, prots must be redirected from other locaons. This implies that prices
(margins) need to be higher in those places to compensate for these loss-making
stores.
The co-located (same town) independent supermarkets are subject to the largest
impacts. Whilst the major chain supermarket may draw its trade from a relavely
large region, the independent oen relies on a smaller more localised catchment.
The level of over-supply is therefore even more acute from the independent
supermarket perspecve.
It is noted in these examples that even where the local independent supermarket
has been forced to close, the resultant supermarket oor space is sll too great to
be supported by the catchment populaon (eg Wongaling Beach, Qld).
This growth strategy has also been strongly cricised by the Commonwealth Bank
in a recent analysts report23 where it concluded that Woolworths, in parcular, was
developing marginal sites.
23 Commonwealth Bank, Global Markets Research - Equies, Woolworths Limited, When Woolies Became
an A-REIT, (1 June 2012)
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2.1.2 Recommendaons for the Assessment of Floor Space Needs
The issue of over-large stores being approved for development in small local markets
can be resolved by requiring a developer who seeks to build a new shopping centre
with space allocated for a major chain supermarket, to jusfy the proposed increase
in oor space.
A number of local governments have recognised the importance of creang sustainable
communies and have begun to introduce the requirement for new major retail
developments to undertake a Retail Sustainability Assessment (RSA).
The components of an RSA should follow, in principle, the methodology outlined at
Appendix 2. The purpose of the RSA is to ensure:
The development is consistent with the centres posion in the retail hierarchy.
That the level of new space is commensurate with the level of demand.
Impacts on exisng centres are jused and within acceptable levels.
In order to implement this approach it would be necessary for local governments:
i. To beer dene their local retail hierarchy.
ii. Dene the circumstances when an RSA is required. This would include planning
permit proposals that may exceed certain thresholds and/or as dened in the
zoning tables. In addion it would include proposals associated with planning
scheme amendments (eg land rezoning), local structure plans, and new or expanded
acvity centres.
iii. Provide assessment guidelines to assist with the preparaon and interpretaon ofRSAs.
2.1.3 Determining the Impact on the Welfare of Local Communies
While it is generally accepted that it has not been the role of planning to regulate
compeon,24 it is a fact that the concept of Net Community Benet (NCB) has
been central to consideraons of planning proposals by praccally all state and local
government authories.25 These two principles are quite disnct, the former applying
to the purely commercial sphere, the laer being a duty of local government in
safeguarding and furthering the interests of its constuency.
The applicaon of the NCB concept varies in form across Australia, but in substance
it invariably includes weighing up the posive and the negave impacts on the local
community of a planning proposal on:
choice in retail goods and services
diversity and breadth of retail compeon
retenon of a share of escape spending
24 Kentucky Fried Chicken Pty Ltd v Gandis and Anor - High Court of Australia (1979)
25 See for example Retailing Victoria Report, Victorian Government 1996, Davids v Maribyrnong CC
(Appeal No. 1997/38010) VCAT.
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employment (both potenal increases and decreases in regional employment);
loss of sales at exisng shops/centres;
trac circulaon and parking demand;
environmental eects on adjoining acvies; and
local character and amenity impacts.
These factors are readily quanable and are directly relevant to the local communitys
economic and social welfare. Some local authories are considering formal objecve
tests of NCB.26
The Net Community Benet test should include the RSA as explained in secon 2.1.2.
It is our recommendaon that the NCB test should be expanded to include an
assessment of compeon. This would apply where a new development has the
potenal to result in a level of market dominance that could have detrimental impactson the business community and/or the social environment.
Planning outcomes such as those listed earlier in this paper, and some currently
under consideraon, would fail any NCB test on several or all of the above listed
criteria. This means that local communies are disadvantaged by a reducon in retail
diversity, damaged by a contracon of the local economy, employment and the loss of
environmental amenity.
With the current rate of urban and regional expansion due to populaon growth,
the number of retail planning proposals involving supermarkets is ever increasing.
The increasing incidence of resident acon groups and the consistent high rankingof planning issues among voters concerns rearm expectaons that developments
should yield a net benet to the community as well as developers.
Objecve NCB tests, similar to those under consideraon by the NSW government,
should be incorporated into urban and regional planning policies by state governments
(with coordinaon through COAG) for applicaon in the processing of planning
proposals by relevant local authories.
