|SESSION ONE - THE STATE OF PLAY IN THE AUSTRALIAN GROCERY SECTOR|
|Speaker 1: Craig Woolford (Citigroup)||Trends in the Australia Grocery Sector|
|According to Craig Woolford, Woolworths and Coles shareholders have had a lot to be happy about over the last decade with strong returns and healthy profit margins by global standards. In particular, Woolworths' profile margin, according to the EBITDAR margin, has been one of the strongest worldwide. However, the next five years could be more challenging for the two supermarket chains due tothe anticipated pressures including increased competition from ALDI and Costco, ongoing government concerns over supermarkets pricing and supplier strategies, and lower price inflation limiting growth to a projected 5.2% over the next five years. The consequences of these challenges may include pressure on shelf space, limiting brand options, a focus on high profit products including private lines and innovation to compete with consumer recreational spending on cafes and restaurants. The coming five years are likely to be driven by high competition, slowing pace of sales, potential reform of property planning laws and the pursuit of increasing profit margins through pressure on the supply chain.|
|SESSION TWO - SUPERMARKETS AND COMPETITION - CONSUMER WELFARE OR DETRIMENT?|
|Speaker 2: Dr. Alexandra Merrett (Senior Fellow, Melbourne Law School)||The Australian Grocery Sector: Structurally irredeemable? paper co-authored by Dr. Rhonda Smith (Senior Lecturer, University of Melbourne, Faculty of Business & Economics - view presentation Slides here|
The question of whether Australia's grocery market is too concentrated to allow for competition is a matter of considerable controversy and debate. In her presentation, Dr Merrett examined developments in the Australian grocery market, including the impact of the independent sector, expansion into new markets such as petrol, countervailing power of 'must-have' brands that supermarket chains must stock and that might be a source of countervailing power by suppliers.
Dr Merrett also pointed to data in the Retail World Grocery report evidencing the expansion of private labels, although this has been relatively limited, mostly in the areas of homogenous products such as milk and flour.
|Speakers 3 & 4: Professor Graeme Samuels AC and Professor Stephen King (Monash University)||Power without glory? Competition and Australian supermarkets|
In their presentation, Professors Samuel and King reflected on the findings of the 2008 ACCC Grocery Inquiry. They argued there has been little change in the grocery market beyond some anticipated changes, such as the resurgence of Coles as a serious competitor and the ongoing impact of discounters
such as ALDI. Both Samuel and King considered the state of the market to remain workably competitive, as concluded by the ACCC five years ago. That said, they acknowledged there were barriers to entry, limited incentives for Coles and Woolworths to compete aggressively on price and insufficient price
competition from the independent sector (which they attributed to the monopoly position of Metcash as the supplier to that sector).
Despite these challenges, both counselled against changing the test for misuse of market power under Section 46 of the Competition and Consumer Act. However, both agreed that greater clarity wouldbe beneficial in the area of unconscionable conduct as it relates to relationships between supermarkets and suppliers.
Professor Samuel also encouraged greater use of the collective bargaining provisions by independent supermarkets and suppliers to help counteract the market power of the retailers and Metcash.
|Q&A with Craig Woolford, Alex Merrett, Graeme Samuel & Stephen King|
The morning Q&A opened with a question from Andrew Towle from Kellogg Australia for Mr Woolford concerning the potential growth of online competition in the grocery sector. Mr Woolford stressed high CODB in the form of warehousing and distribution as a key barrier to online business, but that with innovations such as a drive-thru collection and 'click and collect' option, he was of the view that there is potential for growth in this area.
Janine Bialecki from the Treasury asked Prof. Samuel for his opinion on the introduction of a 'substantial lessening of competition' test in Section 46. He was not supportive of the idea pointing to the number of inquiries that have rejected the introduction of an effects test. Both he and Professor King were of the view that such a test would create uncertainty for business and potentially chill competitive behaviour.
Dr David Briggs from the University of Sydney asked the panel about the supermarkets' shopper docket schemes and the potential for them to impact on competition. Prof. Samuel said that despite initial concerns about the scheme, he believed the latest evidence from the ACCC shows little impact from the schemes as market shares have not materially changed since their introduction.
