SUPERMARKET chains Woolworths and Coles appear to have increased their dominance of the grocery sector in the first three months of 2010, poaching market share from independent operators.
Woolworths & Coles are a $100 billion a year duopoly with a retail market share the envy of the developed world. Along with food they are now the largest single retailers of alcohol in Australia, and they have a major presence in the retail petrol segment.
Why is this so, we have an independent ombudsman looking over their shoulders...Samuelson I believe.

In Canada they legislated in laws to prevent predatory pricing by the larger mass merchants and it had the effect of bringing small business back to the shopping centers because they could compete on quality, service and price. Why are all our governments lacking when it comes to protecting small business against the corporate retailer. Kevs food watch and petrol watch did nothing except expend tax dollars while the corporates did not miss a single retail dollar.

Funny thing is, none of these huge retail giants would be where they are today, if not for the overwhelming support from the consumers.

Since their dominance, we have seen the demise of many a corner 'family owned' store, the local hardware, the local green groccer, the list goes on.

Woolworths are about to enter the hardware field to be in direct competition with coles (bunnings)

Once we have the 'big two', all others, they being the very few that still exist will simply be forced out like the rest.

Take a butcher shop. We run on around 14 - 18% wage to sales ratio. Supermarkets run on about 9%.

So this means for every $100,000 of meat sold in SM, they employ less staff to the approx value of $7,000. I suspect simmilar figure would apply to fresh foods as well.

Then, to add insult to injury, they rent thier retail shelf space to outside companies who in turn compete for such space. So in essence, they get paid to display the products they sell.

And, as you rightly point out, succesive governments have just sat back and watch this happen right under our very noses.

But, as I say, the power of the people is what has allowed this to happen.

Rehtub is right.

Actually there are two major forces tending to this outcome.

The first is the consumers. I remember when supermarkets first came in. Before that, you went to a little musty dim grocery store and some old dude in an apron used to serve you personally. He would get stuff off the high shelves, package it, weigh it.

People don't want that! They're standing there, thinking - I I'd rather spend the same money on something I want! Now they can get a lot more stuff for the same amount of money.

The second force is government. Think of all the different regulations that governments put on businesses: zoning, stamp duties, land tax, OHS, income tax, GST, FBT, minimum wages, compulsory super, compulsory licences, compulsory insurances, compulsory accounting, and on and on and on. Every one of these costs money which burdens smaller businesses disproportionately. They simply drive many small and marginal businesses to extinction, killing the dreams of their owners and the preferences of consumers at the same time, in favour of big business, big government and big unions.

Then people look on the big businesses that result, and say why doesn't the government do something?, as if government knew more about running businesses, than businesses.

The idea that it is the legitimate function of government to persecute efficient businesses, so as to promote more inefficient businesses is a daft throw-back to the dark ages. It would be more to the point to go through the statute books, and repeal any law that is contributing to the problem in the first place. Stop persecuting my preferred suppliers!

Posted by Peter Hume, Tuesday, 11 May 2010 4:02:52 AM
"you went to a little musty dim grocery store and some old dude in an apron used to serve you personally. He would get stuff off the high shelves, package it, weigh it".

Peter you are talking about retail 60 years ago; if you were longer lived you could regale us with stories where you hunted, killed, and slaughtered your own meat.

Posted by Peter Hume, Tuesday, 11 May 2010 4:02:52 AM
The idea that it is the legitimate function of government to persecute efficient businesses, so as to promote more inefficient businesses is a daft throw-back to the dark ages.

That is exactly what the governments’ job used to be. They would protect Australian made products with tariffs and small business with anti monopoly legislation.

Errrr.... really?

Peter Hume: "The idea that it is the legitimate function of government to persecute efficient businesses, so as to promote more inefficient businesses is a daft throw-back to the dark ages."

sonofgloin: "That is exactly what the governments’ job used to be."

First of all I wasn't sure that came out quite how you intended, sonofgloin. Except that you continued...

>>They would protect Australian made products with tariffs and small business with anti monopoly legislation.<<

The first part is absolutely correct. Fortunately successive governments have seen the error of their ways, and tariffs have been gradually reduced. One fine day, they may even be eliminated. (Pious hope).

But anti monopoly legislation was never intended to protect small business. It is the consumer, or user, who is supposed to be protected, given that a monopoly can price-gouge indiscriminately.

Sydney Airport is a classic example, where the owners hold the public to ransom on everything from luggage trolleys to parking, taxi companies on their visiting rights, retailers on their floor space and airlines for their gate usage. In that instance, political expediency overrode protection against monopoly pricing. As, sadly, it often does.

