Fair Competition Release: Master Grocers Australia

7/31/2019 Fair Competition Release: Master Grocers Australia

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LETS HAVE FAIR

COMPETITION!

The risk of losing retail diversity,

choice and true competition in the

Australian supermarket industry

Independent Liquor Outlets

NATIONAL SUPPORT OFFICEMaster Grocers AustraliaSuite 5, 1 Milton Parade Malvern Victoria 3144Phone: +613 9824 4111 Fax: +613 9824 4022Freecall: 1800 888 479 Email: [email protected]: www.mga.asn.au


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Page 2 | Lets Have Fair Compeon! August, 2012

Independent Liquor OutletsMaster Grocers Australia

Who We Are

Master Grocers Australia (MGA) and Liquor Retailers Australia (LRA) is the peak

naonal employer organisaon represenng the independent sector of the

supermarket and liquor retailer industry. MGA/LRA represents independently owned

and operated supermarkets and liquor stores throughout Australia.

These stores operate under banners such as Supa IGA, IGA, IGA Xpress, Friendly

Grocer, Foodland, FoodWorks, SPAR, Supabarn, Cellarbraons, Bole-O, IGA Liquor,

Local Liquor, Duncans and Bolemart.

MGA is a registered employer organisaon and represents its members in relaon to

workplace relaons, training and compliance, and government relaons.

Australias independent grocery retailers employ 115,000 people, generang annual

sales of $13 billion and together, they constute the major compeon for the chains.


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August, 2012 Lets Have Fair Compeon! | Page 3

Contents

Foreword ...................................................................................................................... 5

Execuve Summary ...................................................................................................... 7

Introducon.................................................................................................................. 9

1. Market Power and Compeon ........................................................................... 10

1.1 Market Power of Major Chains Connues to Increase ................................. 10

1.2 Eects of Market Dominance ....................................................................... 13

1.2.1 Impact on Grocery Shoppers ............................................................ 13

1.2.2 Impact on Business Costs .................................................................. 13

1.2.3 Impact on Local Business .................................................................. 14

1.3 Floor Space as an Instrument of Market Power ........................................... 15

1.3.1 The Over-Sized Store Strategy .......................................................... 15

1.3.2 The Saturaon Strategy..................................................................... 16

1.4 Floor Space Strategies in Pracce ................................................................. 19

1.4.1 Premium Prices For Sites .................................................................. 19

1.4.2 Compeon and Development Controls ........................................ 19

1.5 Addional Strategies for Market Dominance ............................................... 20

1.5.1 Shopper Docket Schemes ................................................................. 20

1.5.2 An-Compeve Price Discriminaon ............................................ 21

1.6 Previous Eorts to Stop An-Compeve Behaviour ................................... 22

1.6.1 ACCC Intervenes to Prevent Lessening of Compeon .................... 22

1.6.2 Amendments to the Compeon and Consumer Act ....................... 25

1.6.3 Proving Purpose ................................................................................ 25

1.7 Eecve Regulaon for Increasing Market Power ....................................... 27

2. The Role Of Local Government Planning Decisions .............................................. 28

2.1 Local Government Planning .......................................................................... 28

2.1.1 Local Market Saturaon .................................................................... 28

2.1.2 Recommendaons for the Assessment of Floor Space Needs ......... 30

2.1.3 Determining the Impact on the Welfare of Local Communies ....... 30

2.1.4 Ensuring Retail Space Is Commensurate With Demand .................... 32


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2.2 Impact of Over-Sized Stores on Regional Economies and Markets ............... 35

2.2.1 Bermagui, New South Wales ............................................................. 36

2.2.2 Bright, Victoria .................................................................................. 38

2.2.3 Churchill, Victoria .............................................................................. 39

2.2.4 Macksville, NSW ................................................................................ 402.2.5 Summary of Impacts of Over-Sized Stores ....................................... 41

3. Consequences for the overall economy ............................................................... 43

3.1 Key Sources Of Market Power - Economies Of Scale And Scope .................. 43

3.1.1 Exploitaon of Economies of Scale ................................................... 43

3.1.2 Exploitaon of Economies of Scope .................................................. 43

3.1.3 Adverse Eects of Market Concentraon on Social Welfare ............. 44

3.1.4 Adverse Eects on Economic Eciency ............................................ 44

3.1.5 Adverse Eects on Distribuonal Equity ........................................... 47

4. Conclusion and Recommendaons ...................................................................... 48

Appendix 1 - Calculaons of Floor Space Supply .......................................................... i

Appendix 2 - Methodology for Assessing Floor Space Requirements ........................... i


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Forewordby John Wallace1

There is lile public awareness of the adverse eects that the compeon between

Australias major supermarket chains is having on the welfare of Australians. While

perfect compeon between a large number of small suppliers can result in an

ecient allocaon and use of Australias resources, the same is not true of imperfectcompeon between Australias small number of major supermarket chains. Rather,

such imperfect compeon inevitably imposes a cost on the community by reducing

both economic eciency (e.g. by distorng paerns of consumpon, producon,

investment and resource use) and distribuonal equity (e.g. by reducing the extent to

which local governments are able to achieve their equity objecves for the residents

of their respecve regions).

This report, which has been prepared by Master Grocers Australia, raises the concern

that the major supermarket chains are misusing their market power by construcng

and cross-subsidising the operaon of over-large supermarkets in small local markets.

In parcular, the report outlines how this pracce can reduce the welfare of Australians

by reducing economic eciency and distribuonal equity and presents evidence

of this pracce and its adverse eects drawn from both ACCC inquiries and Master

Grocers Australias own research.

As concluded by Master Grocers Australia, this evidence is sucient to warrant further

invesgaon by the ACCC to determine whether the major supermarket chains are

cross-subsidising the construcon and operaon of large supermarkets in small

communies in order to deter new entrants and eliminate exisng competors.

John Wallace

Director

The Economist Network Pty Ltd

1 John Wallace is the director and founder of The Economist Network. He is an economist with over 30

years of experience with economic and regulatory reform both in Australia and overseas. This includes

10 years as an Execuve Director of Ernst & Youngs Economics, Regulaon and Policy group; 11 years

working for the New Zealand government as a consultant to the Regulatory and Tax Policy Division of the

New Zealand Treasury and as Chief Manager of Policy Development for the New Zealand Inland RevenueDepartment; and 10 years working for the Industries Assistance Commission (now the Producvity

Commission).


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Forewordby Associate Professor Robin Goodman

Why Planning Policy Should Care About Diversity In The Australian Grocery Market

When urban planners are charged with responsibility for approving applicaons for

new developments there is a large range of factors they must consider. They must

assess the impact on the exisng urban form and character, amongst other things, and

the generaon of trac, noise and other issues which impact on local amenity. The

economic compeon that a new business might provide for exisng businesses is not

generally considered a valid planning issue and cannot be ulised as an argument to

oppose development.

This report demonstrates however, that the pracces of the two corporaons who

overwhelming dominate the grocery market in Australia, are having a serious impact

on exisng town centres in ways which should worry planners.

Local government planners should be concerned about nurturing and protecng the

exisng town centre as a whole. This is not the same as acng to protect individualbusinesses. The value of a thriving town centre, with a concentraon of independent

small businesses, goes beyond the sum of its parts and the value of the businesses

themselves.

Town centres are not only business and employment centres, they are the social hearts

of local communies. Tradional main street retailing provides a reason for people to

gather, a place to meet and socialise, and a chance to connect and maintain a sense

of community. This is parcularly so in small to medium size towns where alternave

gathering places may be some distance away.

The loss of a key shop in a local strip shopping centre may lead to a decline in pedestriantrac and the eventual closure of many businesses, as this report indicates. The large

supermarket surrounded by its sea of car parking does not invite pedestrian trac.

Customers drive in and drive out, making isolated single desnaon visits. Planners

are increasingly seeing a role for themselves in creang places which encourage

walking and decrease car dependence. Main street shopping does this in a way that a

large supermarket does not.

The threat to the viability of small town centres that the arrival of over-sized

supermarkets poses should not be ignored by those in a posion to give approval.