Dr Briggs also asked why Metcash would impose price pressure on retailers given it was in Metcash's interests for independent retailers to be competitive with large chains. Prof. King responded by characterising Metcash as willing to live under the major supermarkets' umbrella and price goods at a level that enables survival for independent grocery stores, white at the same time seeking cross-subsidisation from the fresh groceries sector.
Matthew Drummond from the AFR asked Prof. Samuel how well the ACCC 2008 Inquiry would hold up in light of recent aggressive campaigns from the major supermarkets, using the example of the 'Down, Down' Coles campaign. Prof. Samuel said that whilst the strategy within Coles may have changed, today's market shares remain comparable to 2008. He did add however, that in an inquiry held today, competition may be described as aggressive rather than workable and wouldbe more likely to focus on the effect of prices being "too low" on competitors, by contrast to 2008 where "too high" prices were the primary concern.
Andrew Christopher from Webb Henderson, asked Craig Woolford what the data from the supply sector may say about the last few years for that sector. Craig noted that recent reports that show reduced profit margins, possibly driven in part by an increase in promotional activity in major supermarkets, which tends to come at the cost of suppliers. There is doubt, he noted, as to who is acting as the key driver of the promotional material, but it may be causing a transfer of profits to the major supermarkets and resulting in slower growth in the supply sector.
Prof. Bob Baxt of Hert Smith Freehills, gave his perspective on the upcoming election and reforms that may be pursued if the government changes. Prof. Baxt noted two areas in which changes were likely to occur: divesture and unconscionable conduct. Prof. Baxt counselled against the introduction of divesture lawsand expressed a frustration with both the ACCC and judicial approach to unconscionable conduct provisions in the Act. In particular he criticised the judiciary's hesitance to look to the Act's definition of unconscionable conduct, and rathe rhold onto common law and equity interpretations. Prof. Samuel expressed some disagreement with Prof. Baxt's criticism of the judiciary arguing tha tmost unconscionable conduct cases will depend on the case's facts and circumstances and this creates considerable difficulty in predicting outcomes. Dr Merrett agreed with Prof. Baxt that the judicary's approach to unconscionable conduct has created uncertainty, noting the recent case, Lux, as a particularly problematic result where she believed the court relied heavily on a list of factors rather than looking to the facts and circumstances of the case. Chris Jose of Herbert Smith Freehills entered the discussion here to argue that the central problem with the unconscionability condut provisions is that they are unclear what mischief is beign targeted, making it difficult for courts and parties to know when they are likely to breach the prohibition.
The morning session concluded with a discussion between Jos De Bruin, CEO of Master Grocers Association, and Prof. Samuel regarding a SLC test under Section 46 of the Act. Mr de Bruin expressed an industry concern relating to major supemarkets entering a new area and cross-subsidising a store in its early stages to crowd out retailers resulting in a SLC in the area. Mr de Bruin supported a SLC effects test under S46 to help deal with these issues. Prof. Samuel re-emphasised the role that Metcash plays in the independent supermarket sector by providing goods at prices that are not competative. He also reiterated his belief that a collective bargaining arrangement could be valuable for the sector as it would alllow independent supermarkets to compete without the risk of compromising competition laws with the proposed effects test.
Speaker 5 - Professor Harmen Oppewal (Department of Marketing, Monash University)
|Satisfaction with the local grocery store mix: A consumer perspective |
In his presentation, Prof. Oppewal discussed consumer research undertaken in the UK into the relationship between consumer satisfaction and the variety, concentration and proximity of supermarkets and small stores. The research Prof. Oppewal presented measured respondent satisfaction in various hypothetical combinations of supermarkets chains and small stores at a range of distances. Although the results varied according to brand and distance, the research found a strong positive relationship between consumer satisfaction and the number, variety and format (convenience or regular stores) of grocery retailers available to them. At this hypothetical stage of the research, this effect was most profound at a distance of 5 minutes to the consumer. The research also found discounters increase consumer satisfaction, but only with the presence of another major supermarket.