Supermarkets perform a legitimate function, and play a substantial role in keeping prices down, especially on the "weekly shopping". There is however a space in the market to cater for the more discerning, quality-driven shopper. Which is, interestingly, also being targetted by the major players - Woolworths' chain of Thomas Dux is a good example - but is also a space where small business can play.

>>In Canada they legislated in laws to prevent predatory pricing by the larger mass merchants and it had the effect of bringing small business back to the shopping centers because they could compete on quality, service and price.<<

I have no doubt that - should the duopoly price-gouge, and assuming also that it is politically expedient - we would do the same here in Australia.

But given that Woolworths and Coles are presently in a healthy competitive battle, that might not be needed for a while.

Pericles this from the Courier Mail...2009
Australians have among the fastest-rising food prices of major developed nations, with OECD data showing costs have shot up 40 per cent in a decade. The price rises have come a quarter faster than in Britain, twice as fast as in France and nearly three times the speed of German grocery price rises.
University of NSW associate professor Frank Zumbo said comparing costs over 10 years eliminated variables such as currency movements or transport costs and exposed the country's "cosy" supermarket duopoly as the main reason.
"It is our market concentration which explains why our grocery prices are rising faster," he said.

From another source,...2010
AUSTRALIA has the highest grocery inflation in the Western world and our powerful supermarket duopoly has a big role to play, experts warn. Commanding up to 80 per cent of the nation's $90 billion grocery market and a large percentage of the fuel market, Coles and Woolworths have little incentive to discount, the Australian Competition and Consumer Commission says.

Pericles, do you know what you say or is it opinion?

Your problem sonofgloin, is that Woolies and Coles are both public
companies, so we can follow the money trail, the figures are
published.

Coles work on a net profit of around 3c in the Dollar, Woolies are
a little more efficient, they work on around 4-5c. Hardly a rip off.

But the journey of raw materials down the value adding and processing
chain is a long one. Costs are enormous. From truck drivers to
factory workers to checkoutchicks, everyone wants to be paid.

Australians are paid some of the highest wages in the world. They
have some of the highest lurks and perks along the way too.
Superannuation, holiday leave loading, weekend overtime rates,
payroll tax is charged at 6% too. The list goes on.

Companies who operate here and supply Woolies and Coles, be they
Nestle, Unilever, Kraft, etc, build all those costs into their
products. Economies of scale are relatively small in Australia,
compared to say Europe, or the USA. No flat rate 9 bucks an
hour for staff, as is commonly paid in the US.

Somebody has to pay for all that and it is you, the consumer.

If he is correct, sonofgloin, then there are a lot of people missing out on a massive opportunity.

"University of NSW associate professor Frank Zumbo said comparing costs over 10 years eliminated variables such as currency movements or transport costs and exposed the country's "cosy" supermarket duopoly as the main reason... why our grocery prices are rising faster"

Which begs the question: if it is the supermarkets who are responsible for the high prices, why aren't there competitors springing up all over the place, undercutting them?

As Yabby kindly pointed out, it is because they are already working on slim margins. No small business could realistically undercut those prices and trade profitably.

Also, as rehctub mentioned, the supermarkets' shelf space is already subsidized by the suppliers themselves. So if even you went to those suppliers and offered the base price - i.e. without the premium for getting them on the shelves, which would mean that they earn more - there is still clearly insufficient margin for the small outlet.

I'm also not sure what you - or even University of NSW associate professor Frank Zumbo - see as an alternative, in which the consumer is the winner.

Any suggestions?

Friday, 26 February 2010 09:12
Patrick Stafford
“Supermarket giant Woolworths recorded an 11.4% increase in first-half profit the grocery retailer recorded net profit of $1.09 billion for the 27 weeks to January 3, higher than the $983.3 million recorded during the previous corresponding period. Group earnings before interest and tax rose by 11.1% to $1.68 billion from $1.52 billion. Sales, excluding petrol, rose by 6% to $27.2 billion, with a dividend announced of 53c”.

Yabby, $1.68 billion gross profit......$1.09 net profit for 27 weeks trading this year don't look like 3,4,or 5 cent profit in the dollar to me. At 5 cents in the dollar they would have to turn over 30 billion dollars in sales to achieve their gross outcome. Why are you defending the pillaging through duopoly of the grocery dollar? They are shafting us and the government does not give a dam.

Yabby I wrote it, I posted it, and reflecting on the figures after I posted it, I got it wrong. My apologies.