While the arrival of a Coles or Woolworths might seem inially like an economic boon

to a small town, clearly, as this report suggests, the ulmate consequences may in factharm the local economy. The net community benet in the longer term needs to be

clearly assessed.

This report provides some evidence, and raises some important quesons, regarding

the deleterious eects of behaviour of the supermarket duopoly in smaller town

centres. Clearly this is an area where a reconsideraon of the current policy frameworks

is required.

Associate Professor Robin Goodman

School of Global Studies, Social Science and Planning,

RMIT University


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Execuve Summary

The market dominance that Woolworths and Coles has built over the last three

decades (market share of about 80% and rising) is progressively crowding out all

compeon from the market and thus rapidly reducing the choices in shopping

format, product brands, locally derived products and service levels that the shopper

can choose. Similarly, this relentless expansion is denying an outlet for local suppliers

and manufacturers as their products are replaced by overseas sourced ones retailed

as store brands. The impacts on local communies and local economies are oen

abrupt and severe.

Master Grocers Australia believes grocery shoppers should enjoy the benets of

genuine compeon, which consists of a diversity of retail oers, cheaper grocery

products, a greater range of branded products, supported by a supply chain that makes

more ecient use of Australias resources and results in a more equitable distribuon

of the available prots.

This report reveals a number of an-compeve policies and pracces that depend

on enormous market power, including: an-compeve price discriminaon, shopper

docket schemes, store saturaon strategies and over-sized store strategies. These

pracces assist the growth of the dominant players by unfairly handicapping smaller

independent competors.

For example, the major chains have a strategy in which they develop over-large

supermarkets in small local markets, even where there is lile or no populaon growth

projected. This has the eect of prevenng future market entrants and it destroys

exisng smaller competors (and many small and medium specialty retailers who

are not direct competors). Such an-compeve strategies are possible only for themajor chains because they require cross-subsidies over an extended period to sustain

the over-sized store.

The situaon is exacerbated by local government approvals of such over-sized store

developments, with insucient regard for their impact on the viability of exisng

businesses, community amenity or commercial property values. The concept of Net

Community Benet (NCB) needs to nd a more explicit and accountable expression

in planning deliberaons. Consideraons of available choice, demonstrated need,

diversity, escape spending, employment and impacts on exisng retail centres.

Therefore, MGA recommends that the ACCC:

i. determines whether the major chains are cross-subsidising a substanal number of

loss-making supermarkets for an-compeve purposes and determine whether

this is misuse of market power, and

ii. revokes the authorisaons issued to Coles and Woolworths in relaon to shopper

docket schemes between related enes.


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MGA also recommends that the Australian Government:

i. reintroduces a prohibion on an-compeve price discriminaon similar to laws

in other OECD countries;

ii. repeals the provision allowing cross-subsidies between related enes;

iii. develops a Retail Sustainability Assessment to assist local government to determinewhether major retail development proposals are of appropriate size;

iv. recommends to COAG certain specic changes to planning legislaon to encourage

improved planning of acvity centres and new estates, and

v. ensures the ACCC has the legislave power to require prior nocaon by the

major chains of any proposed acquision of a site, lease or exisng business.

(Refer to comprehensive list of recommendaons in Secon 4.)


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Introducon

The Australian grocery market is the most concentrated such market in the developed

world. It is dominated by two large, vercally integrated competors that oer almost

idencal ranges of goods and services and compete vigorously against each other.

They are owned by two massive conglomerates that operate general merchandise,

hardware and oce supplies retail chains, hotels, packaged liquor and gambling, as

well as mining and insurance ventures.

This eecve duopoly has led to a steadily growing series of complaints from suppliers,

manufacturers, smaller competors, public interest groups and customers. The nature

of the complaints covers a broad spectrum of inmidang behaviour, unfair inuence

on decision makers, loss of diversity and choice for customers and unconscionable

terms imposed on suppliers. The complaints have progressively become more

frequent, insistent and widespread, resulng in formal enquiries by the ACCC and the

Australian Senate.

Fear of retaliaon from the dominant buyer of their goods and services, ensures only

a ny part of the complaints by Australian manufacturers and suppliers is made public.

It masks a much wider and deeper level of dissasfacon and alarm with the current

market structure and the trading pracces which naturally grow from near absolute

market power, but are hurng local manufacturers and growers while boosng

imports.

Similarly, the customer is facing increasing market concentraon and loss of diversity

and true compeon. They are increasingly being denied the choices in local

brands and variees they once enjoyed, as store branded generics displace them

from supermarket shelves. Shoppers are nding it harder to access the alternavestore oers, based on convenience and personal service, provided by independent

supermarkets as these stores are being crowded out of the market. Many also resent

being caught up in a spiralling web of cross-promoons involving fuel and other goods

and services.

This report does not seek to present a detailed analysis of the nature, extent and eects

of these an-compeve pracces. Such a task is well beyond the scope of this report

but could well be included in any future detailed inquiry. Rather it draws aenon to

evidence of a number of strategies by the supermarket duopoly which are essenally

an-compeve and damaging to the domesc economy. Master Grocers Australia

urges acon on a number of specic maers to prevent further market concentraondamaging Australian manufacturing and true retail compeon.


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1. Market Power and Compeon

This part outlines the key features of the Australian supermarket

industry and some of the issues which need to be addressed

if genuine compeon is to be sustained. It draws aenon

to the an-compeve strategies and pracces of the two

dominant supermarket chains in achieving a virtual duopoly, theconsequences of this market structure and some implicaons

for federal compeon law.

1.1 Market Power of Major Chains Connues to

Increase

The independent supermarket sector includes more than

4,000 independently owned and operated supermarket and

grocery stores, of which 2,100 are branded and operate under

the banners Foodland, FoodWorks, Supa IGA, IGA, IGA Xpress,SPAR, Supabarn and Friendly Grocer. Independent stores turn

over an esmated $13 billion in retail sales and employ a total

of more than 115,000 people (full me, part me and casual).

They form the largest block of competors against the two

major chains, Woolworths and Coles.

Woolworths and Coles account for about 80 per cent of

the Australian grocery market. This is believed to be the

most extreme example of grocery market dominaon in the

developed world. By comparison, the largest two supermarket

chains in the United States of America account for only 20 percent of the naonal grocery market and in the United Kingdom,

the top ve chains account for about 83 per cent of the market.

This situaon arose over the past three to four decades. In 1975,

Woolworths and Coles jointly held only about 34 per cent of the

Australian grocery market. Their rapid growth since then has

been due to various strategies, including the acquision of green

eld sites, creeping acquisions of independent supermarkets

and the development of an-compeve covenants. However,

as evidenced in this report, store acquisions and developments

by Woolworths and Coles since 2009 together with a signicant

number of new store proposals, suggest their current combined

share most probably exceeds 80 per cent.

The following diagram illustrates the two major chains growth

in market share from 1975 to 2009. More recent store openings

and acquision of sites by the two chains is likely to have

translated into further sales increases and further market share

growth, pushing the chains market share beyond 80 per cent,

with the prospect of further growth in the coming years.


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Figure 1 - Source: Accenture2

Accenture Australia noted3:

Market share stascs and trends across the grocery channels and even within

the key supermarket channel, are hard to stabilize, due to dierent methodologies

and data coverage across dierent sources. As such, the focus is on range of

market share as opposed to exact measures.

Market share rankings in the supermarket sectors are quite consistent, with

Woolworths, Coles and IGA being the order of the major players.

Combined market share of Woolworths and Coles ranges between 77 and 80.4per cent. Shares for IGA banners range from 11.3 per cent (various publicaon

and esmates from Metcash) to 14.4 per cent (Euromonitor).

The market share discussion in the supermarket sector gives rise to the much-

discussed level of industry concentraon in this sector. Indeed, Australia has the

most concentrated supermarket sectors in the world - whether one takes the top

two or top three or top ve players into account in the analysis.

2 Accenture Australia, The Challenge To Feed A Growing Naon, (November 2010), p273 Accenture, Op. Cit., p26


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During the 1990s, Woolworths in parcular adopted a whole of stomach approach

in expressing its market share. It redened the market by including sales through

restaurants, take away shops, hotels and clubs, delicatessens, greengrocers, butchers

and such other food retailing. By enlarging the market size in this way, its market share

would be made to appear smaller.

