The arrival of a major supermarket in Kempsey was a psychological boost
to a North Coast town already on the up after more than a decade of hard
times.
Employment and house prices were rising and, with them, disposable
income.
The Woolworths supermarket, with bank, Woolworths liquor store and
Woolworths petrol station was soon joined by an adjacent Big W department
store with photo-processing and a garden centre.
"The shopping environment feels like a million dollars, even if you
don't have a million dollars in your pocket," says Terry Bates, economic
development manager for the local council.
But three years on, Kempsey is counting some unforeseen costs.
Woolworths shunned the town centre. The old shopping centre has been left
partly vacant and other parts of town "quite deserted", as businesses
gravitated from the mall towards the Woolworths enclave on the main road
to keep customers. The Action supermarket - which took over Franklins -
shelved expansion plans.
Local shopkeepers "smartened up their act" as part of the move,
investing in shop fittings and staff training to compete, says Bates. But
their inability to match the prices of a large corporation expanding into
an array of small retail niches - from bakery to flowers, and soon
pharmacy - is causing concern for the future of a town where an increasing
chunk of residents' incomes is being driven straight down the Pacific
Highway in a Woolworths truck.
Bob Barron, who has sold his West Kempsey newsagency after 15 years,
says while magazine sales are stable, book and video sales dropped
significantly because Big W sells them for 30 per cent less. "That is the
price we buy them for," says Barron.
Wayne Perks, who owns a petrol station on the same road as Woolworths,
describes the supermarket's 4 cents a litre fuel and shopping discount as
"devastating". Perks has cut staff, reduced opening hours and started a
sideline trade to survive. Last month he quietly wrote to customers
offering to match Woolworths' 4 cents a litre discount. Perks claims
Woolworths responded by cutting its petrol prices to wholesale. Perks says
he doesn't call this competition: "We call it elimination of us."
Kempsey's IGA supermarket is owned by the Macleay Regional
Co-operative, formed in 1905 by dairy families but now counting 3000
townspeople as shareholders. The co-op chairman, David Curry, says the IGA
supermarket turns over $7 million annually, buys local fresh produce, and
participates in a town loyalty scheme. But Curry says even it is finding
it hard to compete with Woolworths' ability to "just drop prices".
Woolworths has not created any more retail jobs in Kempsey than would
have otherwise emerged to service growing consumer demand, says Bates. The
supermarket is turning itself into a Westfield-style shopping mall, but
one where Woolworths, not local franchise holders, owns all the stores.
"It does take money out of the community," says Bates. "Local shops buy
a lot of produce locally. Woolworths don't do that. If they do, it still
goes to Sydney first. How fresh is the food? How environmentally sound is
that?"
TALK of a supermarket takeover of town is not confined to Kempsey. This
Friday, a Senate committee will begin public hearings in Canberra as it
investigates whether small business around Australia needs greater legal
protection from the practices of large rivals. The subtext of the inquiry
- evident in a flood of submissions from independent book shops, liquor
stores, small grocers and the pharmacy guild - is whether or not
Australia's two dominant supermarket chains, having reached saturation
point in selling groceries, are now unfairly using that clout as they
extend into other areas.
Modelled on the world's largest retailer, America's Wal-Mart,
supermarkets internationally are combining pharmacies, liquor stores,
petrol stations, even DVD rental, to create one-stop shops. They leverage
huge buying power to demand lower prices from suppliers, wear a loss on
popular items like CDs to drive traffic into stores, and argue it is the
consumer who wins as prices tumble.
As downtown empties, traditional retailers are crying foul, claiming
the supermarkets are using prices to selectively drive them out. But
government regulators and consumer groups are grappling with the issue of
how to balance a win for shoppers - cheaper prices - with the potential
long-term consequences. "You don't want all the small guys squeezed out
... You want a reasonable amount of choice, and a range of prices and
service," says Norm Crothers, spokesman for the Australian Consumers'
Association.
Down the track, and without competition, consumer groups fear prices
will rise again, unchallenged. In Australia, that risk is heightened by
the concentration of the market to a duopoly where Coles Myer and
Woolworths control 77 per cent of packaged grocery sales. A report by
Deutsche Bank this year found Australia had the most concentrated food
grocery market in the world, even when compared with countries with
smaller populations.
"Everyone says Wal-Mart is big, but they are not dominating to the
extent of the two chains in Australia," says Michael Kloeters, group
managing director of Aldi Australia.
The German discount chain plans to double its 52 Australian stores by
the end of next year, and eschews the Wal-Mart model. "We don't try to
compete in all areas. We focus on grocery. We are not pushing smaller
businesses out of business. We ask the butcher and bakeries to go next to
us and complement us," says Kloeters.
