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| NARGA Chairman, John Cummings, outside Parliament House in Canberra |
NARGA represents around 4,500 independent retailers which employ more than 225,000 people throughout Australia. NARGA's membership base is national, covering not only the major cities, but also rural and regional Australia, including many towns where the major supermarket chains are not represented. In these towns the local grocery store is the heart of the community providing vital services and employment opportunities. It is therefore vital that these stores are competitive so as to maintain a vibrant local economy where the money and benefits generated remain in and support the community. |
NARGA has moved. Our new address is:
Suite 9, Level 2, 33 Macmahon Street, Hurstville, NSW, 2220.
Telephone: 02 9585 0721, 02 9586 4671, 02 9580 1602 Fax 02 9579 2746
Media contacts:
John Cummings, Chairman, 0418 953 845
Ken Henrick, Chief Executive Officer, 0417 849 041 or 02 9580 1602
The ACCC’s report on the Australian grocery industry was due to be handed to the Assistant Treasurer, Mr Chris Bowen, today and is expected to be released next week, probably Wednesday.
Substantial leaks from the ACCC to certain media outlets suggest that the report will be controversial, at least in part.
NARGA Chairman John Cummings addressed the National Press Club in Canberra today.
His speech can be accessed here.
NARGA’s submission (Part B) to the Grocery Pricing Inquiry being conducted by the Australian Competition and Consumer Commission is available here:
129 (late 14 Mar) - National Association of Retail Grocers of Australia (sub.2) (69 pages).pdf (627.1 KB)
Part A of our submission, the PricewaterhouseCoopers research published in 2007, was submitted on 22 February and can be seen here:
Get a copy of the PWC Report commissioned by NARGA:
“The economic contribution of small to medium-sized grocery retailers to the Australian economy, with a particular focus on Western Australia”
Every few years the Australian Consumers Association dusts off its tattered old file about unit pricing, puts out a news release, runs a post on its website, paints out the name of the politician who was minister for consumer affairs three years ago and updates the letter. There’s a flurry and it all goes away until next time.
Because every time the proposal has been looked at, people have noticed it flies like an iron kite.
There is no clear benefit for consumers in general or even those consumers for whom price is an over-riding consideration.
“Unit pricing” means that for every product line there would be two shelf prices: the price for the pack and the price (for example) per kilogram or litre.
All of that - across the 25,000 product lines in a large supermarket - would require a lot more management of price changes and shelf-labelling. And benefit how many customers, exactly? Once the ACA staff have done their weekly shopping, not many.
And thus unit pricing would come at an additional cost - all of which would be passed on in the shelf price to all customers, not just those who want unit pricing. Nobody has demonstrated that the increased costs are offset by the benefit of satisfying the unproven consumer desire to know the comparative price per unit.
Nor does unit pricing help compare the price of the store-brand frozen prawns from Thailand (which are vile, anyway) with the fresh prawns from Queensland. Nor the store-brand item from Uganda with the competing store-brand from Ecuador. Does the unit price gimmick off-set the commendable patriotic desire to support local producers and jobs by buying “Product of Australia”? Probably not.
Unit pricing is supposed to give more information to consumers - whether they want it or not. But when is the last time you heard somebody bewailing the lack of unit pricing?
This is how it is promoted by ACA: people are confused by prices for different pack sizes. Somebody should so something! Somebody should legislate! ACA is not put off by the mere fact that the vast majority of grocery shoppers don’t give a toss. The editors of Choice magazine know what’s best for those dumb shoppers.
For the record, customer demand for this sort of information falls on a scale somewhere between neglible and zero. And customers are not shy about telling supermarket operators what they want when it’s a subject they care about.
The ACA asks us to believe customers are “confused” by the absence of unit pricing; the Sydney Morning Herald says customers are “baffled”: does the 375g pack or the 600gm pack give better value? Decisions, decisions, decisions. A customer would be able to work it out if only the unit price were on the shelf.
Neither of these venerable publications actually produced a statistically valid sample to support the proposal.
Do people really lie awake at night in a sweat? “Dammit, maybe the 600g pack might have been a better deal than the 375g after all.” Only when the ACA workshops the problem.
In real life customers don’t care. If price is an over-riding issue for a customer he’ll buy the cheapest pack in the category anyway and move on. He has more important things to do at home, like trimming his toenails.
Single person households have been a growing demographic for many years. Why would a solo resident be interested in the 1kg family pack of shredded cheddar cheese - even when it’s on special - if most of the pack will turn into a lump of grey-green mould before she could possibly eat it? No, she’d rather buy a smaller pack, knowing she will finish the pack while it’s in good condition, with a savvy net saving of maybe $2.
People know from experience the pack size that best suits their needs.
