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FactCheck: is our grocery market one of the most concentrated in the world?

“With one of the most concentrated food retail sectors in the world dominated by the supermarket duopoly, the barriers to making it easy to buy local food in Australia are significant. It is time for Australia…

How does Australia’s food retail market compare? AAP Image/Dave Hunt

“With one of the most concentrated food retail sectors in the world dominated by the supermarket duopoly, the barriers to making it easy to buy local food in Australia are significant. It is time for Australia to learn from the example of other countries and provide assistance to rebuild local food systems.” – The Australian Greens, official website.

The percentage of market share controlled by the two major supermarkets, Coles and Woolworths, depends on which groceries you include.

Ferriers Focus May 2011 examined the 2010 annual reports for Wesfarmers and Woolworths, the National Association of Retail Grocers of Australia November 2010 Report and the Master Grocers Australia December 2010 Report, and concluded their market share was almost 80%. Deloitte Access Economics in October 2012 identified market share to be Woolworths at 41.1% and and Coles at 31.0%, for a total of 72.1%. This decline may be related to the growth in low cost food retailer, Aldi, and changes in consumer shopping practices.

But supermarkets sell more than just packaged dry groceries; they also sell fresh meat and fruit and vegetables. The Roy Morgan Supermarket Currency Report of 2012 identified that Coles and Woolworths in 2011 had 45.5% of the market in fruit and vegetables and 47.2% of meat. In these areas, Coles and Woolworths do not dominate. Consumers choose to patronise local fruit & vegetable retailers, butchers, bakeries and delicatessens for such items.

Election FactCheck’s previous check on this issue found that when all grocery items were included, the best estimate is that Coles and Woolworths control 55-60% of Australia’s total grocery market.

So, given that figure, does Australia have one of the most concentrated food retail sectors in the world? It is partially correct, in regard to the proportion of sales generated by the two supermarkets.

Woolworths and Coles dominate in the Australian market. Stuart Alexander – Australian Market Overview

For instance, as these tables show, the four major players in Australia together control 98% of the market (with Coles and Woolworths controlling 80% in this study of packaged groceries). In the UK, five major retailers control just over 70%, with the biggest, Tesco, controlling 28%. In the US, the biggest player is Walmart, with 25% of the market, and in China, the five biggest retailers together control 38%.

The major players in the UK food retail sector and their market share. IBIS World industry research report.

Critics such as the Greens and MP Bob Katter say the market dominance and competition between Coles and Woolworths is squeezing suppliers of goods such as milk, fruit and vegetables. The Greens' policy is to offer $85 million over four years to help farmers sell direct to consumers. The Australian Competition and Consumer Commission earlier this year asked suppliers to come forward with with any complaints.

The major players in the US food retail sector and their market share. IBIS World industry research report

Despite the sensitivity of this issue, there does not appear significant barriers to accessing fresh, local foods and products in Australia. Research is limited, although one early study has found “buying locally produced foods” was considered an important attribute. Consumers are becoming more active in choosing alternative channels to purchase locally grown/produced foods. Supermarkets and grocers continue to tailor their assortments to include ethnic, organic, natural and local foods to meet changing consumer needs.

The major players in the Chinese food retail sector and their market share. IBIS World industry research report

Food and grocery retailing in Australia remains competitive. There are no switching costs for shoppers, who appear to shop across all brands of supermarkets and grocery stores. As reported by Woolworths CEO Grant O’Brien this year, Nielsen surveys over a 12 month period indicated 97% of Australians switch between the major four supermarket chains - Woolworths, Coles, IGA and ALDI. Across a month, 64% of Australians do their food and grocery shopping across all the major supermarkets and speciality stores.

There are low barriers to entry now into the Australian retail market. This has been demonstrated by the entry of German food discounter ALDI 11 years ago. The ALDI group has plans to expand into SA and WA over the next three years, bringing greater levels of competition to the market. US retail giant Costco, has already established a foot print in the Melbourne and Sydney markets and more recently announced plans for Brisbane.