26 Dra Centres Policy, Planning for Retail and Commercial Development, Dept. of Planning, NSW (2009)
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2.1.4 Ensuring Retail Space Is Commensurate With Demand
In the grocery and liquor retailing sectors, all markets are local. Prices, range, service
levels, convenience and customer loyalty are of no consequence outside the immediate
local market.
There are minor excepons to this general observaon. In rural and regional Australia,where people are used to travelling signicant distances to buy goods and services,
there is some opportunity for shoppers to transfer their purchases to a dierent
market within limited driving range. Even so, as a generalisaon, they do not because
the advantages of greater range or slightly lower price are oset by the addional cost
of fuel, wear and tear, me and inconvenience.
Addionally, town planners and communies now value highly the concept of
walkability: the idea that being able to walk to a shop is desirable because of reduced
trac ows, reduced polluon and the health benets of physical exercise. This is of
parcular benet to low income earners and the elderly and has parcular relevance
to new urban estates and growth corridors. It leads to the need for a hierarchy of retailcentres, rather than allowing widely spaced large car based out-of-centre shopping
centres.
Planning regimes need to change so that decisions regarding retail developments
take into account the broader network of acvity centres and the idened role and
funcon of individual centres.
Two examples demonstrate the important role local government planners have in
developing a sustainable hierarchy of acvity centres:
Tecoma, Vic. A new 1,977 sq m Coles was proposed in 2009. Council opposedthe development, which was also rejected by VCAT on appeal by the developer.
The VCAT decision included the following observaon : we consider that it is
important that development within Tecoma is responsive to not only its built form
character but also its role within the acvity centre hierarchy...It is intended that the
local convenience role of Tecoma be maintained and that the centre not be elevated
to a role which is more regionally focussed.VCAT No. P3747/2008.
Sunshine Bay, NSW. A new 2,900 sq m Woolworths was proposed in 2006. Again
the Council opposed the development, which was also rejected by the NSW
Land and Environment Court. The Court concluded that a large supermarket
anked by four small shops at Sunshine Bay is anpathec to the intended retail
hierarchy. Jetset Properes v Eurobodalla Shire Council [2007] NSWLEC 198.
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The planning system, however, is also failing to prevent many inappropriately located
major retail centres from being developed. The lure of addional rates and investment
has seen numerous major supermarket-anchored centres being given permission to
locate in out-of-centre locaons. Local councils are turning a blind eye to the negave
consequences of such developments. Examples are:
Miagong, NSW. Woolworths purchased the Miagong Tuckerbag in 1999 andrebranded it Food For Less. In 2006 a new out-of-centre shopping centre was
permied to open including a Big W and a new Woolworths. Woolworths closed
the Food For Less in the town centre, removing one of the key anchor tenants.
This has had serious consequences on the vitality of the town centre and its
retailers.
Childers, Qld. Woolworths was given planning approval to open in an out-of-
centre locaon. The incumbent FoodWorks located in the town centre was
impacted directly by over 35% as a result of the development, with consequenal
impacts on the surrounding specialty shops.
Macksville, NSW. In this case the Council ignored its own independent economic
advice that concluded:
SGS27considers that development of a retail anchor on the subject site will
eecvely fragment the Macksville centre, resulng in adverse economic
impacts on the exisng CBD, and discouragement of idened posive
opportunies for consolidaon and redevelopment of the exisng CBD.
Tura Beach, NSW. In late 2010 a new 3,200 sq m Woolworths opened. This
was despite the fact that the catchment could not support both the proposeddevelopment and the exisng IGA supermarket, and that it was contrary to the
retail hierarchy. In Merimbula Nominees Pty Ltd v Bega Valley Shire Council
[2007] NSWLEC 107, the judge concluded that Tura Beach was
clearly a lower order centre of a scale suitable to meet neighbourhood
as opposed to district needs.a larger full line supermarket, such asthat proposed by the applicant at Merimbula would be out of kilter, in my
view, with the demands generated by a local neighbourhood. The provision
of retail at a large scale here, would tend to fragment retail acvity, when
State Policy is to concentrate such acvity in a fewer number of larger
centres.These predicons are now being realised with the Tura Beach IGA closing soon
aer the Woolworths opened. The old Tura Beach shopping area has been
severely hit by the new Woolworths development28 and is in a signicant state
of decline with an unprecedented level of shop vacancies in the nearby town of
Merimbula and a lack of interest from potenal new retailers.