Australian households have trended smaller because of late marriages and delayed child-rearing, smaller families, higher rates of separation and divorce and the fact women generally outlive their male partners. The bigger, “economy pack” sizes are not all they are cracked up to be, for people in such circumstances, even if they are a boon for the family of six. Shoppers know this.
At the end of the day, grocery customers can be trusted to do what’s best for them. They’ll buy on instinct or experience or just save time and grab whatever is nearest. It’s always a matter of priorities.
But there’ll always be people who know better.
Australian Newsagency Blog has today listed Woolworths’ vendor trading terms.
This would be a good place for the ACCC to start trying to understand how the grocery industry actually works, rather than assume that “competition” is a simplistic matter entirely covered by price at the checkout.
Former ACCC Chairman Allan Fels and veteran journalist Fred Brenchley have written a commentary on the recent predatory pricing amendment to the Trade Practices Act, published in today’s Australian Financial Review (online by subscription only).
The authors argue that the new predatory pricing provision should be applied to the petrol shopper dockets schemes, which “have not received the scrutiny they deserve”. We agree.
“If successful in petrol, they [shopper docket discounts] could be easily applied to telecommunications, pay TV, electricity, gas and even travel, helping Coles and Woolworths extend their tentacles even further,” they write.
Fels and Brenchley quote economist Joshua Gans as one who argues that in the long run consumers will pay more for both petrol and groceries because of the anti-competitive effects of the shoppere docket schemes. Read the Gans article here.
But, as NARGA has also argued, Fels and Brenchley say the new predatory pricing amendment will not be easy to apply, requiring court decisions on what constitutes “substantial share of a market” and “sustained period of time” and evidence to prove “below relevant cost” and having the “purpose” of eliminating or seriously damaging a competitor or deterring a potential competitor from entering a market.
They call for the ACCC to publish a guideline on such matters to indicate the circumstances in which the ACCC would launch prosecutions.
Eminent good sense.
The UK Competition Commission’s inquiry into the grocery industry was scheduled to release its interim report last month.
UKCC delayed that report to inquire further into relationships between the major supermarket chains and their suppliers, demanding that Tesco and Asda hand over 11 million emails to try to identify whether the chains had threatened suppliers to secure discounts.
Timesonline reports on the latest developments:
http://www.timesonline.co.uk/tol/business/industry_sectors/retailing/article2602501.ece
But it’s not one-sided. Tesco are equal opportunity bullies, apparently:
http://www.timesonline.co.uk/tol/business/industry_sectors/retailing/article2610134.ece
Amendments to the Trade Practices Act passed both Houses of Parliament on 19 September 2007.
The amendments included the eight unanimous recommendations of the Senate Economics Committee’s 2004 report on the effectiveness of s46 of the Act in protecting small business against misuse of market power by big companies.
NARGA’s support for the amendments has been strongly stated for almost 18 months.
At the last moment, the Treasurer, Mr Costello, announced he had also accepted an amendment by Senator Barnaby Joyce (Nationals, Queensland) to strengthen the prohibition against predatory pricing.
Needless to say, big business organisations and their apologists in the media claimed to be outraged. They claimed all sorts of dire consequences would follow, without any evidence or logic to support any of the claims.
Woolworths CEO Michael Luscombe was one of the most hysterical. He told a National Press Club luncheon last week that grocery prices would increase as a result of the predatory pricing amendment and discounting would end. Others claimed an end to post-Christmas sales.
All of that is nonsense. Here’s what the predatory pricing amendment actually says:
(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:
(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.
The amendment has become known as the Birdsville amendment. Senator Joyce says he finalised it while working in a motel room in Birdsville in far western Queensland near the South Australia-Northern Territory border.
For any case to succeed, a prosecutor - presumably instructed by the Australian Competition and Consumer Commission - would need to show that the offending company had a “substantial share of a market” would have to supply or offer to supply for a “sustained period” and “below relevant cost” for the “purpose” of eliminating or substantially damaging a competitor or potential competitor.
A court would need to define “substantial share of a market”. No independent business is likely to have access to a large corporation’s data on below-cost selling, even if it were suspected. “Sustained period” would need to be defined by a court. And “purpose” is notoriously hard to prove in the absence of a “smoking gun” document.
Hysteria describes the big business response.
Mr Costello and Senator Joyce are to be congratulated for negotiating the Birdsville amendment. While it is unlikely to result in a rash of prosecutions it will lead to clarification of the concept of predatory pricing and show big business a line in the sand.
Luscombe also went on in his National Press Club speech to reiterate his “poor little Woolworths” fantasy in relation to market share. We’ve dealt with that nonsense earlier. See our post of 05 August 2007.