In the supermarket channel, however, the data more commonly used internaonallycomprises sales of branded packaged groceries, which constute by far the largest

department in a supermarket and are therefore a proxy for total sales. On that

measure, the combined market share of the major chains is about 80 per cent.

While Aldi and Costco have a place in the Australian retail grocery market, neither is a

direct competor for full line supermarkets. Costco has only three sites (Melbourne,

Sydney, Canberra) and Aldi, with about 260 stores in NSW, the ACT, Victoria and

Queensland, sells a limited range of mainly private label packaged groceries. The 2008

UK Compeon Commission grocery market inquiry4 classied Aldi, Lidl and Neo as

limited assortment discount stores and did not consider them genuine compeon

for full line major supermarkets and disregarded them during the inquiry.

4 UK Compeon Commission, The Supply of Groceries in the Uk Market Invesgaon, (30 Apr 2008)


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1.2 Eects of Market Dominance

1.2.1 Impact on Grocery Shoppers

UBS Investment Research reported on 22 November 20115 that as a business,

Woolworths achieved one of the highest prot margins in the world for FMCG retailers

(EBIT %), coming second only to Walmart in the US. UBS noted that the high margins

achieved by Coles and Woolworths were highly unusual and were the outcome oftheir signicant market concentraon. UBS also idened that this level of market

concentraon has resulted in:

Less compeve grocery prices (due to less need to reinvest in price).

Lower levels of innovaon (including in markeng, loyalty and private label

development compared to oshore peers).

Woolworths and Coles supermarkets operate praccally idencal business models. As

their combined market share connues to increase beyond 80 per cent, compeon

and diversity in the Australian grocery market connues to decrease towards a point

where the market can no longer be deemed workably compeve. That situaonwill leave shoppers with lile or no genuine choice and at the mercy of a duopoly with

no eecve real downward pressure on prices. In addion, upstream businesses, such

as producers, suppliers and service providers will also face very limited buyers for their

products and services (monopsony).

Once competors have been driven out of a market or signicantly weakened, the

new entrant is then free to increase prices without the constraining inuence of

compeon.

1.2.2 Impact on Business Costs

Market share growth has also contributed to the related vercal integraon of other

services, such as, but not limited to, freight, banking services including EFTPOS, IT

and ulies. Woolworths is the biggest user of freight services in Australia. When

Woolworths or Coles negoate with any supplier of goods or services they demand

and receive the best price due to their size. While suppliers of goods or services are

able to use the chains volume to gain economies of scale within their own sectors,

they then have to make their prots on the balance of goods and services sold to other

customers at higher prices. Thus the gain to Woolworths and Coles is in fact borne by

other businesses.

5 Ben Gilbert, UBS Investment Research,Australian FMCG Market, Exploring Treasure Island - Mach II, (1

Jun 2012)


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The UBS study (see above) also conrmed that the high level of market concentraon

resulted in pressure on suppliers (allowing the major chains to extract more

advantageous trading terms from suppliers).

1.2.3 Impact on Local Business

The ACCC in the past has not been concerned with situaons where one competoreecvely replaces another in a dened market. However, this behaviour has a

cumulave eect on local business, similar to that of creeping acquisions on

independent grocers and other SMEs in local markets. This is parcularly so now, as

it is being used widely by the major chains as a means to eliminate compeon and

grow market share.

There have been many examples around Australia which illustrate the adverse

consequences of such developments. A most harmful consequence is oen the loss

of local jobs, not only in compeng grocery businesses, but among unrelated retail

businesses and suppliers of goods and services, because of signicant changes to

customer trac ows. A new large supermarket can draw the majority of pedestriantrac away from established retail outlets in the central business district. This is

parcularly so when the new development is located at some distance from the town

centre. Occupancy levels, employment, commercial rents and commercial property

values in such places are likely to fall signicantly as a consequence.

The demise of local independent supermarkets to the benet of the major chains can

also impact local business in other ways. Independent retailers provide the opportunity

for emerging small suppliers to establish new products and services. Small suppliers

do not inially have the ability to supply the major chains, as they cannot produce the

necessary volumes or meet other supply requirements. Local service providers (e.g.,

accountants, community banks, cleaners, transport providers) and local producersand manufacturers also lose an important trading partner when an independent

supermarket closes.

Oen the arrival of a new major supermarket forms part of a new retail centre. Typically

these new centres are supported by naonal chain specialty shops. As a result towns

risk losing their local and oen unique independent retail oerings, reducing choice

and diversity for local communies. Recently at Coolum, Queensland, Coles bought a

shopping centre and refused to renew the lease of an independent competor who

had been trading there, eecvely acquiring his market share and good will without

compensaon of any kind.6

6 Coolum Up In Arms As Coles Shuts Out IGA Store, Courier Mail, (23 May 2010)


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1.3 Floor Space as an Instrument of Market Power

The nature of commodity retailing dictates that locaon and retail space are most

important consideraons in the success of retail business.

During the late 1990s and as late as 2007, Woolworths and Coles engaged in signicant

programs of creeping acquisions. Indeed, according to the ACCC, from 1993 to 2007,39 per cent of all new store openings by the chains arose from creeping acquisions.7

Currently, Coles and Woolworths combined have more than 160 conrmed new store

proposals across Australia, totalling around 375,000 square metres of addional retail

oor space over the short term.8 This excludes rumoured and undisclosed proposals,

as well as store expansions. Should all of these known proposals reach fruion, their

current combined oor space would increase by about ten per cent.

A recent report by the Commonwealth Bank,9 points out that Woolworths is currently

accumulang about $1 billion worth of property per annum. While the report raises

concerns about the Woolworths strategy, it points out that Woolworths is aiming foran exceponally high forecast space growth rate of 3.0 per cent per annum, of which

2.5 per cent will come from new stores. By comparison, Coles long term oor space

growth target is two per cent per annum. The number of Woolworths supermarkets

is esmated to grow from 878 now to 1148 by 2021. This compares to populaon

growth of only 1.4 per cent per annum in Australia and the rise of on-line retailing,

which will oset the need for some retail space. Yet retail oorspace connues to be

built faster than populaon growth, according to a report of a BIS Shrapnel study:

Retail Property Market Forecasts and Strategies, 2012-2022.10 The two big chains are

using their copious acquision of sites to enforce further growth in market share and

market power.

1.3.1 The Over-Sized Store Strategy

The development by Woolworths and Coles of over-sized stores in numerous small

local markets has become an established paern from which it may be inferred that

the conduct has purpose. Our case studies indicate that it brings about a substanal

lessening of compeon over me.

The Commonwealth Bank report points to Woolworths investment in what it calls

marginal locaons and accords with MGAs asseron that over-large stores in small

local markets are unsustainable without cross-subsidy.

7 ACCC, report of the inquiry into the Compeveness of Retail Prices for Standard Groceries, p428

8 MGA calculaons based on various industry sources

9 Commonwealth Bank, Global Markets Research - Equies, Woolworths Limited, When Woolies Becamean A-REIT, (1 June 2012)

10 Z. Fielding, Shop Space Grows Despite Slow Sales,Australian Financial Review, (11 July 2012), p46


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While Woolworths and Coles dominate the Australian grocery market, their

supermarket businesses are divisions within major retail conglomerates which, are

rated by Deloies 2012 Global Powers of Retailing11 study as the 18th and 21st largest

retail enterprises in the world, and serve a populaon of less than 23 million. As such,

they have the capacity to cross-subsidise their over-large, loss-making supermarkets

indenitely, or unl smaller competors are driven out of the market. These competors

are not only independent supermarkets, but butchers, greengrocers, delicatessens,passeries, milk bars and any other specialty retailer of food and grocery products.

The development of over-sized, cross-subsidised stores in small local markets is a

similar form of conduct to creeping acquisions, pracsed by both chains. As we have

seen from the closure of independent supermarkets and other specialty food retailers

following the entry of over-large chain stores, the result is both a substanal lessening

of compeon in those markets and a corresponding growth in market concentraon

for the major chains.