As well as hypothetical scenarios, the research measured consumer satisfaction in actual, rather than hypothetical circumstances through a series of interviews in towns with a mix of supermarkets and consumers at a wide range of distances. Generally this part of the research found no effect as to the distance to the nearest supermarket, but a negative correlation between satisfaction and the distance to the next nearest supermarket. This suggests, Prof. Oppewal argued, access to multiple supermarkets is more important to consumers than access to a closer supermarket. Overall the research concluded that two factors consumers value highly are brand variety and a discounter. He believes this research should transfer into the Australian context largely because he could see no reason why it shouldn't however, pending research should provide clarification on this point.
Speaker 6: Rona Bar-Isaac (Addleshaw Goddard)
|Unfair commercial practices and retailer buyer power: The UK experience|
Ms. Rona Bar-Isaac provided a broad overview of the UK experience in establishing a Groceries Supply Code of Practice (GSCOP) and particularly the development of new enforcement procedures involving a new office called the Groceries Code Adjudicator. A groceries code was first implemented in the UK in 2001 in response to concerns about bargaining power differentials between suppliers and supermarkets and perceived abuses of supermarket market power. Problems with the code in its orginal form led to significant amendments in 2008 which broadened the application of the code, required written agreements and implemented enforcement mechanisms, including the Groceries Code Adjudicator. The Adjudicator, as Rona explained, has wide-reaching powers, including arbitrating disputes, investigating complains 'naming and shaming' and imposing fines for breaches of the code. Due to a number of political concerns with the position's scope and powers the creation and appointment of this position has taken time with the first appointee, Christine Tacon, appointed to the position in January 2013. Since her appointment Ms. Tacon has started to release policy guidelines around how her position's powers willbe used and partcularly the use of the fining power which was seen as important in strengthening the role's enforcement responsibilities.
Speaker 7: Christine Tacon (Groceries Code Adjudicator, UK)
In a video interview shown after Ms Bar-Issac's presentation, Ms Tacon emphasised the pragmatism with underpins her role and that while her powers will be backed by law, one of her immediate priorities will be building relationships and trust with key stakeholders in the grocery industry.
The second morning Q&A session opened with a question from Mark Childs of Childs Davidson as to the risk of collusive outcomes from retailers organising private labels with manufacturers and whether the GSCOP attempts to deal with this. Rona responded that while the issue was looked into by regulators when drafting GSCOP, the code does not deal with it as there was little evidence of it occuring and it was seen in any event as outside the scope of GSCOP's immediate goals.
Prof. Christine Parker of Monash Law School asked Prof. Oppewal whether his research had looked into other places people may get their food, such as farmers markets. Harmen said that whilst the study did not focus on other sources, they could be included in the analysis and may add the diversity consumers seem to value.
Christine also asked Rona whether the GSCOP might be able to deal with the issue of supermarkets crowding out other sources of food. Rona said that whilst the issue was hotly debated in respect to the code, there was a practical element which made the GSCOP's scope limited to direct suppliers rather than upstream manufacturers or farmers.
Prof. Beaton-Wells asked Rona why the decision was made to create a separate office for the Groceries Code Adjudicator rather than include it within responsibilities of competition authorities. Rona noted a number of reasons in particular the extent of the Office of Fair Trading's existing responibilities and ensuring a focus on the code by having a dedicated Adjudicator. She also emphasised the importance of the Adjudicator as being seen as a posiiton separate to the competition authority, while at the same time having access to some of the authority's resouces. She saw this separation as facilitiating the building of trust and relationships within the industry.
SESSION 3: SUPERMARKETS, THE STATE AND CIVIL SOCIETY - A REGULATORY CONTEST?
SESSION THREE: SUPERMARKETS, THE STATE AND CIVIL SOCIETY - A REGULATORY CONTEST?
