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FactCheck: do Coles and Woolies control 80% of the market?

“The Americans are screaming blue murder because WalMart and their competitor have now reached about 23% market share. Here we have two supermarkets with a market share of over 80%, so if they decide to…

Is Bob Katter exaggerating when he says Coles and Woolworths own 80% of the groceries market? AAP image

“The Americans are screaming blue murder because WalMart and their competitor have now reached about 23% market share. Here we have two supermarkets with a market share of over 80%, so if they decide to cut down the amount of money they are going to pay farmers and jack up the price to the consumers, they can, because there is no competition.” - Bob Katter, media release, 17 June.

Federal MP Bob Katter, the founder of Katter’s Australian Party (KAP), wants the market dominance of our supermarket giants to be an election issue. He argues that “we have two supermarkets with a market share of over 80%” and he is pushing for laws to force them to reduce it to no more more than 20%. But, according to a report in The Australian, the “industry” puts the market share of the two major supermarket chains at “closer to 60%”.

So who is right?

Katter’s 80% appears to be an extrapolation of a 1999 parliamentary report (although this statement from Hansard indicates he believes the figure is now close to 90%). The 80% estimate is well-known. Justice Arthur Emmett of the Federal Court referred to it in 2011 when considering the acquisition of the Franklins supermarket chain by Metcash Ltd.

So, is that “game, set and match” Katter? Not quite.

The 80% figure is consistent with the Nielsen Company’s ScanTrack data, based on the value of sales. Over the five years from 2004-2008, this data showed the combined Coles and Woolworths national market share in packaged groceries steady at just under 80%. The 2008 report by the Australian Competition and Consumer Commission into the competitiveness of retail prices for standard groceries provides a brief background.

The ScanTrack data covers a “selection of dry groceries, dairy and frozen foods as well as a number of non-food items, but does not cover fresh products”. As at 2008, it covered Coles, Woolworths, and Metcash (including Franklins) with an estimate for Aldi.

The product selection and the range of stores both matter. For example, after considering a range of data on packaged groceries, including outlets not included in ScanData, the Australian Competition and Consumer Commission concluded:

“[P]ackaged groceries is the category most heavily dominated by the [major supermarket chains]. While 78% represents the highest the share is likely to be… [a] figure of approximately 70% seems a reasonable assessment.”

Further, Coles and Woolworths have a lower share in fresh fruit and vegetables, fresh meat and bakery products that are not included in the ScanData. Using Roy Morgan survey data, the competition regulator concluded that the market share of Coles and Woolworths in fresh fruit and vegetables is “no more than 50%”. It reached a similar conclusion for fresh meat and bakery products and found that Coles and Woolworths had market shares of between 50 and 60% for dairy and deli products.

The consumer regulator concluded:

“Based on the information available to it … [Coles and Woolworths together] account for between 55 per cent and 60 per cent of consumer expenditure on grocery items”

This is more in line with industry claims than Katter’s.

Finally, what about Katter’s claims on supermarkets in the USA? The US Department of Agriculture reports that the four largest US grocery stores had a market share (by sales) of 37.3% in 2011. It also notes that Walmart’s sales were $US109.4 billion in 2011, with the second largest supermarket Kroger having sales of $US71.1 billion. These sales figures include both food and non-food grocery sales.

This means that the smallest possible market share for Walmart and Kroger combined is about 21%. So Katter’s 23% claim looks reasonable.

Verdict

The 80% estimate is well-known but doesn’t take all groceries into account. If you include fresh food such as fruit and vegetables, the best estimate is that Coles and Woolworths control between 55-60% of Australia’s grocery market.


Review

The check is correct. Reports do suggest the percentage of market share held by Coles and Woolworths at between 70 and 80%. For instance, a Deloitte Access Economics report of October 2012 prepared for Coles identified Woolworths holding 41.1% and Coles 31% - a total of 72.1%.

But supermarkets sell more than just packaged dry groceries. If you include such things as fruit, vegetables and meat, the giant retailers' market share shrinks to around 60%. – Gary Mortimer

The Conversation is fact checking political statements in the lead-up to this year’s federal election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.

Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

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30 Comments sorted by

Comments on this article are now closed.

  1. David Glover

    Communicator

    And let's not forget the two chains' dominance in retail liquor - 70% according to IBISWorld.

