Supermarket duopoly “workably competitive”: Former ACCC head Graeme Samuel

Former ACCC head Graeme Samuel believes the regulator he used to head is off the mark in pursuing supermarkets over their fuel subsidies.

In an unscripted remark made at a public symposium on supermarket power organised by the University of Melbourne, which SmartCompany attended, he said the discounts have had no discernible effect on competition.

“We have now had 10 years of experience with shop-a-dockets. We’ve seen the discount go from 4 cents to 8 cents, and in some cases up to 45 cents.

“Interestingly though, the market shares of the petrol groups haven’t moved much.”

In 2009, when Samuel headed the ACCC, he presided over an inquiry into the effect of supermarket petrol discounts. “There was speculation then as to what they might do – that they might drive out the independents,” he said, echoing concerns raised by current ACCC head Rod Sims on Monday.

“We moved from speculation in 2009 to fact now in 2013,” Samuel added. Quoting economist John Maynard Keynes to illustrate his point, Samuels said: “When the facts change, I change my mind. What do you do, sir?”

The comments came during a presentation by Samuel and former ACCC commissioner Stephen King on their 2008 inquiry into supermarket power. Both concluded the supermarket sector remained “workably competitive”.

And they didn’t even think Coles and Woolworths were the biggest threats to that. 

“If you want to talk about market power and monopoly [in the sector]… Metcash is sitting there,” King said.

Metcash is the sole supplier of packaged goods to most independent grocery retailers.

An area of concern to both King and Samuel was the continued barriers to entry in the supermarket sector. To make it easier for new competitors to the supermarkets to set up shop, they proposed reforming planning laws, which they said constrained the growth of groups like Aldi.

Aldi and Costco were identified by several of the speakers at the symposium as high-potential competitors to the two major supermarkets.

During the ill-fated operation of the government’s Grocery Choice website in 2009, Samuel said, it was clear there was a role for Aldi to play in lowering prices for consumers.

“Where Aldi was a competitor to Coles and Woolworths, prices were lower,” he said. “But that did not occur where other independents were involved.”

Aldi and Costco can offer vastly lower prices than almost all the supermarkets because their costs of operating are far, far lower, said Citi analyst Craig Woolford. The cost of doing business, as a percentage of margins, was 19.8% for Woolworths, and 20.9% for Coles. However, it was only 10% of margins for Aldi, and only 10.1% for Costco.

“Costco and Aldi are key threats, because of their lower cost structures. I call them unstoppable.”

However, competition lawyer and former ACCC researcher Alexandra Merrett was dubious about the two upstart supermarket chains.

“Costco isn’t going to solve competition,” she said.

“Aldi has substantial growth forecasts, but in many states, it’s starting at zero. Even strong growth isn’t going to solve the market structure.”

While Aldi and Costco may provide further competition and choice for consumers, they are unlikely to solve the private label issues for suppliers, as both make heavy use of their own private label brands.