27 SGS Economics & Planning, Suite 12 50 Reservoir St Surry Hills NSW 201028 http://www.merimbulanewsonline.com.au/news/local/news/general/woolies-snaps-up-tura-
beach/1612127.aspx
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There are, however, some examples where local government planning decisions have
taken into account issues of need. These examples demonstrate the posive role local
government planners have to promote sustainable compeon:
Gordonvale, Qld. Here the local Council recently refused a 3,800 sq m
Woolworths on the grounds that its out-of-centre locaon would detrimentally
impact retailers in the town centre, the current catchment is not large enoughto support two centres, and it would result in an increase in car-based travel,
amongst others.
Canungra, Qld. The local council issued a permit for a new 2,564 sq m
supermarket on the basis that the use must not commence unl the number of
households in the catchment reached 1,800 dwellings. It was determined that
unl this populaon threshold was reached the town could not support both the
exisng independent supermarket and the proposed development.
Posville, NSW. The local Council refused an applicaon for a new 3,250 sq m
supermarket in 2008. On appeal the NSW Land & Environment Court supportedthe Councils decision and refused the development proposal. The judge
concluded that the proposed major supermarket
is inconsistent with the councils planning controls and retail strategy
and that such a development would severely impact on the exisng
Posville Centre. Metricon Qld v Tweed Shire Council [2008] NSWLEC
1453.
In determining retail need, planners should consider not only the catchment populaon
that will support the exisng and proposed retail oor space, but must also allow forescape expenditure from lower order centres to higher order ones. This principle was
supported in Fabcot Pty Ltd v Latrobe CC [2007] VCAT 354 where the judge agreed that
in a networked city there is an expectaon that centres are not self contained
and
there is no imperave for each centre to fully cater for the retail needs of its
residents
Local Councils have also been known to inappropriately amend their local planningcontrols for the sole purpose of facilitang the needs of major supermarket
developments, oen ignoring the sound planning principles that underpinned these
controls. A recent example occurred in Gloucester, NSW where a new Woolworths
based centre has been approved. In order to permit this out-of-centre development
the Council:
amended the zoning of the site, despite the planning scheme having been prepared
in 2010;
replaced its 2006 Retail Planning Policy in 2010, because the former policy excluded
the Woolworths site from the town centre boundary, and recommended that itretain its environmental protecon zoning in order to protect the important visual
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corridor to the nearby mountain ranges. The report also idened that there was
lile if any demand for new supermarket oor space up to 2021; and
ignored its own independent economic advice that concluded that one of the
exisng independent supermarkets would likely close:
Given the size of the Gloucester market and its locaon, it is likely the Town/Shire may only support two larger supermarkets on a longer term basis. Buchan
Consulng, Nov 2010.
The judgement in Metricon Qld v Tweed Shire Council [2008] NSWLEC 1453 considered
this maer and concluded that
Moreover, a planning policy such as the protecon of exisng centres is not
worth much if it is changed each me a plan is reviewed. People make investment
decisions on the basis of such policies, and their investment horizon is usually
beyond ten years.
Whether local government authories are competent to make decisions relang to
complex development and/or compeon maers is moot. However, MGA believes
that the development of a Compeon Test, to be applied by local government as part
of its assessment of development applicaons, would be benecial.
2.2 Impact of Over-Sized Stores on Regional Economies and Markets
Local government town planners need to consider the overall, long-term impact of
approving development applicaons. Every planning decision which results in an
over-large, cross-subsidised supermarkets being built in a small local market is likelyto result in the closure of compeng smaller businesses, leading to further market
concentraon and reduced compeon.
Four such examples are given below. The rst at Bermagui is taken from a consultancys
report. The remaining three were conducted on behalf of the MGA.
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2.2.1 Bermagui, New South Wales
Wakeeld Planning, a Melbourne-based consultancy, was recently privately
commissioned to review a proposed Woolworths supermarket development in
Bermagui, New South Wales. The study was completed in June 2012.
Like many other towns currently dealing with supermarket developments by the majorchains, Bermagui has minimal populaon growth. Wakeeld Planning conducted
a public opinion survey in Bermagui and found that a majority of those surveyed
objected to the proposed Woolworths development.