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    1. Rodger Kensen

      Systems Analyst

      In reply to David Glover

      Or for that matter, petrol. Run initially on a business model of set up in a small town, sell at a loss until the competition can no longer compete - then return to profit once control over the town is achieved. Use the profit from town 1 to subsidise the next town, and so on. Then move into the big cities and start the same process.

      Unlike the retail liquor outlets though, they can't buy out small wineries and mass produce home brand wine (which is of course kept branded with nothing but the mailing address to ID them).

      Which probably explains why they need to offer the petrol discount from buying other products from the respective duopolies.

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    2. Peter West

      CEO at Property

      In reply to Rodger Kensen

      Petrol retailing in Australia has a fair amount of competition. If they consistently maintained high prices then other competitors would enter the market.
      Often smaller competitors cannot achieve the large scale such efficiency demands. This benefits the consumer.
      Even large firms cannot support unprofitable outlets, as this reduces their overall profits. There are numerous economic arguments supporting the view that government interference in the market often has the opposite effect to that intended.
      In regard to "predatory" pricing, there are 10 arguments presented to prove it is largely a myth: (see Kelly, Mises Institute, pp. 173-176).

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  2. George Michaelson

    Person

    The dominance may vary by state, and intra-state by locality.

    The 80% figure may have hotspots.

    Their functional dominance would be overt on a scale like the Herfindahl–Hirschman Index. There is insufficient penetration from the IGA/Aldi alternatives to offer any sigificant pressure on their pricing duopoly, in my opinion.

    And the own-brand effect means that they have significantly deeper penetration into the production cycle than simple outlets: they can (and do) demand their own labelling from providers who then have to compete with them for shelf space, and pay for location. Do they self-charge for shelf opportunity? Is there something akin to Hilmerization issues in their ability to charge suppliers for shelf position, and own their house brand?

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  3. shotokan

    logged in via Twitter

    I recently spent 6 weeks in the US with the last 2 weeks in New York. I was surprised to find that there is not the Coles or Woolies type of stranglehold on the grocery market like we have. In fact as an example near 76th Street where we stayed there was an abundance of Grocery stores selling basically everything and there wasn't any store branded goods like we have. It was an eye opener and I for one cannot understand how we have allowed the likes of Woolies and Coles to have such a monopoly. They have basically killed the small operators. It is seems strange as to why we haven't enacted similar legislation to the Canadians in terms of predatory pricing that they have had in place since The Competition Act (‘the Act’) (the oldest antitrust statute in the western world, enacted in 1889 (one year before the Sherman Act in the United States). Sad, I guess we are as a nation hopeless in protecting our citizens maybe some political ineptitude?

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    1. Peter West

      CEO at Property

      In reply to shotokan

      Maybe NY with its large population can support many niche supermarkets.
      What about Walmart?
      Anti-trust and anti-competition legislation often breaks up efficient businesses, at the behest of inefficient smaller businesses, with the subsequent loss to the consumer.
      It sounds counter-intuitive, but it is not. Even a monopoly (like a power company) can often benefit the consumer with low costs through their economies of scale.
      Costs only soar when inept governments foist taxes on the population like the "carbon tax" affecting production, distribution, and every facet of the economy, with absolutely no benefit to anyone but themselves.
      Also your argument flies in the direct observation of the industry, see my post above.

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  4. Douglas Maxwell

    Hospitality provider at Clonmara Cottages

    Not only do the two majors have absurb dominance, but are also able to control the food we buy daily.
    Housebrands, or generics have become a way of life.
    These products allow our retailers to achieve significently higher margins whils also controlling the production of the product right down to who makes it.
    The market is like a cake.
    The more generic brands that appear will reduce the number of options as the national brands reduce to make way. The supermarkets don't put in more shelves.
    The…

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    1. Peter West

      CEO at Property

      In reply to Douglas Maxwell

      Maybe the national brand is producing the "generics"? Often they run their production line and just switch the packaging, which increases their sales and makes their business more profitable. If the generic is cheaper, who is benefiting: you, the consumer, of course. However if you want better quality, in an unfettered market, my guess is there will always be some business to supply your needs.

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  5. Michael Gioiello

    High school music teacher/ freelance Opera singer

    I wonder where Coles and Woolworths are going to source their milk from when they have wiped most Aussie dairy farmers off the map?

    Maybe China?

    I can guarantee you that I will never drink another glass of milk again if the situation gets to this stage.

    Coles and Woolworths don't give a stuff about Aussie farmers.