It is within the power of the ACCC to determine whether the major chains are misusing

their market power by building such oversized developments and driving out exisngand future competors. To facilitate such a process, the ACCC should also require

mandatory nocaon by the major chains of any proposed acquisions, including

exisng businesses, new leases or green eld developments.

1.3.2 The Saturaon Strategy

There is a second complementary strategy in which the major chains saturate a

local market with mulple supermarkets and liquor stores, for which no commercial

purpose would seem to exist apart from keeping competors out of the market. Some

examples are shown in Figure 2.

11 Deloie, Global Powers of Retailing 2012, Switching Channels Report, (January 2012), pG11


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Bathurst, New South Wales: Woolworths has two stores

separated by a street and a pedestrian crossing.

Yarrawonga, Victoria: Woolworths stores 200 metres apart.

Karingal, Victoria: Woolworths has two stores in one

shopping centre.

Hurstville, NSW: Coles store in the Wesield Shopping Centre

and another in retail space above Hurstville railway staon.

In Launceston, Tasmania, the combined market share of the chains exceeds 90

per cent and it is dicult to drive around the district without passing major chain

supermarkets every few minutes. The populaon of Launceston is 65,000 and that of

the Greater Launceston catchment is 100,000, yet it is serviced by four Woolworths

supermarkets, ve Coles supermarkets and one Supa IGA, all within a circle with a ve

kilometre radius (see Figure 3). A sixth Coles supermarket is pending (at Mowbray)and a potenal seventh may be developed (at Prospect).

Figure 2


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The hyper-concentraon of the retail supply of groceries in the Launceston market

can be readily demonstrated quantavely by evaluang a market concentraon

algorithm, such as the commonly used Herndahl-Hirschman Index12 (HHI). Indeed,

evaluaon of the HHI in these markets conrms that the overall market for groceries

is becoming further concentrated with the development of over-large stores in small

local markets as a result of local government planning decisions.

Figure 3

12 See, for example, Stephen A. Rhoades, The Herndahl-Hirschman Index, Federal Reserve Bullen, 79

Board of Governors of the Federal Reserve System, USA, (1993)

WOW Riverside

Coles Racecourse Crescent

Coles NewsteadColes Charles Street

Coles Wellington Street

Coles Kings Meadows

WOW Kings Meadows

Coles Mowbray

WOW Mowbray

WOW Prospect

5km Radius

Woolworths

Coles

SupaIGA

Kings Meadows 1 1 -

Prospect 1 - 1

City - 2 -

Racecourse - 1 -

Newstead - 1 -

Mowbray 1 - -

Riverside 1 - -

Sub total 4 5 1

Pending (Mowbray) - 1 -

Sub total 4 6 1

Greater Launceston Total 11


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1.4 Floor Space Strategies in Pracce

1.4.1 Premium Prices For Sites

Woolworths and Coles can aord to pay signicant premiums to acquire sites - either

green eld sites, exisng leases, creeping acquisions, or sites for redevelopment -

greater than can be aorded by an independent competor. Their dominant posionsin the market and their potenal to cross-subsidise unviable large stores is supported

by their extensive network of stores and/or revenue from related retail enes and

gambling. The premium paid is then oset by their ability to lessen compeon and

consequently not have to compete on price in the medium term.

1.4.2 Compeon and Development Controls

The regulatory framework that has allowed this market share growth includes vesng

the responsibility for controls of land use zoning and development at local and state

government levels, while the over-arching Compeon and Consumer Act at the

federal level.

It is inconsistent for governments to purport to foster genuinely compeve markets,

and yet allow the hyper-concentraon of the Australian grocery market to connue in

the name of compeon. This issue is central to the interpretaon of compeon.

While Naonal Compeon Policy was introduced in the mid-1990s, compeon is

not dened in Australian compeon law. It is therefore dicult for stakeholders to

engage in producve discussion because for each compeon is in the eye of the

beholder. Some hold that unfeered development is sucient to ensure compeon,

while others see that same conduct as leading to further market concentraon, greatermarket power for the chains and a consequent lessening of compeon.

Furthermore, economists tend to interpret compeon solely in terms of price

compeon. In their eyes there is erce compeon now because the two chains are

engaged in price wars for some basic products. However, marketers and the general

public have a more praccal denion of compeon that includes consideraons of

range, service and convenience. Viewed in this way, the current situaon is not one

of vigorous compeon but rather one of decreasing compeon with two centrally

planned and praccally idencal retail oers being rolled out across the naon, sing

the opportunity for diversied oers to compete in the market.


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In this way, the pro-compeon spirit of the Australian Compeon and Consumer Act

is being frustrated in many places by state, territory and local government planning

decisions which, in general, take no account of compeon issues, resulng in a net

an-compeve result.

Detailed case studies demonstrang actual instances of the over-sized stores and the

saturaon strategies are presented in Part 2.

1.5 Addional Strategies for Market Dominance

1.5.1 Shopper Docket Schemes

Among the other advantages handed to the major supermarket chains were

authorisaons by the ACCC to issue shopper dockets, by which grocery purchases

earned discounts from specied outlets for motor fuel purchases.

Such bundling schemes are designed to increase the willingness of consumers to

purchase not only products from the major supermarket chains, but also to purchase

fuel from those specied service staons where the credits can be claimed (i.e., these

schemes allow for the inter-temporal and inter-regional bundling of products,

which generates further economies of scope. See Part 3). That is, they are intended

to alter paerns of consumpon in favour of the major supermarket chains and their

associated service staons, even though these outlets may not be the most ecient

suppliers of those goods and services.

By issuing the authorisaons,13 the ACCC acknowledged that the pracce was an-

compeve. But Secon 90(5A) of the Compeon and Consumer Act (formerly the

Trade Pracces Act) allows the ACCC to grant an authorisaon on the condion that:

the provision would result, or be likely to result, in a benet to the public and

that the benet would outweigh the detriment to the public constuted by any

lessening of compeon that would result, or be likely to result.

The ACCC has never validated the supposed public benet(s) which were said to

be delivered by shopper dockets and probably could not, since it would be nearly

impossible to idenfy whether the prices of some or all of a large supermarkets

30,000 product lines might have been increased to cover the petrol discount.

13 ACCC, Assessing Shopper Docket Petrol Discounts And Acquisions In The Petrol And Grocery Sectors,

(Feb 2004)


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ACCC acknowledged economists Joshua Gans and Stephen King (later an ACCC

commissioner) who argued that in the long run consumers would pay more for both

petrol and groceries because of the an-compeve eects of the shopper docket

schemes.14

Perhaps in recognion of the an-compeve contradicons entailed in the

authorisaons, the Act was later amended to specically allow such arrangementsbetween related enes. Nevertheless, the pracce remains an-compeve in eect

and not in the public interest and MGA recommends the ACCC should revoke these

authorisaons.

1.5.2 An-Compeve Price Discriminaon

An-compeve price discriminaon occurs when a supplier sells to certain customers

at one price and to other customers at higher prices, unrelated to economies of scale.

An-compeve price discriminaon is prohibited by compeon laws in every OECD

country except Australia and New Zealand.

The Hilmer Report15 on Naonal Compeon Policy in 1993, recommended that

the then secon 49 of the Trade Pracces Act, dealing with an-compeve price

discriminaon, be repealed. It was repealed in 1995 without parliamentary debate on

the merits of maintaining a prohibion on an-compeve price discriminaon.

This delivered massive compeve advantages to Woolworths and Coles, strengthening

further their market power and assisng them to grow their market shares. To this

day, suppliers who refuse to deliver an-compeve discriminatory (lower) prices to

the big retailers are at risk of having a product line or their enre range deleted.

Yet, as former WA Senator Dee Marges has pointed out, food price inaon began

to overtake the Consumer Price Index soon aer and Franklins, previously a vigorous

competor, went into terminal decline around the same me.16 The predicted

outcomes of Naonal Compeon Policy and the changes in the compeon

environment which derived from it have never been adequately reviewed or tested in

the light of the evidence.