Following on from the focus on supermarkets as market actors in the morning session, the afternoon presentations turned to analyse the interactions between supermarkets, governments and citizens.
|Speaker 8: Jane Dixon (Senior Fellow, Australian National University Centre for Epidemiology and Public Health). Paper co-authored by Bronwyn Issacs (PhD Candidate, Harvard University) Presented by Dr. Dixon||Supermarkets as a social institution: Playing a contradictory role in food producer communities|
Dr. Jane Dixon described her research undertaken in the Victorian town of Shepperton to illustrate how supermarkets effect rural community dynamics. A range of perspectives were sought by the researchers to generate a nuanced understanding of rural community members' views of the social and economic
importance of supermarkets. Jane explained the community's overall assessment of supermarket impact tended towards resentment, relating to small producers and grocery stores finding it harder to operate, and unreasonable demands planced on local suppliers. Additionally, consumer citizens of this rural town
were found to associate supermarkets with a downturn in community spirit.
Jane utilised the concepts of 'solastalgia' and 'structural nostalgia' to explain this underlying pain connected to the supermarket presence and the corresponding response whereby people seek solace in community. Due to their focus on efficiency of production, individualism and consumerism, supermarkets were found to challenge the local narrative of valuing small business, community strength and rural livelihoods. Jane explained that whilst citizen consumers are aware that cheap food delivers for consumers, participants of their study were found to want supermarkets to deliver for society.
|Speaker 9: Professor Christine Parker (Monash). Paper co-authored by Gyorgy Scrinis (Department of Land and Environment, University of Melbourne) Presented by Prof. Parker||Supermarket power and the appropriation of animal welfare standards: The case of own-brand free-range egg labelling|
One such sphere where consumers desire supermarkets to act with social responsibility is animal welfare. Professor Christine Parker placed supermarket approaches to animal welfare in context through the example of her work on free range eggs. By increasing stocking densities for "free range" hens,
Coles purports they are making free range eggs affordable, but Christine posits this is an example of supermarkets' selective interpretation of standards to meet their (industrial-scale) mode of business.
Christine suggested that supermarket power comes from the supermarkets' control of the interface between consumer (choices) and producer (conditions), where they define the blank spaces in standards left by governments, especially in the case of supermarket own-brand products. She asserted that unsustainable and inhumane food production and distribution may be partially concealed by apparent higher welfare standards, leading to the creation of an "ethical halo" over supermarkets. However, recent backlash against Coles new free range definition was said by Dr. Parker to indicate the vulnerability of supermarkets, with claims Coles are misleading compromising the trust consumers have in big supermarkets.
|Q&A with Jane Dixon, Christine Parker & Gyorgy Scrinis|
The first afternoon Q&A session opened with Kay Mehta, Flinders University School of Medicine) asking Dr Dixon what tangible policies she would like to see the govenment adopt to address community concern surrounding the impact of supermarket investment on social life. Dr Dixon responded from a number of angles; firstly, sighting the 2008 Report of hte ACCC Inquiry into the competitiveness of retail prices for standard groceries, which recommended state and government ordinances in the area of retail planning. Secondly, Dr Dixon declared a Supermarket Ombudsman needs to be appointed to ensure a fair supply chain. Thirdly, she suggested supermarket shareholders, as part of the supermarket enterprise, need to consider their responsibility in the supply of cheap, versus fair, food.
Francis Hank, previously Senior Lecturer, Melbourne Law School, asked Dr Dixon for her thoughts on what to do about the irrational reality that people like to shop in cheap places. This situation Jane termed "the paradox of cheap food", as it does not deliver consumer health nor producer livelihoods, and criticised the Australian government'sNational Food Plan for failing to address this fact. She reasoned that the food needs of the poor should be addressed by social policy, not by expecting food producers to subsidise Australian household economics. Jane said this required a social policy/income policy/wages regulation response from the government, and proposed that wealthy consumers have a moral conversation with themselves, asking whether they can afford to pay more to cover the true cost of good food.
Tammy Jonas, Free Range Farmer at Jonai Farms, asked the speakers their views on how to decrease regulations imposed ujpon small farmers who are trying to change the food system from the bottom up. Commenting that the best way to regulate supermarket power was to have alternative, Dr Parker advocated political support for direct to consumer sales and changes to retail space planning which would foster creativity and support viable alternate food supply methods.
Bob Phelps, Executive Director of Gene Ethics, queried how to address broader areas of concern regarding supermarket conglomerates with interests in gambling, insurance and fuel. Jane mentioned that academics at the University of Queensland were working in this area. Christine concurred with Mr Phelps that when looking at supermarkets it was imperative to analyse the wider food system regime, citing her research tracing back the free range egg supply chain in which she uncovered that international grain prices had a big impact on egg producers.