More signicantly, Wakeeld Planning idened the major problem with such a
development in a small local market with limited growth potenal:29
Key Point: What can be drawn from this report and the context it sets, is that
any future commercial development within the town of Bermagui needs to be
completely jusable on the basis of current populaon levels. Given that levels
of growth are below the levels predicted for the inial planning period, oorspace needs to not lead demand. This is because there is highly limited ability
for populaon growth to take up oor space demand provided in advance of
such growth. As will be further outlined in this submission, the current business
environment within Bermagui is highly fragile. In addion there are currently 3
vacancies in Bermagui, which is close to the level of concern of 10% vacancies.
This again reinforces the importance of retail oor space trailing rather than
leading populaon growth.
Wakeeld Planning also found:30
However on the basis of the survey work conducted, it is clear that there will be
a signicant impact on the viability of commercial uses within the zone. In this
regard, the viability of between 30% and 50% of exisng businesses in Lamont
Street, in parcular, would be at threat. This is considered to be one of the major
signicant negave points associated with the proposal.
In addion, and as indicated elsewhere in this submission, it is considered that
the proposal is not complementary to exisng commercial development. In
29 Submission on DA 2012.0098: Proposed Woolworths Supermarket, Bermagui, Wakeeld Planning,(June 2012), p5. The full report is available at: www.wakeeldplanning.com.au/Bermagui/Bermagui_
submission.pdf
30 Wakeeld, op. cit., p16
http://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdf -
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parcular, the proposal would replace a number of exisng commercial providers,
rather than complement them. These include the exisng SPAR supermarket,
777 store, the butcher, the greengrocer, bakery and also (in part) pharmacy and
newsagent lines. In part this is as a consequence of the nature of goods sold in
supermarkets, and in part it is a consequence of the inability to integrate the site
with the exisng main street, so as to produce synergisc eects with specialty
shopping. This is a signicant and major shortcoming with the development.
Key Point: The proposal would substanally impact on the viability of exisng
businesses within Bermagui.
One of the local planning objecves in Bermagui is: To enable other land uses
that are complementary to and do not detract from the viability of commercial
uses within the zone.
Wakeeld Planning found deciencies in the consideraon of impact on exisng local
businesses:31
Compeve Environment
The secon of the report dealing with the compeve environment relies
on an assumpon. For example, there is an assumpon that the role of the
SPAR food store is purely for top up food and grocery shopping. This is not
conrmed by the random phone survey undertaken of the primary trade
area indicated in the EIA which shows that the SPAR and associated food
and grocery retailers within Bermagui currently account for some one
third of food and grocery shopping. It is submied that this is substanally
above the top-up level.
Although acknowledging the exisng SPAR food store and the presence of
some 40 addional retailers within Bermagui, the report is awed in that
it fails to undertake a basic retail census of Bermagui and an analysis of
the total quantum of oor space/number of businesses currently providing
food and groceries within Bermagui. It therefore virtually ignores the
commercial area that will most experience compeve impact. A retail
census has been undertaken as part of the survey work conducted for this
submission. The census also included Tura Beach and Bega.
Food, grocery and liquor currently constute approximately 13% of shopfront premises within Bermagui although as a proporon of retailing, this
gure would be closer to 20%. The gure is higher when considered on a
oor space basis, and would be close to 30%. These gures indicate that
a substanal number of exisng premises would be in direct compeon
with a new supermarket and liquor outlet. Key Point: The economic impact
assessment overlooks the exisng business communies in Bermagui and
does not assess the impact on them. Substanal business failures are
likely.
31 Wakeeld, op. cit., pp28-29
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Bermagui is typical of many of the other towns referenced in this report. The choice
for compeon regulators and local government planners is between maintaining
a diverse and genuinely compeve local commercial environment or allowing a
dominant naonal player with praccally unlimited resources to destroy smaller
competors and leave such markets with moribund commercial centres.
2.2.2 Bright, Victoria
Previous Situaon
Located 30km from the nearest town and over
one hours drive from the regional centre.
It serves a local community of about 2,100
residents and about 1,700 from surrounding
districts. A strongly seasonal demand from
tourists passing through also helps support the
local traders, parcularly with liquor sales. Two
independent supermarkets operated in the townfor many years, both selling packaged liquor,
one of 1,000 square metres and the other of
250 square metres total leased area. The larger
independent supermarket was refurbished and expanded to 1,500 square metres in
2006 with emphasis on an expanded liquor secon an