All this talk about grocery stores. Why it reminds me when I was a young feller, we used to hunt, kill and slaughter our own meat. We never 'ad no supermarkets. Competition? Struggle for existence, that's what we had for competition. Hrrmmmmpth! (wipes spittle from chin).

I agree with Pericles' about monopoly gouging- and I can't help but feel that Australia is quite exclusive in government having especially low emphasis on protecting consumers here.

Doesn't matter for supermarkets tho- I avoid either of those horrid chains like the plague- old, low-quality food which you can smell the preservatives wafting out from with a price-tag one would only tolerate for absolute-top-range premium-quality stuff?

No thanks, unless I need some coca-cola I will happily shop at the alternatives (and with direct-from-farmer sales becoming stronger, the consumer choices are expanding).

One of the reasons my preference is given to the small locally owned [originally Aussie owned]corner shops and markets Rechtub. However, these smaller shops now of course are taken over by overseas chains; Australasian. Inevitable for consumers on the other hand. Note the variety and specials [with the exception of vegetables] consumers on the plus side enjoy for processed 'goods', 'Processed old meat' frozen for months in storage along with most fruits and meat brought out on the first day unloaded, double the price until a couple of days later. As you explain rechtub, consumers are to blame, or are we?

Ten years ago in most towns and cities we the consumers had no idea of the American food chains and retail outlets heading this way. We did not have any idea of the increasing population. The local markets and corner shops would never have coped with the surge in population without some type of large 'woolies and coles' chains.

The problem not to be blamed on Australians; I see it as a combination of issues, involving then Australian Banks cautiously and reluctantly loaning people money to start their own businesses, not supporting businesses, [the tall poppy syndrome existed], and the loss in balance of trade. Real estate prices escalated for people to rent premises, a great deal of our land bought up "big" by foreign interests. When one casts their memory back 10 years ago, MOST of our opportunities flew out the window, at the same time.

If Banks and government had supported most of the original successful large Australian owned businesses our country would be in a better position today. Too late, as the damage is done, unless we innovate, engineer and export, with our Banks supporting us; people will struggle. Without balance of trade many young Australian families' health issues will dramatically escalate from financial pressure. Violence increases

The problem is the damage that is done to small farmers and manufacturers by these Major Supermarkets. Much of their product is sourced overseas or from suppliers who import product that is efficiently grown here by small farmers and manufacturers e.g. oranges, peas, pineapple etc etc. It is just that wages and conditions in supplying countries are lower than OZ.

We need some form of equalising tax to offset wage disparity on imported goods. The taxes could be used to assist development in the countries from which the goods were sourced to improve their conditions. This would allow small farmers and suppliers to exist in Australia equally with small farmers in developing countries.

There is need for local product to give diversity the the local community and distributed by exclusive OZ only retailers.

After the credit blow out of last year many people have changed their credit card for a debit card. That is a good thing.
My credit union has always put its members' interests first and recommended that we avoid fees by always using the 'credit' button when buying goods in shops. I have only ever had a debit card and this has worked well for me, apart from when buying overseas goods like travel tickets because some overseas banks don't recognise Australian debit cards and insist on charging a credit card levy.
But now Woolworths, Safeway et al will apply a similar levy to all debit card users in Australia.
If this sends people back to the credit card, are they not blowing up that economic bubble that Kevin Rudd's foresight managed to avoid?

My credit union has put out this notice:

Woolies denies customers payment choice
15 April 2010

Woolworths have announced that effective 15 April 2010, Visa Debit card transactions pressing the ‘Credit’ button will no longer be accepted, and the ‘Sav’ or ‘Chq’ buttons must be used.

This is currently in effect for all stores in the Woolworths company group including:

BIG W
Woolworths Supermarkets
Safeway Supermarkets
Woolworths Liquor
Safeway Liquor
BWS
Dan Murphy’s
Dick Smith
Tandy
Woolworths Petrol
Safeway Petrol
Caltex Woolworths petrol outlets
Thomas Dux
ALH (bottle shops).
For more information read the full press release issued by Abacus, the Credit Union Industry body.
http://www.cua.com.au/wps/wcm/connect/website/home/sitetools/news/abacus

I may need a little education on this one Polly Flinders.

Forgive my ignorance. I'm one of those people who uses a Credit Card and pays it off each month, so I have never actually used a Debit Card.

>>many people have changed their credit card for a debit card. That is a good thing.<<

Got that.

>>Woolworths have announced that effective 15 April 2010, Visa Debit card transactions pressing the ‘Credit’ button will no longer be accepted, and the ‘Sav’ or ‘Chq’ buttons must be used<<

Isn't that what a Debit Card does? Take money straight out of your bank account? Why would you press "Credit" anyway?