But Dr Kerrie Bridson, of the Australian Centre for Retail Studies,
says that unlike new entrant Aldi, Coles and Woolworths have no choice but
to expand into other sectors because in grocery they cannot grow any
further by acquisition. Bridson says the expansion is "logical", in line
with international trends, and also responding to customer needs - for
better service or convenience.
The apparent success of Woolworths' combined groceries and fuel offer
in attracting shoppers has seen Coles counter it with a deal to take over
584 Shell sites.
Last week, franchised IGA supermarkets - which hold 16 per cent of
grocery sales - responded, announcing Queensland stores, initially, would
refund shoppers who brought any petrol docket into their stores on Fridays
the equivalent of 4 cents a litre.
Crothers describes this as "giving money away to stay in business".
"Whatever Woolworths and Coles do becomes the law," says Andrew
Reitzer, chief executive of Metcash, the wholesaler that supplies IGA.
Reitzer says IGA may also be forced to follow Woolworths into pharmacy,
but is "uncomfortable" with the trend. "Go to any IGA store, look left and
right, and you will see an independent pharmacy. We co-exist with them and
they fulfil a very, very important role in society," he says.
Amid concern the supermarket and petrol deals will spell the end for
independent service stations, the Australian Competition and Consumer
Commission is yet to clear the tie-ups.
The new head of the ACCC, Graeme Samuel, says the watchdog is looking
at the "whole issue" of supermarket expansion. But Samuel says the ACCC
first needs to decide whether there is a problem that will lead to
consumer detriment.
And the ACCC can't intervene simply to protect one type of business
against the interests of another.
Putting a cap on supermarkets making acquisitions, meanwhile, would
deny small business owners the chance of a lucrative windfall.
"These are not simple issues. We need to identify where the market is
heading and whether there is an economic problem," says Samuel.
The consumers' association says it does not want innovative deals
banned, but sees a danger to small service stations. The liquor market is
another flashpoint.
In the past six years, 44 suburban liquor stores have been taken over
by Woolworths or Coles Myer in NSW, which run them under eight brands. In
April, the ACCC approved the Coles takeover of Theo's Liquor after finding
it would leave Coles with a quarter of the Sydney market, but only 16 per
cent nationally. Coles and Woolworths control a third of national liquor
sales.
The Independent Liquor Group, representing 600 hotels and family shops,
has accused the two supermarket operators of demanding new shopping
centres that exclude independent liquor stores. The group also says
consumer choice is reduced by the supermarkets objecting to new liquor
licences, unless small business owners agree not to compete with them. The
ACCC is taking Woolworths and Liquorland (Coles) to court in a case based
on restrictive deals with eight small NSW pubs and retailers that
variously prevent them from opening bottle shops, erecting window displays
or advertising.
The Winemakers' Federation of Australia has said many small wineries -
finding it difficult to win shelf space against big brands - will close.
This shelf-space pressure also affects grocery manufacturers. With a
growing 55 per cent of confectionary sales through supermarkets, the chief
executive of Confectionary Manufacturers of Australasia, David Greenwood,
is concerned.
Placement fees for display on supermarket shelves are high, and "they
won't take your product if you are not a known brand", he says.
Coles argues that rather than being threatened, the independent grocery
sector is thriving, and now accounts for 16.3 per cent of the market after
30 per cent growth. Since the demise of Franklins, Aldi has expanded,
while Metcash saw profit rise 41 per cent last year.
"Banning loss leaders or below cost pricing would restrict competitive
discounting and disadvantage consumers," the Coles Senate submission
argues.
Woolworths disputes the oligopoly tag, claiming it and Coles hold only
50 per cent of a broader fresh food and liquor market that includes corner
stores. However, its submission notes: "Supermarket industry concentration
across the globe will continue to grow; the stores will be fewer, bigger
and better."
Woolworths says its price advantage is due to technology and size: "It
is not predatory pricing to sell at prices which reflect such cost
structures, despite the fact that such cost may be below, or even
materially below the cost structure of its competitors."
But Reitzer claims that people shopping in towns with no supermarket
competition pay more.
Choice magazine's latest supermarket price survey found that
prices at a Woolworths store in Leichhardt, for example, jumped 23 per
cent after the closure of a Franklins in the same shopping centre.
"Local competition did play a part in the price of the basket of goods
... And if competition was in walking distance it was better than the
other side of town," says Clare Hughes, the consumers' association's food
policy officer.
A spokesman for Woolworths, Ian Brown, says supermarkets bringing lower
prices will not take over growing country towns because "there is room for
all".
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