In an aempt to redress this, the non-government senators of the Senate Economics

References Commiee recommended on November 2011:17

Recommendaon 1

1.45 Amend secon 46 of the Compeon and Consumer Act 2010 to eecvely

prohibit an-compeve price discriminaon. Consideraon should

be given to relevant legislaon in place in the United States and United

Kingdom, and the reintroducon of an eects test as per secon 49 of

the Trade Pracces Act 1974.

14 Gans, J. S. and King, S. P., Paying for Loyalty: Product Bundling in Oligopoly, (12 October 2004)

15 Australian Government, Independent Commiee of Inquiry report, Naonal Compeon Policy Review

(1993)

16 Marges, D., Naonal Compeon Policy and the Retail Sector,Journal of Australian Polical Economy,(No. 67), (Winter, 2011), pp83-5

17 Marges D., op. cit.


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The price advantage owing from an-compeve price discriminaon - say, eight per

cent in beer terms of trade - delivers a benet at the beginning of the retail supply

chain which can never be recovered by a competor. For example, if an individual

chain supermarket has inputs totalling $10 million in wholesale value, this equates to

an extra $800,000 in beer trading terms than is available to an independent store of

similar size.

Note also, that this an-compeve advantage applies not only to goods purchased

for resale. It applies also to all other associated costs of doing business, such as, but

not limited to, transport, electricity, refrigeraon and air-condioning installaon and

maintenance, cleaning services, sta training, sta uniforms, store t out, in-store

consumables, and so on.

1.6 Previous Eorts to Stop An-Compeve Behaviour

1.6.1 ACCC Intervenes to Prevent Lessening of Compeon

In 2008, the ACCC used its powers under s50 of the (then) Trade Pracces Act to block

proposed Woolworths supermarkets at Wallaroo, South Australia, and Karabar, New

South Wales. This was a change from earlier narrower interpretaons of s50 and

highlights broader adverse impacts on compeon.

As the Marn report18 observed:

The ACCC decision in 2008 to oppose a proposed Woolworths acquision of an

independent store site at Karabar in Queanbeyan, NSW (just over the south east

border of the ACT) demonstrated the extent of market and compeon analysis

applied to the with and without tesng of independent acquirer alternavesfor the site.

An implicaon for ACT region supermarket compeon is that two earlier ACCC

clearances are likely with the benet of hindsight, to have been rejected under

current intensive analyses. In these instances Woolworths acquired, rstly four

group centre independent Cannons store sites in 1996 (three in Tuggeranong

and one at Kippax) and, secondly an IGA store site at Charnwood group centre

in 2004. This has created the situaon where the ACT currently has only three

independent full line supermarkets compared to 21 run by the two major chains.

However, while the ACCCs acon here aempted to address the substanal lesseningof compeon (see discussion below on Wallaroo and Karabar) its acons did not set

a new direcon. It seems s50 has been successfully used only on a few rare occasions

and that legislaon needs strengthening to stop the an-compeve behaviour of the

major chains.

18 Martin, J., Review of ACT Supermarket Competition Policy, (September 2009), p17


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1.6.1.1 Wallaroo, South Australia

In 2008 the ACCC undertook a review of the proposed acquision of a 3200 square

metre supermarket lease in Wallaroo in South Australia by Woolworths.19 Wallaroo is a

small regional town about 160 kilometres from Adelaide. An independent supermarket

of 1400 square metres serviced the town. The incumbent supermarket operator had

also declared an interest in acquiring the lease and planned to open a new 2,500square metre supermarket.

The ACCC expressed a number of concerns with respect to the proposed acquision

by Woolworths, in parcular that:

in the absence of the proposed acquision by Woolworths, it was likely that another

supermarket operator would be willing and able to operate a supermarket on the

site

it was likely the incumbent independent supermarket would exit the market if the

proposed Woolworths acquision proceeded; and

the catchment for local supermarkets was commonly taken as a three to ve

kilometre radius but consumers in regional areas had a greater willingness to travel

for the purpose of grocery shopping as well as a greater need to travel between

towns for other purposes.

In this case the ACCC considered the relevant market included the neighbouring town

of Kadina, about nine kilometres from Wallaroo. It expressed the view that, if the

transacon proceeded, Woolworths would operate two large full line supermarkets

at Wallaroo and Kadina and, since it was unlikely that another supermarket operatorwould open another new full line supermarket within two to three years, Woolworths

would then operate the only two supermarkets in the district, resulng in a substanal

lessening of compeon.

Woolworths subsequently decided not proceed with the proposed acquision and

the ACCC did not proceed to a nal view on the proposed acquision. The ACCCs

Statement of Issues was a departure from earlier decisions (such as the Woolworths

acquision of the Cannons business in the ACT and southern NSW) and indicated a

new approach by the ACCC in reviewing local supermarket compeon issues.

19ACCC, Statement of Issues, Woolworths Limited - Proposed Acquisition of a Supermarket

Lease in Wallaroo, South Australia (26 Nov 2008)


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1.6.1.2 Karabar, New South Wales

Also in 2008, the ACCC opposed the acquision by Woolworths of the Karabar NSW

Supabarn supermarket.20 The Karabar Supabarn was an independent supermarket and

retail liquor outlet located about two kilometres from the town centre of Queanbeyan

in New South Wales.

Some of the key issues of relevance contained in the ACCCs Public Compeon

Assessment included the following:

The Karabar supermarket was approximately 1,250 square metres and the ACCC

did not consider that it provided a strong compeve constraint on the major

supermarkets in neighbouring Queanbeyan and Jerrabomberra.

The ACCC considered there was strong evidence that in the absence of the proposed

acquision by Woolworths, the supermarket would be acquired by another

independent operator and upgraded to a full line supermarket. The ACCC also

considered that such an upgraded supermarket was also likely to draw customersfrom further away.

The ACCC also noted that many consumers shopped at more than one supermarket

each week and there were consumer benets in having access to a larger number

of separately owned supermarkets in a local market.

The ACCC also concluded that it was unlikely any other site would be available in me to

prevent a substanal lessening of compeon in the local market. The likely purchase

and expansion of the Karabar supermarket by an independent group was deemed

to entail a higher level of compeve tension in the market than if it had beenpurchased by Woolworths, which also owned the nearby Jerrabomberra supermarket.

The ACCC found that if both supermarkets were operated by Woolworths there would

be no incenve for compeon between them.

20ACCC, Statement of Issues, Woolworths Limited - Proposed Acquisition of the Karabar Supabarn

Supermarket, (4 June 2008)


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1.6.2 Amendments to the Compeon and Consumer Act

In the period aer 1975, when Woolworths and Coles grew their respecve market

shares to the current dominant posion, there was lile change in compeon law,

with the single major excepon being the counterproducve repeal of the an-

compeve price discriminaon provisions in 1995 (see secon 1.5.2).

In June 2011, the Australian Government introduced amendments to the Compeon

and Consumer Act 2011. The amendments passed both houses in November 2011 and

included replacement of references to a market with references to any market

in subsecons 50(1) and 50(2).This amendment claried the ability of the ACCC or a

court to consider mulple markets when assessing mergers and acquisions.

It also ensured that businesses cannot challenge a decision to block an acquision on

the grounds that the substanal lessening of compeon was in one or more markets

other than the primary market relevant to the merger or acquisions (subsecon

50(6) was also amended to delete the word substanal in relaon to the scope of a

market).

The amendments were intended to provide greater certainty in acquisions in local

markets and to remove the risk that a court might take the view that acquisions in

geographically conned (i.e. local) markets might not be considered substanal and

therefore not fall within the scope of Secon 50.

These amendments apply to the independent grocery sector as they ensure that

the ACCC or any court can connue to examine acquisions in all markets including

relavely small markets. The Chairman of the ACCC recently highlighted in a speech

the intenon of the ACCC to scrunise mergers and acquisions in local markets:

The ACCC will also increase its scruny of mergers in local markets. The ACCC

has been parcularly acve in reviewing local grocery store and liquor license

acquisions in the past, but we will be considering whether local market

acquisions in other sectors may warrant more aenon. We may, for example

take a larger interest in the merger of two service staons in a local town, if that

might adversely aect compeon

Mr Rod Sims, Chairman of the ACCC, 27 August 2011

1.6.3 Proving Purpose

In examining the provisions of the Compeon and Consumer Act 2011 to cases

involving claims of an-compeve behaviour and misuse of market power, it is

somemes claimed that the requirement to show that the acons were engaged in

for an illegal purpose (such as eliminang or substanally damaging a competor)

is too onerous.