Verdict

The Greens are right - Australia does have one of the most concentrated grocery markets in the world. However, the entrance of Costco, the 6th largest retailer in the World, and Aldi, the world 8th largest retailer, suggests that market penetration is possible and there is room for continued competition.


Review

It is correct to distinguish between packaged dry groceries and fresh meat, fruit and vegetables. The concern of the Greens is to rebuild local food systems and there is evidence that already many Australians are choosing to purchase fresh food from alternative retailers including farmers markets and organic stores – although Coles and Woolworths 45-50% share of the fresh food market is still quite high. It is also relevant to consider what the proportion of consumption is between processed and packaged foods compared with fresh foods, with one concern being that supermarkets encourage consumers to spend more of their total food budget on processed foods.

The data does suggest that Australia has a high concentration of ownership in our grocery market. But the supermarket sector in all developed countries is quite concentrated. It is also notable that supermarkets here and around the world are expanding their market power beyond groceries into financial services, petrol, hotels and liquor outlets, and land owning and rental. - Christine Parker

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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10 Comments sorted by

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  1. Andre Sammartino

    Senior Lecturer in International Business & Strategic Management at University of Melbourne

    I can't see how the entry of Aldi and Costco can be used as proof of low barriers to entry.

    Both these multinationals have very distinct business models outside the 'mainstream' of the global supermarket business. Aldi is a 'deep discounter' with a high reliance of private brands and a super lean, small footprint operational model. Costco is a 'big box' buying club model. Neither of these models compare to the full service approach of Woollies and Coles. As it stands, both Aldi and Costco…

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  2. David Simpson

    Writer

    I think the most interesting sector in this comparison is Other.

    China - 62%
    US - 45%
    UK - 29%
    AUS - 2%

    This suggests that new entrants in Australia are at a significant disadvantage.

    To say that market penetration is possible and that there is room for competition is a tad disingenuous. Yes, it may be the case, but only for those with very deep pockets and long timelines.

    One would hope for a market with lower barriers to entry and the potential for more mobility.

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  3. Leigh Burrell

    Trophy hunter

    If the extreme Greens had their way we'd all line up at the State shop for our ration of organic lentils, fair-trade green tea and reusable toilet wipes.

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    1. Trevor Collison

      Retired

      In reply to Leigh Burrell

      I used to think that way of the Greens as well, and floated between the two majors, believing their dogma, and off-handed dismissal of The Greens, as you obviously still do. However now I have more time, and have done some more detailed research (admittedly personal, and "non-scientific"), I found that most Green Policies in the past have simply been a little "before their time". 5-10 years later they have been generally accepted as being necessary, and quietly put into place! (With no credit given to the Greens of course).
      In other words, their thinking is much more forward looking, and longer term than the two majors' usual short term "grab for votes".

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    2. John Newton

      Author Journalist

      In reply to Leigh Burrell

      Now Leigh that is exactly the opposite of the Greens way. We are dedicated to individual traders, small rather than big. Big is the problem. And I certainly don't see Aldi - German and Costco - American I guess - as anything other than the continuation of big. I want to buy my food from people I know. I'm lucky enough to be able to do that where I live in Sydney.

      I think you really need to take a closer look at the Greens. All their treasury costed policies are on line.

      And as an enemy of The Conversation, what on earth are you doing here?

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    3. Leigh Burrell

      Trophy hunter

      In reply to John Newton

      I don't think I can change my occupation any more. It's like in that book - When the Wind Changed.

      Perhaps you need to have a read of the extreme Greens policies. They're right into the idea of State owned natural monopolies. NBN is a good example. They want to establish a monopoly and they want it owned by the State.

      Monopoly good, duopoly bad. Go figure.

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  4. Kostas Mavromaras

    Professor

    The concentration verdict is without dispute, but its interpretation (that, nonetheless competition works) is disputable.

    High prices (when compared with the UK, for example) indicate the presence of a strong duopoly power at work.

    Similarities in products on offer indicate strong duopoly power too.

    Co-location of the two dominant suppliers within most large shopping centres, is indicative of the presence of many (implicit) local duopolies.

    The (much smaller) competition in each location…

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