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    1. Peter West

      CEO at Property

      In reply to Michael Gioiello

      This is not true. It was government policy to wipe out the smaller farmers in the name of "efficiency".
      I don't understand why people were so up in arms about cheap milk. If the suppliers can't now make a profit, they go out of business, or go into beef production, as a friend of mine did, after spending a fortune on a new dairy.
      It ws government regulation and policy that wiped out the small dairy farmers and the co-ops!

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  6. Wil B

    B.Sc, GDipAppSci, MEnvSc, Environmental Planner

    Considering the statements that Bob Katter is capable of making, this one is bang on. And more importantly, even if not perfectly true in the quantifiable fact, entirely within the sphere of legitimate problems in Australian retailing.

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    1. Peter West

      CEO at Property

      In reply to Wil B

      Problems? I am completely happy with the level of competition in my local town. We have seven+ outlets for a small population, cheap, fresh food, friendly service.
      Any attempt at regulation would have the opposite effect. Lot more problems facing Australia than food delivery, we're spoiled for choice.

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  7. Michael Croft

    logged in via LinkedIn

    Fact checking 60 vs 80 % market share is irrelevant in the face indisputable evidence of market power and dominance. Watch this and tell me if the thrust of Katter's (and the fair food communities) concerns are unfounded. http://www.abc.net.au/tv/hungrybeast/stories/beast-file-woolies-coles/

    As for the good ol' US of A, their anti trust laws would not tolerate the duopoly's market share if it were the lowest of all figures cited above, and the laws would insist on divestment.

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    1. Anna Young

      Project Manager

      In reply to Michael Croft

      Indeed. 60% still seems awfully high - particularly when you match it to patterns of settlement and development. I bet there are lots of places that don't have a big-2 supermarket but I'll also bet that in areas with high population concentrations the big 2 have all but squeezed out small, local alternatives.

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  8. Tony Smith

    Complex Systems Analyst

    Since when have fresh fruit and vegetables been "groceries"?

    Also the "other" list needs to include IGA and FoodPlus, to say nothing of all the local and convenience stories that stock a range of groceries.

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    1. Stephen King

      Professor, Department of Economics at Monash University

      In reply to Tony Smith

      Metcash supplies IGA supermarkets and (I understand) FoodPlus. So they are included. It also supplies dry groceries to many smaller stores.

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  9. terry lockwood

    maths/media/music/drama teacher

    Being as it is tax time and all, can someone tell me how my weekly spend percentage works out. Tax versus Wesfarmers (Coles, Bunnings, Officeworks, Target, 1st Choise Liquor etc) versus Woolworths (Woolworths/safeway, Tandy, Dan Murphy, Big W, BWS and so on).

    Wouldn't it be nice if all retailers were required (by our 'nanny state') to declare clearly (perhaps proudly) just part of which conglomerate they are. That way dedicated shoppers could endeavour to show true loyalty and 'be a 'Wesfarmers Guy' spend as much as possible with the one corporate citizen. Perhaps they could reward you with a gold pen for every $100,000 you spend with them.

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  10. Stephen Ralph

    carer at n/a

    Let's not forget the fact that Coles & Woolies do not drag people screaming into their stores. Customers choose to shop there.

    If Australians worry about that 60% or 80%, let them react with their alternate choice of retailer.

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    1. Michael Croft

      logged in via LinkedIn

      In reply to Stephen Ralph

      Stephen, you suggestion effectively blames the individual for the systemic and structural problems of market concentration. Current case in point if an individual has always shopped at the Hawker IGA in Canberra, and then this purchased by Woolworths with government blessing, what choice did the individual have about his or her 'local' supermarket choice?

      The logic of a free market and capital concentration means that, without legislation to prevent it, eventually there will be only one food retailer - big fish eating little fish and all that. So people (via governments) are going to legislate to ensure the competition that neoliberal 'free market' is self evidently incapable of supplying. The question then becomes how much is too much market concentration, and this is something the people ought to decide and not the corporations that will benefit from the decision.

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    2. Stephen Ralph

      carer at n/a

      In reply to Michael Croft

      Take your point.

      But I'm sure that if it worried consumers too much they might find alternatives.

      Coles & Woolies most often are in demographics where there are a number of alternatives within a reasonable distance.

      Aldi is opening up stores within close proximity where possible.
      I
      Iga stores are other local produce stores are also prevalent.