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In his 2003 Review of the Compeon Provisions of the Trade Pracces Act 1974,

the former High Court judge Sir Daryl Dawson wrote21 in relaon to misuse of market

power:

The diculty in proving purpose may be doubted. Not only may purpose be

inferred, but the proof that is required is on the civil standard of the balance of

probabilies only, and not on the criminal standard of proof beyond reasonabledoubt. The purpose does not have to be the sole or dominant purpose. An

admission of purpose is not required, much less an admission in the documentary

form of a smoking gun.

Since the scope of the secon was claried in Queensland Wire, 22 a number of

cases have demonstrated that proof of purpose need not be an obstacle in the

applicaon of the secon (see Box 3.1).

21 Dawson, D., et al., Review of the compeon provisions of the Trade Pracces Act, Ch. 3.

22 Report of the Trade Pracces Review Commiee C of A. (Jan 2003), Ch. 3

Box 3.1: Is proving purpose a problem?

Queensland Wire Industries P/L v. BHP: BHPs purpose in refusing supply to Queensland Wire was

found to be to prevent Queensland Wire compeng as a manufacturer and wholesaler of star

pickets.

Melway Publishing P/L v. Robert Hicks P/L: the evidence of employees suggested that Melway had

the requisite an-compeve purpose. The acon was unsuccessful because Melway was found

to have not taken advantage of its market power.

ACCC v. Boral Ltd: Boral was found to have used its market power against a competor for each

of the three proscribed purposes in secon 46. The evidence on purpose was based on internaldocumentaon. The decision is on appeal to the High Court.

ACCC v. Universal Music Australia P/L: Hill J inferred that the refusal to supply had the purpose of

prevenng the entry into the wholesale market of potenal competors. The decision is on appeal,

which will address the issue of whether Universal and Warner had substanal market power.

ACCC v. Australian Safeway Stores P/L: Safeway was found to have not taken advantage of its

market power. Although the trial judge concluded it was unnecessary to address the issue of

purpose, he found a proscribed purpose could be inferred from the conduct concerned in two of

the ten alleged breaches. Otherwise, it was found that there was substanal evidence that the

purpose of Safeway was pro-compeve. The decision is on appeal.

Rural Press Ltd v. ACCC: Rural Press and Bridge Prinng were found to have the purpose of deterring

or prevenng Waikerie Prinng from engaging in compeve conduct in the relevant market. The

appeal to the full Federal Court turned on whether Rural Press and Bridge Prinng had taken

advantage of their market power.


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Finally, in relaon to purpose, it should be observed that the ACCC has, under

secon 155 of the Act, extensive powers to compel the provision of informaon

and the producon of documents. These powers are not available to a private

ligant but should, in the ACCCs case, aord an invaluable tool in elicing

evidence to prove the necessary purpose where it exists.

The Commiee is not persuaded that proving purpose is an unnecessarilyonerous hurdle for the ACCC. Whilst proving purpose may be more dicult for

an individual ligant who does not have the invesgave powers of the ACCC,

secon 83 of the Act enables an individual to rely upon the ndings in an acon

brought by the ACCC under secon 46.

MGA suggests, in line with the above legal opinion, that proof of purpose need not

be a prohibive obstacle, especially where there is plenful evidence of repeated

occurrences in similar situaons with similar protagonists and similar outcomes.

1.7 Eecve Regulaon for Increasing Market PowerIn a free market it is natural that competors take advantage of any strategy or

tacc that advances their market posion, usually within the bounds of regulaon.

As competors grow their market share and assume greater market power, new

strategies or taccs, as described above, become available to them that are not

feasible for smaller competors. It is then up to the regulators to ensure that this

disparity does not se genuine compeon to the detriment of the consumer and

the broad economy.

It is within the power of the ACCC to determine whether the major chains are misusing

their market power by adopng an-compeve strategies such as operang shopperdocket schemes between related enes, cross-subsidising loss-making supermarkets

and building oversized developments designed to drive out exisng and keep out

future competors.

To facilitate these determinaons the ACCC should require mandatory nocaon

by the major chains of any proposed acquisions, including exisng businesses, new

leases or greeneld developments.


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2. The Role Of Local Government Planning Decisions

This part outlines the extent to which development of over-large stores and the

saturaon of markets with too many stores is occurring in pracce. It discusses the

adverse eects of these pracces.

2.1 Local Government Planning

2.1.1 Local Market Saturaon

The major chain supermarkets are opening new supermarkets in locaons unable to

support the addional oor space. A snapshot of the extent of individual locaon over-

supply is provided below showing seven examples in Table 1, followed by a summary

of the implicaons, the tesng methodology and the MGAs recommendaon for a

oor space needs assessment. The tesng methodology is explained at Appendix 2.

Locaon Retail Space Over Supply

Churchill, Vic 52%

Gloucester, NSW 38%

Bright, Vic 34%

Macksville, NSW 14%

Tura Beach, NSW 57%

Wongaling Beach, Qld 31%

Pisworth, Qld 35%

Table 1

(For methodology and detailed calculaons see Appendices 1 & 2)

The outcomes of this local market saturaon by the major chains is clear:

These locaons are ooded with supermarket oor space that can no longer be

economically jused by the local populaon (now or in the foreseeable future).

As a result the once protable exisng supermarket(s) have been substanally

impacted.

In some cases the impact has been so severe that it forced the immediate closure

of the local independent supermarket (eg Tura Beach, NSW).


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In other cases, sales reducons for the exisng independent supermarkets of 50%

have occurred. Impacts of this magnitude are not sustainable.

Not only does the major supermarket compete with the independent supermarkets,

but due to its size and product oering, it also competes head to head with the

local butcher, deli, pharmacy, baker and other small businesses.

Where once there was a thriving independent supermarket in town, in many cases

it has been either replaced or severely impacted by a major chain supermarket,

oen in an out-of-centre locaon (eg Macksville, NSW). This has consequences for

the specialty retailers, service providers and local manufactures and producers that

rely on the either the direct trade with the independent store or the foot trac

that delivers the customers they need to survive.

The resultant over-supply of supermarket oor space also acts to prevent new

competors from entering the market because the barrier to entry becomes too

high.

In these locaons it cannot even be argued that there will be sucient populaon

growth over the foreseeable future to support this addional oor space.

However, even if there were to be strong populaon growth, sucient to support

the new supermarket in a few years me, the exisng independent usually does

not have the resources to survive the intervening unprotable period.

These new major supermarkets are therefore trading at unsustainable levels.

Their connued survival relies on cross-subsidisaon from other protable stores

in the major chains network and from other related business streams (eg petrol,

gambling).

The Australian consumer suers from this strategy. In order to cross-subsidise these

stores, prots must be redirected from other locaons. This implies that prices

(margins) need to be higher in those places to compensate for these loss-making

stores.

The co-located (same town) independent supermarkets are subject to the largest

impacts. Whilst the major chain supermarket may draw its trade from a relavely

large region, the independent oen relies on a smaller more localised catchment.

The level of over-supply is therefore even more acute from the independent

supermarket perspecve.

It is noted in these examples that even where the local independent supermarket

has been forced to close, the resultant supermarket oor space is sll too great to

be supported by the catchment populaon (eg Wongaling Beach, Qld).

This growth strategy has also been strongly cricised by the Commonwealth Bank

in a recent analysts report23 where it concluded that Woolworths, in parcular, was

developing marginal sites.

23 Commonwealth Bank, Global Markets Research - Equies, Woolworths Limited, When Woolies Became

an A-REIT, (1 June 2012)


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2.1.2 Recommendaons for the Assessment of Floor Space Needs

The issue of over-large stores being approved for development in small local markets

can be resolved by requiring a developer who seeks to build a new shopping centre

with space allocated for a major chain supermarket, to jusfy the proposed increase

in oor space.

