Breaking down the supermarket duopoly

By Daron Jacks

Supermarkets have faced increased scrutiny over the past few years with concerns the major chains – Coles and Woolworths – deny consumers and suppliers the benefits of fair competition.

The two dominant supermarket chains account for 70 to 80 per cent of sales in dry groceries, in one of the most highly concentrated markets in the world.

This suggests a lack of healthy competition that, some argue, deprives consumers of the benefits they would get in a highly competitive market.

Professor Caron Beaton-Wells, Director of Melbourne Law School’s Competition Law & Economics Network, is leading a four-year research project, entitled Regulating Australia’s Retail Grocery Sector – Goals, Actors and Techniques, that focuses on competition and fair-trading issues in the grocery retail sector.

Professor Beaton-Wells says the project focuses on how regulation works in the sector and the findings and recommendations may provide insights that are applicable in other areas, such as labour and environmental regulation.

[This study] could lift the level of public discourse to help people understand the complex regulatory dynamics of the sector.

“We would like to expose the way in which regulation in the sector is affected by the full range of interest groups and the impact that has on the law and its enforcement.”

Professor Beaton-Wells says there is also debate around how supermarkets treat their suppliers.

“Supermarkets have enormous power in the relationship with their suppliers over the bargaining of terms and conditions,” she says. 

“It has emerged over the past 10 years that these large chains are very aggressive in their negotiations and impose a range of ‘penalties’ - some would say unfair – terms and conditions on their suppliers.

“This affects small as well as large suppliers. It is not necessarily anti-competitive, but is often tagged as bullying or unfair behaviour.”

The Australian Competition and Consumer Commission has recently brought proceedings against Coles, and similar allegations against Woolworths, alleging that some of the terms they have imposed on their smaller suppliers are unconscionable.

“The research is important because supermarkets are important economic and social agents in our society,” the competition law expert says.

A food-and-grocery code of conduct introduced last year has been incorporated into the law.

The code makes it compulsory for supermarkets to have written grocery supplier agreements and is highly prescriptive as to the agreement terms.

The research project will critically review the code and interview stakeholders to understand the factors that influenced its introduction, and whether it is likely to achieve its stipulated objectives.

Professor Beaton-Wells says the study will also look at how the law can assist to reconcile tensions and competing interests among small and big business in the ongoing debate about regulatory reform.

She says the study will include recommendations on how to make the law, including the code of conduct, more effective.

The project is being undertaken by a team of researchers from the University of Melbourne, Monash University and the Australian National University.

It is funded by the Australian Research Council.

Image credit: iStock

This article originally appeared in MLS News, Issue 15, June 2016.