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    3. Anna Young

      Project Manager

      In reply to Stephen Ralph

      I think you also underestimate cost implications. Shopping with small retailers and local suppliers is lovely when you hav the disposable income to do it but some people's budgets don't stretch to anything but home-brand products.

      Aldi is not yet nation-wide, so as a cheap alternative, they're not available to everyone.

      I just wonder why local growers can't supply at better rates. Typically, the price differential between buying local at small stores or markets is so significant, the choice is made for us (often against our desire or values).

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    4. Michael Croft

      logged in via LinkedIn

      In reply to Anna Young

      Market power and concentration is the problem Anna. Case in point, Orange growers were receiving $100 a ton for their oranges and were selling them directly to the duopoly buyers. These same oranges were selling in 3kg nets for $3.99, or near enough to $1250 a ton.. The farmers were going broke and many have bulldozed the trees, and there is no way that it costs $1150 dollars to get those oranges into the store.

      Now the farmer could supply you directly with oranges at half the price of the supermarket and make a good living. So local growers are not the problem. It is what happens to their produce after it leaves the farm gate.

      The point being that if the system were fair, the farmer could be paid more and the end user would get cheaper food, a win win that would come at the expense of corporate profit. The supermarkets (Aldi included) are not your salvation, they are in fact the problem.

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    5. Peter West

      CEO at Property

      In reply to Michael Croft

      Absolute rubbish! If there was one retailer there would be niche supermarkets springing up everywhere.
      How can a bureaucrat decide how much is "too much market concentration". What a ridiculous suggestion! They are going to close down my local Woolies or Coles, with the concomitant loss of choice?
      Large retailers deliver great savings from economies of scale. What you are suggesting is central planning, a disaster wherever it has been tried. Like the "one-supermarket" policy in Russia!
      Everywhere the much vaunted "competition" laws have had the opposite effect, limiting competition and harming the consumer!

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    6. Michael Croft

      logged in via LinkedIn

      In reply to Peter West

      Thanks for your unsubstantiated opinion Peter. However the evidence suggests that market concentration is a symptom of systemic and structural issues that will not addressed by neoliberal free choice. In fact neoliberal free choice delivers increased market concentration, if you try to keep an open mind and do your research you will find this is the case.

      There are niche vendors springing up everywhere, I happen to be one of them, however market concentration means things like my local abattoir…

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    7. Peter West

      CEO at Property

      In reply to Michael Croft

      Actually you make a point. If the regulation was not so difficult for small abattoirs, there would probably be a good case for butchers like yourself to kill your own. Is that possible? Or a place for a smaller abattoir to cater to your needs and people in your situation?
      Nobody subsidises anyones rent, they pay what the market can bear and if they can't be profitable they get out.
      Like I say underneath, there is competition in retailing. The larger retailers are possiblly more cost effective…

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  11. Tony Martin

    Mr

    The facts are interesting but do not take into account the level of market power developed by the practice of cross subsidisation being used by Coles and Woolworths.
    The most obvious of course is the Petrol Shopper Docket program. This has move C&W from a negligible position in the Fuel market to being the dominant force in the motor fuel market. That in turn gives them the opportunity to use that market to cross subsidise the gaining of market share in liquor. And I would suggest that we can see…

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  12. Neville Mattick
    Neville Mattick is a Friend of The Conversation.

    Grazier: ALP Member at A 4th Generation Grazing Station

    Any Corporation is destined to 'externalise' (make someone else pay - in blunt terms).

    Australian Farmers are weak and divided therefore cannot value add their enterprises because they have no bargaining power behind an Auction system and Mortgage restrictions.

    As the prices to suppliers' and Farmers' haven't significantly improved in one or two decades, I am concerned for the food security in an era of Climate Change, within the next decade.

    Everyone should recall that former Deputy PM John Anderson spoke of a coming "food shock" and Tim Fischer on the Glacial melt in the Himalayas - all from the party apparently aligned with Rural Australia.

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  13. Peter West

    CEO at Property

    There is nothing wrong with the stuation as it now stands.
    Are there barriers to entry to the market? No.
    Have Aldi successfully moved into the Australian market: Yes.
    If Coles and Woolies are successful, the government has no right to step in. How dare they!
    Every time so-called monopoly laws are called into play the consumer misses out. If they are delivering reasonably priced food efficiently to consumers the government has no right to restrict trade in any way.
    In a small town near me…

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