A number of local governments have recognised the importance of creang sustainable

communies and have begun to introduce the requirement for new major retail

developments to undertake a Retail Sustainability Assessment (RSA).

The components of an RSA should follow, in principle, the methodology outlined at

Appendix 2. The purpose of the RSA is to ensure:

The development is consistent with the centres posion in the retail hierarchy.

That the level of new space is commensurate with the level of demand.

Impacts on exisng centres are jused and within acceptable levels.

In order to implement this approach it would be necessary for local governments:

i. To beer dene their local retail hierarchy.

ii. Dene the circumstances when an RSA is required. This would include planning

permit proposals that may exceed certain thresholds and/or as dened in the

zoning tables. In addion it would include proposals associated with planning

scheme amendments (eg land rezoning), local structure plans, and new or expanded

acvity centres.

iii. Provide assessment guidelines to assist with the preparaon and interpretaon ofRSAs.

2.1.3 Determining the Impact on the Welfare of Local Communies

While it is generally accepted that it has not been the role of planning to regulate

compeon,24 it is a fact that the concept of Net Community Benet (NCB) has

been central to consideraons of planning proposals by praccally all state and local

government authories.25 These two principles are quite disnct, the former applying

to the purely commercial sphere, the laer being a duty of local government in

safeguarding and furthering the interests of its constuency.

The applicaon of the NCB concept varies in form across Australia, but in substance

it invariably includes weighing up the posive and the negave impacts on the local

community of a planning proposal on:

choice in retail goods and services

diversity and breadth of retail compeon

retenon of a share of escape spending

24 Kentucky Fried Chicken Pty Ltd v Gandis and Anor - High Court of Australia (1979)

25 See for example Retailing Victoria Report, Victorian Government 1996, Davids v Maribyrnong CC

(Appeal No. 1997/38010) VCAT.


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employment (both potenal increases and decreases in regional employment);

loss of sales at exisng shops/centres;

trac circulaon and parking demand;

environmental eects on adjoining acvies; and

local character and amenity impacts.

These factors are readily quanable and are directly relevant to the local communitys

economic and social welfare. Some local authories are considering formal objecve

tests of NCB.26

The Net Community Benet test should include the RSA as explained in secon 2.1.2.

It is our recommendaon that the NCB test should be expanded to include an

assessment of compeon. This would apply where a new development has the

potenal to result in a level of market dominance that could have detrimental impactson the business community and/or the social environment.

Planning outcomes such as those listed earlier in this paper, and some currently

under consideraon, would fail any NCB test on several or all of the above listed

criteria. This means that local communies are disadvantaged by a reducon in retail

diversity, damaged by a contracon of the local economy, employment and the loss of

environmental amenity.

With the current rate of urban and regional expansion due to populaon growth,

the number of retail planning proposals involving supermarkets is ever increasing.

The increasing incidence of resident acon groups and the consistent high rankingof planning issues among voters concerns rearm expectaons that developments

should yield a net benet to the community as well as developers.

Objecve NCB tests, similar to those under consideraon by the NSW government,

should be incorporated into urban and regional planning policies by state governments

(with coordinaon through COAG) for applicaon in the processing of planning

proposals by relevant local authories.

26 Dra Centres Policy, Planning for Retail and Commercial Development, Dept. of Planning, NSW (2009)


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2.1.4 Ensuring Retail Space Is Commensurate With Demand

In the grocery and liquor retailing sectors, all markets are local. Prices, range, service

levels, convenience and customer loyalty are of no consequence outside the immediate

local market.

There are minor excepons to this general observaon. In rural and regional Australia,where people are used to travelling signicant distances to buy goods and services,

there is some opportunity for shoppers to transfer their purchases to a dierent

market within limited driving range. Even so, as a generalisaon, they do not because

the advantages of greater range or slightly lower price are oset by the addional cost

of fuel, wear and tear, me and inconvenience.

Addionally, town planners and communies now value highly the concept of

walkability: the idea that being able to walk to a shop is desirable because of reduced

trac ows, reduced polluon and the health benets of physical exercise. This is of

parcular benet to low income earners and the elderly and has parcular relevance

to new urban estates and growth corridors. It leads to the need for a hierarchy of retailcentres, rather than allowing widely spaced large car based out-of-centre shopping

centres.

Planning regimes need to change so that decisions regarding retail developments

take into account the broader network of acvity centres and the idened role and

funcon of individual centres.

Two examples demonstrate the important role local government planners have in

developing a sustainable hierarchy of acvity centres:

Tecoma, Vic. A new 1,977 sq m Coles was proposed in 2009. Council opposedthe development, which was also rejected by VCAT on appeal by the developer.

The VCAT decision included the following observaon : we consider that it is

important that development within Tecoma is responsive to not only its built form

character but also its role within the acvity centre hierarchy...It is intended that the

local convenience role of Tecoma be maintained and that the centre not be elevated

to a role which is more regionally focussed.VCAT No. P3747/2008.

Sunshine Bay, NSW. A new 2,900 sq m Woolworths was proposed in 2006. Again

the Council opposed the development, which was also rejected by the NSW

Land and Environment Court. The Court concluded that a large supermarket

anked by four small shops at Sunshine Bay is anpathec to the intended retail

hierarchy. Jetset Properes v Eurobodalla Shire Council [2007] NSWLEC 198.


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The planning system, however, is also failing to prevent many inappropriately located

major retail centres from being developed. The lure of addional rates and investment

has seen numerous major supermarket-anchored centres being given permission to

locate in out-of-centre locaons. Local councils are turning a blind eye to the negave

consequences of such developments. Examples are:

Miagong, NSW. Woolworths purchased the Miagong Tuckerbag in 1999 andrebranded it Food For Less. In 2006 a new out-of-centre shopping centre was

permied to open including a Big W and a new Woolworths. Woolworths closed

the Food For Less in the town centre, removing one of the key anchor tenants.

This has had serious consequences on the vitality of the town centre and its

retailers.

Childers, Qld. Woolworths was given planning approval to open in an out-of-

centre locaon. The incumbent FoodWorks located in the town centre was

impacted directly by over 35% as a result of the development, with consequenal

impacts on the surrounding specialty shops.

Macksville, NSW. In this case the Council ignored its own independent economic

advice that concluded:

SGS27considers that development of a retail anchor on the subject site will

eecvely fragment the Macksville centre, resulng in adverse economic

impacts on the exisng CBD, and discouragement of idened posive

opportunies for consolidaon and redevelopment of the exisng CBD.

Tura Beach, NSW. In late 2010 a new 3,200 sq m Woolworths opened. This

was despite the fact that the catchment could not support both the proposeddevelopment and the exisng IGA supermarket, and that it was contrary to the

retail hierarchy. In Merimbula Nominees Pty Ltd v Bega Valley Shire Council

[2007] NSWLEC 107, the judge concluded that Tura Beach was

clearly a lower order centre of a scale suitable to meet neighbourhood

as opposed to district needs.a larger full line supermarket, such asthat proposed by the applicant at Merimbula would be out of kilter, in my

view, with the demands generated by a local neighbourhood. The provision

of retail at a large scale here, would tend to fragment retail acvity, when

State Policy is to concentrate such acvity in a fewer number of larger

centres.These predicons are now being realised with the Tura Beach IGA closing soon

aer the Woolworths opened. The old Tura Beach shopping area has been

severely hit by the new Woolworths development28 and is in a signicant state

of decline with an unprecedented level of shop vacancies in the nearby town of

Merimbula and a lack of interest from potenal new retailers.

27 SGS Economics & Planning, Suite 12 50 Reservoir St Surry Hills NSW 201028 http://www.merimbulanewsonline.com.au/news/local/news/general/woolies-snaps-up-tura-

beach/1612127.aspx


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There are, however, some examples where local government planning decisions have

taken into account issues of need. These examples demonstrate the posive role local

government planners have to promote sustainable compeon:

Gordonvale, Qld. Here the local Council recently refused a 3,800 sq m

Woolworths on the grounds that its out-of-centre locaon would detrimentally

impact retailers in the town centre, the current catchment is not large enoughto support two centres, and it would result in an increase in car-based travel,

amongst others.