Prof. Caron Beaton-Wells questioned whether political will was the missing link to facilitating governement-level changes affecting supermarket operations. Jane responded by explaining that there was no one homogeneous citizen-voter, but that community sentiment was of great importance to local MPs. Jane thus declared tha social movements of all sorts were required to build an inexorable force against supermarket power.
|Speaker 10: Dr Nick Rose (National Coordinator, Australian Food Sovereignty Alliance)||From hyper-globalisation to distributed localisation: A fair and resilient food system for Australia|
Identifying a similar undemocratic unsustainable, global food system, Nick Rose offered alternative ways of constructing the essential service of food supply. Nick framed the undesirability of supermarket means of operation within the food sovereignty approach of democratic participation, collective rights and responsibilities and inter-dependence for a fair food supply for all people. Through a video of a citrus grower finding salvation in farmers' markets, a young man's commitment to starting a food hub in his town, and Nick's own experience of scoping citizen priorities for food policy in public forums leading to the People's Food Plan, concrete, resilient bottom-up strategies for achieving food sovereignty were illustrated.
Post the event, Nick has also posted a reflection of the Symposium at his website entitled - Supermarket Power in Australia: Implications for our food and health.
|Speaker 11: Senator Peter Whish-Wilson, Greens||The Green's approach to competition in retailing|
|Senator Peter Whish-Wilson looked at supermarket power through the policy lens, announcing that the Greens' had launched their Effective Competition Policy: Tackling the Supermarket Duopoly plan that morning to coincide with the symposium. Senator Whish-Wilson suggested that reform of competition policy may assist in the creation of a fairer playing field for those involved in the supermarket industry. Such restructuring, he stressed, would endow the ACCC with greater power and resources to address anti-competitive behaviour and fund legal battles where laws are breached. Senator Whish-Wilson expressed recognition that small farmers and producers needed assistance to allow them to go direct to the market and compete, a point which responded to Dixon and Parkers' joint entreaties for planning and financial support for small producers and distributors so as to reduce power concentration and dependence on long-haul transport.|
The afternoon session concluded with a panel discussion in response to the afternoon presentations. Marc Childs shared the supplier perspective that supermarkets abuse their market power for the purposes of bullying suppliers and replacing proprietary products with private labels. He suggested regulation and safeguards are not effective as supermarkets always find a way to work around them, instead asserting that deconstruction of the food retail system is the only answer. Angela McDougall offered the consumer viewpoint, and called for retailers to keep their marketing claims honest and genuine so consumers can make informed food purchasing choices. Robert Hadler conceded that more work has to be done in the supermarket sector, but warned of the unintended consequences of reactionary policy formation. Hadler asserted that though Australia's two supermarkets were big and concentrated, food price deflation in Australia was the outcome of a competitive market. Contrary to Hadler, presenters Parker and Rose argued that food was cheap because of the externalisation of the real costs of production and distribution, such as reliance on long-haul transport, oil-based fuels and fertilisers, and degradation of natural resources. Referring to Dixons' research findings, Hadler expressed the view that supermarkets should work harder on communicating the beneficial outcomes of their presence in (particularly rural) communities. The voluntary supermarket code of conduct (being drafted with the ACCC) was pointed to by Mr. Hadler as an example of Coles' willingness to work to improve operations. Dixon and Parker opined that such a code does not go far enough, both speakers suggesting the appointment of a Supermarket Ombudsman was necessary to increase transparency of supermarket operations and adjudicate where unequal power exists in the food supply chain. Dixon additionally suggested State and Federal government action on urban planning could contribute towards a fairer food distribution arena. As Senator Whish-Wilson pointed out, such changes are dependent upon the willingness of the main political parties to intervene and re-set the parameters of food retailing in Australia. Many presenters and audience members in the room held the view that supermarket dominance of food retail was excessive and went against genuine, workable competition, with extreme concentration of the market allowing supermarkets to play off food producers and consumers.