What am I missing here? Do the Banks charge extra for doing this?

Pericles, with Visa cards (credit or debit), if the cardholder conducts an EFTPOS transaction and selects "Credit" at the POS terminal, they are not charged a fee by their financial institution. Rather, the retailer pays a small merchant fee.

This move by Woolworths and its subsidiaries shifts the transaction cost from the retailer to the consumer. I think it's a penny-pinching exercise perpetrated by this retail monolith because they think they can get away with it. Obviously, lack of competition is a factor in that commercial assessment. It annoys me because I don't have a credit card as such any more, because I don't need one. The Visa debit card has until now worked exactly the same way as a credit card, except that I use my own money.

Speaking of lack of competition, I wasn't aware that Woolworths owns both Tandy and Dick Smith. What's that - sham competition?

Thanks CJ.

>>if the cardholder conducts an EFTPOS transaction and selects "Credit" at the POS terminal, they are not charged a fee by their financial institution.<<

So putting it the other way around, when you use a Debit Card and hit "Chq" or "Sav" - i.e. you pay the retailer with money you suck directly from your bank account - you are charged a fee by the Bank?

Trooly rooly?

Wow.

But I'm still puzzled at the concept of hitting "Credit" on the EFTPOS machine, when presenting a Debit Card. Does it perform the same physical act as a debit transaction, i.e. draw down on your bank balance?

Where does the "Credit" part come in?

Pericles, the way I understand it, the banks actually own the
Eftpos system, so I have a Westpac card and can charge straight
from my bank account, at no cost to me.

I also have a Visa credit card, where the retailer gets slugged anything
up to 3%, depending on their size, agreement etc. In higher margin
transactions that would worry them less, but in groceries, it
would add up, for margins are slim. The banks have to pay Visa
a fee for using their system.

The way I understand it, this system just cuts Visa out of the
equation.

You don't pay a transaction fee if you withdraw cash from an ATM belonging to your own bank or credit union.
Judging by the queries in this thread, we have a mushroom's understanding of how cash is withdrawn from you and me.
Since Woolworths and its associates are more sure of payment by a valid debit card, this latest move to charge a fee for the use of debit cards must be, as Pericles says, something to do with the commissions involved with the use of credit cards. Why charge a fee on debit cards now, as people change over to them to avoid high interest rates? UK debit cards don't incur a fee in the UK - yet. Who's got their grubby fingers in the till? One thing's for sure: this move is for the benefit of Woolworths et al, not their customers. Their mission is to turn everyone into a consumer cash cow. Boo! Not moo, yet.

I asked my credit union (CUA - one of Australia's largest) to comment on Woolworth's move to charge customers a fee for paying with a debit card:

CUA stated:

"The Woolworths decision to deny customers the choice of payment method is an unfortunate one that has impacted many customers and financial institutions alike. As you will be aware, CUA is a mutual financial institution that exists to benefit our members across a number of areas including products, services and fees. We are conscious of the impact that decisions such as this have on our members.

The industry is currently reviewing the impact of the decision and Abacus, the credit union and building society industry body, continues to lobby in this regard. The decision will have a negative financial impact on CUA and we are currently reviewing our fee position and our product suite to ensure we satisfy the requirements of the majority of our members. More information on changes to products and fees will be provided to members as it comes to hand."

I'm confused. The Commonwealth Bank doesn't charge me any fees for EFTPOS transactions. And they are apparently one of the evillest, most insidious banks out there. And NAB recently scrapped almost every fee from retail banking. Do others really charge a fee?

To Otokonoko:

There are no free lunches. The fees are not so bad if you can limit the use of your debit card to 10 transactions a month and you're a member of Credit Union Australia:

"In relation to fees charged for using a CUA Visa debit card at Woolworths stores, this is now an EFTPOS transaction and forms a part of the monthly free transactions provided for your account. You currently have 10 free transactions per month. Should you exceed the number of free transactions there is an excess transaction fee applied.

"When using your Visa debit card you are able to select the credit button. Currently you are offered to either sign a voucher or enter your PIN number. When you select either Cheque or Savings, this is an EFTPOS transaction, and can only be completed by entering your PIN number. "

But Australians still get slugged at both ends for using our debit cards for overseas transactions. There's a hefty 2 to 7 pounds charge in the UK and a 2% charge by CUA here, on top of the exchange rate which resembles that of a third world country no matter how the rate fluctuates. I guess there has to be some price to pay for living in the best country in the world.