Canungra, Qld. The local council issued a permit for a new 2,564 sq m

supermarket on the basis that the use must not commence unl the number of

households in the catchment reached 1,800 dwellings. It was determined that

unl this populaon threshold was reached the town could not support both the

exisng independent supermarket and the proposed development.

Posville, NSW. The local Council refused an applicaon for a new 3,250 sq m

supermarket in 2008. On appeal the NSW Land & Environment Court supportedthe Councils decision and refused the development proposal. The judge

concluded that the proposed major supermarket

is inconsistent with the councils planning controls and retail strategy

and that such a development would severely impact on the exisng

Posville Centre. Metricon Qld v Tweed Shire Council [2008] NSWLEC

1453.

In determining retail need, planners should consider not only the catchment populaon

that will support the exisng and proposed retail oor space, but must also allow forescape expenditure from lower order centres to higher order ones. This principle was

supported in Fabcot Pty Ltd v Latrobe CC [2007] VCAT 354 where the judge agreed that

in a networked city there is an expectaon that centres are not self contained

and

there is no imperave for each centre to fully cater for the retail needs of its

residents

Local Councils have also been known to inappropriately amend their local planningcontrols for the sole purpose of facilitang the needs of major supermarket

developments, oen ignoring the sound planning principles that underpinned these

controls. A recent example occurred in Gloucester, NSW where a new Woolworths

based centre has been approved. In order to permit this out-of-centre development

the Council:

amended the zoning of the site, despite the planning scheme having been prepared

in 2010;

replaced its 2006 Retail Planning Policy in 2010, because the former policy excluded

the Woolworths site from the town centre boundary, and recommended that itretain its environmental protecon zoning in order to protect the important visual


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corridor to the nearby mountain ranges. The report also idened that there was

lile if any demand for new supermarket oor space up to 2021; and

ignored its own independent economic advice that concluded that one of the

exisng independent supermarkets would likely close:

Given the size of the Gloucester market and its locaon, it is likely the Town/Shire may only support two larger supermarkets on a longer term basis. Buchan

Consulng, Nov 2010.

The judgement in Metricon Qld v Tweed Shire Council [2008] NSWLEC 1453 considered

this maer and concluded that

Moreover, a planning policy such as the protecon of exisng centres is not

worth much if it is changed each me a plan is reviewed. People make investment

decisions on the basis of such policies, and their investment horizon is usually

beyond ten years.

Whether local government authories are competent to make decisions relang to

complex development and/or compeon maers is moot. However, MGA believes

that the development of a Compeon Test, to be applied by local government as part

of its assessment of development applicaons, would be benecial.

2.2 Impact of Over-Sized Stores on Regional Economies and Markets

Local government town planners need to consider the overall, long-term impact of

approving development applicaons. Every planning decision which results in an

over-large, cross-subsidised supermarkets being built in a small local market is likelyto result in the closure of compeng smaller businesses, leading to further market

concentraon and reduced compeon.

Four such examples are given below. The rst at Bermagui is taken from a consultancys

report. The remaining three were conducted on behalf of the MGA.


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2.2.1 Bermagui, New South Wales

Wakeeld Planning, a Melbourne-based consultancy, was recently privately

commissioned to review a proposed Woolworths supermarket development in

Bermagui, New South Wales. The study was completed in June 2012.

Like many other towns currently dealing with supermarket developments by the majorchains, Bermagui has minimal populaon growth. Wakeeld Planning conducted

a public opinion survey in Bermagui and found that a majority of those surveyed

objected to the proposed Woolworths development.

More signicantly, Wakeeld Planning idened the major problem with such a

development in a small local market with limited growth potenal:29

Key Point: What can be drawn from this report and the context it sets, is that

any future commercial development within the town of Bermagui needs to be

completely jusable on the basis of current populaon levels. Given that levels

of growth are below the levels predicted for the inial planning period, oorspace needs to not lead demand. This is because there is highly limited ability

for populaon growth to take up oor space demand provided in advance of

such growth. As will be further outlined in this submission, the current business

environment within Bermagui is highly fragile. In addion there are currently 3

vacancies in Bermagui, which is close to the level of concern of 10% vacancies.

This again reinforces the importance of retail oor space trailing rather than

leading populaon growth.

Wakeeld Planning also found:30

However on the basis of the survey work conducted, it is clear that there will be

a signicant impact on the viability of commercial uses within the zone. In this

regard, the viability of between 30% and 50% of exisng businesses in Lamont

Street, in parcular, would be at threat. This is considered to be one of the major

signicant negave points associated with the proposal.

In addion, and as indicated elsewhere in this submission, it is considered that

the proposal is not complementary to exisng commercial development. In

29 Submission on DA 2012.0098: Proposed Woolworths Supermarket, Bermagui, Wakeeld Planning,(June 2012), p5. The full report is available at: www.wakeeldplanning.com.au/Bermagui/Bermagui_

submission.pdf

30 Wakeeld, op. cit., p16
http://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdfhttp://www.wakefieldplanning.com.au/Bermagui/Bermagui_submission.pdf


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parcular, the proposal would replace a number of exisng commercial providers,

rather than complement them. These include the exisng SPAR supermarket,

777 store, the butcher, the greengrocer, bakery and also (in part) pharmacy and

newsagent lines. In part this is as a consequence of the nature of goods sold in

supermarkets, and in part it is a consequence of the inability to integrate the site

with the exisng main street, so as to produce synergisc eects with specialty

shopping. This is a signicant and major shortcoming with the development.

Key Point: The proposal would substanally impact on the viability of exisng

businesses within Bermagui.

One of the local planning objecves in Bermagui is: To enable other land uses

that are complementary to and do not detract from the viability of commercial

uses within the zone.

Wakeeld Planning found deciencies in the consideraon of impact on exisng local

businesses:31

Compeve Environment

The secon of the report dealing with the compeve environment relies

on an assumpon. For example, there is an assumpon that the role of the

SPAR food store is purely for top up food and grocery shopping. This is not

conrmed by the random phone survey undertaken of the primary trade

area indicated in the EIA which shows that the SPAR and associated food

and grocery retailers within Bermagui currently account for some one

third of food and grocery shopping. It is submied that this is substanally

above the top-up level.

Although acknowledging the exisng SPAR food store and the presence of

some 40 addional retailers within Bermagui, the report is awed in that

it fails to undertake a basic retail census of Bermagui and an analysis of

the total quantum of oor space/number of businesses currently providing

food and groceries within Bermagui. It therefore virtually ignores the

commercial area that will most experience compeve impact. A retail

census has been undertaken as part of the survey work conducted for this

submission. The census also included Tura Beach and Bega.

Food, grocery and liquor currently constute approximately 13% of shopfront premises within Bermagui although as a proporon of retailing, this

gure would be closer to 20%. The gure is higher when considered on a

oor space basis, and would be close to 30%. These gures indicate that

a substanal number of exisng premises would be in direct compeon

with a new supermarket and liquor outlet. Key Point: The economic impact

assessment overlooks the exisng business communies in Bermagui and

does not assess the impact on them. Substanal business failures are

likely.

31 Wakeeld, op. cit., pp28-29


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Bermagui is typical of many of the other towns referenced in this report. The choice

for compeon regulators and local government planners is between maintaining

a diverse and genuinely compeve local commercial environment or allowing a

dominant naonal player with praccally unlimited resources to destroy smaller

competors and leave such markets with moribund commercial centres.

2.2.2 Bright, Victoria

Previous Situaon

Located 30km from the nearest town and over

one hours drive from the regional centre.

It serves a local community of about 2,100

residents and about 1,700 from surrounding

districts. A strongly seasonal demand from

tourists passing through also helps support the

local traders, parcularly with liquor sales. Two

independent supermarkets operated in the townfor many years, both selling packaged liquor,

one of 1,000 square metres and the other of

250 square metres total leased area. The larger

independent supermarket was refurbished and expanded to 1,500 square metres in

2006 with emphasis on an expanded liquor secon an

Fair Competition Release: Master Grocers Australia

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