Have we left ourselves in a vulnerable state?

NATIONAL

Omicron has left chain store supermarket shelves bare. Is it time to break the grocery duopoly?

MGA for many years has addressed the duopoly - Coles and Woolworths – that continues to use market power and dominance to expand and grow at a rate not seen in the world, placing consumers at risk by limiting their choice of where to shop.

Over the past decades, family and independent food and grocery businesses have been ‘crowded out’ by unsustainable and unimaginative “must drive to” shopping centre developments across Australia, with market share dwindling from 55% in the 1970’s to approx. 14% today.

Experts say empty shelves in the major chain supermarkets underscore the problem with the ‘oligopolistic’ structure of Australia’s grocery industry. Key points

• Australia’s grocery duopoly has exacerbated food shortages, according to a business expert. • New Zealand is considering ways to break its supermarket duopoly to increase competition. • Independent retailers have managed to keep shelves full during the Omicron outbreak.

Coles and Woolworths control 66 per cent of Australia’s grocery retail market. That is greater than Aldi, IGA and independent outlets combined.

This duopoly has exacerbated the disruption caused by the rapid Omicron outbreak. According to Macquarie Business School senior lecturer, Prashan Karunaratne, “Perhaps it’s not beneficial to Australia in the long term if we are reliant on these concentrated supply chains which don’t deliver when such shocks hit.”

New Zealand is considering ways to break its supermarket duopoly, so should Australia do the same? Coles and Woolworths rely on economies of scale and centralised distribution centres, currently at risk with COVID-19 disruption.

Supply chain disruption

Surging Omicron infections in nearly every state and territory have crippled supply chains, forcing workers in processing, packaging, transport, distribution, and supermarket staff into isolation. Consumers have responded to bare shelves by panic buying, going without, or sourcing alternative supplies.

Dr Karunaratne said Australia’s supermarket duopoly put consumers in a precarious and unique position compared to other developed economies. “The usual supply chain issues, during some sort of crisis or otherwise, are a little more pronounced in Australia’s case because we have a more concentrated market structure in this grocery chain space.”

Coles and Woolworths rely on funnel produce and products through central processing and distribution centres, then freight them across the country. “They have an over-reliance on central facilities and therefore we have less of them in Australia,” Dr Karunaratne said. “Therefore any disruption causes a larger proportional disruption.” Independent retail thrives

National Farmers Federation President Fiona Simpson says the supply chain story is entirely different for independent retailers, butchers, and grocers. “At the moment, a lot of the independent retailers and smaller fresh food markets and butchers are doing much better than the bigger supermarkets,” she said.

Bevan Betros runs a family-owned grocery store, Betros Bros, in the Queensland town of Toowoomba, 120 kilometres west of Brisbane. Aside from some top-brand toilet paper, his shop shelves are full. “I think there’s next to no lines we’re out of as far as fruit and veg go,” he said. “Independents like ourselves, we’re at the market every day and we buy what we want and bring it up or our local growers bring it in, because the stuff has to go — it doesn’t stop growing.”

Mr Betros said smaller retailers had flexible supply chains with local farmers even delivering the produce themselves. “There’s no shortage of anything really,” he said. “It’s all to do with distribution systems.”

NATIONAL

Dr Karunaratne says micro-economic reforms are needed to fix the supermarket duopoly.

(Supplied: Macquarie University)

Changing competition policy

Ms Fiona Simpson said the comparative success of smaller and more nimble supply chains during COVID-19, highlighted the need for more competition. “For us, that’s a reflection on competition policy, which, for a while in Australia, has had the supply chain focused in the hands of a couple of very big players. It’s something we need to focus on in Australia as we go forward and look at the future and what effect pandemics have.”

Dr Karunaratne said there was no quick solution to fix Australia’s grocery ‘oligopoly’. “Given a small manufacturing sector, given a concentrated market structure in the packaging industry, given a concentrated market structure in the grocery industry, these are systemic structural issues that will take long-term micro-economic reform to address.” Policy reforms could include incentives for smaller players like farmers’ collectives and independents to expand and take up a bigger market share. Across the Tasman, the New Zealand government is considering breaking the duopoly of Woolworths and Foodstuffs in its $22 billion grocery industry. This is in response to the New Zealand Commerce Commission’s draft report on grocery competition, which found competition was “not working well for consumers”.

The commission’s recommendations included making it easier for new competitors or existing independent retailers to expand and creating a further major grocery retailer to stimulate competition. “I guess watch this space with what New Zealand does, with what they’ve recently announced, and perhaps Australia could monitor the cost benefit analysis of that solution,” Dr Karunaratne said.

The major disruption to food supply in the chains, particularly fresh foods, such as chicken, meat and produce, has led consumers to discover the wonderful range and freshness of products in our members stores. Members report that customers are being delighted by the fantastic fresh foods e available from their stores sourced directly from local suppliers and growers or the local markets.

Source ABC SEQ 18 Jan 22