SUBJECTS: GROCERYchoice, Grocery inquiry, unit pricing, planning laws
DEBORAH CAMERON:
The Government has got its shopping trolley wheels in a terrific spin about this. What do you think of the plan for a website – grocerychoice.gov.au? Will it bring clarity to the market? Will it make groceries cheaper?
Pushing the trolley for the Government this morning is the Assistant Treasurer, Chris Bowen. Good morning Mr. Bowen.
Good morning Deborah.
DEBORAH CAMERON:
Thankyou very much for joining us. First of all, do you do the shopping at your place?
CHRIS BOWEN:
I tend to, yes. My wife and I share it, but I certainly do my bit in terms of the grocery shopping.
DEBORAH CAMERON:
And well, I have to ask you the obligatory question – do you know the price of a loaf of bread and a litre of milk?
CHRIS BOWEN:
I do, and they're both around $4 and they go up and down, but the important thing is –
DEBORAH CAMERON:
You must buy good bread at your place.
CHRIS BOWEN:
Well, you do get varying prices with bread, but you can get certain types for $4. The important thing is that people have as much choice and as much competition in the market as possible and that's what these reforms are all about.
DEBORAH CAMERON:
The idea of a market that is 'workably competitive' – that's the term that the ACCC have used – wouldn't it be more encouraging if you had a summary of the market that said it was 'robustly competitive'?
CHRIS BOWEN:
Absolutely it would. 'Workably competitive' means that it works, but it could be a lot better. It could be a lot more vigorous, there could be more competition between Coles and Woolworths; there could be a lot more competition for Coles and Woolworths and the ACCC report that we released yesterday, outlines steps that can be taken to remove or minimise barriers to entry for other competitors to those two in particular.
DEBORAH CAMERON:
According to the ACCC breakdown, about 5% of the increased price is due to commercial factors, that is non-drought and non-other factors. You're yet to talk about that 5% which is due to commercial factors, you've raised the idea of more competition in the market; the purpose of Aldi is to lower the prices albeit, by a small margin. Why not open up that market to even more play?
CHRIS BOWEN:
Well that's what we're attempting to do. Aldi, as you say, has been a force for good and we all benefit from that; even those who don't chose to shop at Aldi benefit from the downward pressure they they've put on prices where they exist - in the 30 regions they exist in - and you can check that on the staple of goods.
I'm not here to spruik Aldi in particular, but that's the impact they've had on competition. So, for example, some months ago, Aldi came to us and said 'as a foreign entrant, we have to comply with your foreign investment rules, which means that when go to a vacant site, we have 12 months to develop it, which is very hard under the planning system. So we've said 'you made a valid point', so we've made that five years. That's partly to help Aldi expand; it's partly to encourage other entrants into the market. The other thing that the ACCC found in its report yesterday was that planning was a major impediment to entry and expansion for competitors.
So you have existing incumbents gaming the system ejecting on spurious grounds, traffic and environmental grounds, when really the grounds are commercial because they don't want the competition. So we're doing what we can to reduce those barriers to entry.
DEBORAH CAMERON:
Well what about the other big names in world grocery marketing? Wal-Mart, you know I went through that before, Sogo, Carrefour; these are huge companies, they must look at the Australian market, it's a $70 billion grocery market.
CHRIS BOWEN:
Yes. Look there are some that have been looking. Costco, for example, have been trying to get into the Australian market for a long time. These are the barriers to entry that we talk about.
Costco is a big American firm which has a model that we don't really have here - they're a combined, if you like, Big W and Woolworths and a little bit of a department store as well and they've got a model of a very big parcel of land which they operate from. They've announced that they're coming into Melbourne. They've been trying to get into Australia, as I say, for some time. So, it's about trying to minimise those barriers to entry, so we do have more competition.
DEBORAH CAMERON:
When you're looking at doing the shopping though, you walk around with your list; you know it's going to cost you a couple of hundred dollars a week. The consumer does feel quite powerless in the middle of it. Now unit pricing is an interesting idea – can you explain how it works?
CHRIS BOWEN:
Yes. Look unit pricing means there's more information as you're doing the shopping. As you say, it's very confusing and you asked me if I do the shopping and when I'm doing the shopping, if you've got a kid or two in tow with you as often you do and they're racing off with the detergent or something; you're trying to find the best value, you're also comparing not 'like for like'. You're comparing often a tub which might be 375 grams with a tub which might be 450 grams and trying to work out - well actually which one's better value? It's very, very difficult. I often think 'I must get better value if I buy the larger good' and therefore buying a little bit more in bulk, I must be getting better value. The studies show that's not the case. That's a common misconception.
So what unit pricing will do is, as well as giving you the headline price on the shelf, it will give you the price per unit of measurement – it might be per kilogram, it might be per litre. And you can look at the price and say 'well these are differing weights, but they're both per kilogram, in their pricing and I can tell that one's actually much better value', then you can make a decision based on the quality et cetera. But it gives you a lot more information.
Now there are independent studies, which show there can be significant savings. That's certainly Choice's view and there are different views about that. But certainly independent studies do show there can be significant savings for consumers and the ACCC's recommended that, on balance, that's something worth doing and that's something we agree with.
DEBORAH CAMERON:
How good are you are working things out in your head when you're walking around? 1300 222 702. Would unit pricing – the idea of pricing something, having it sidelined in the price on the shelf saying how much it is per 100 grams, for example, would that help you work out your budget as you're going around the supermarket. The number here is 1300 222 702.
If it's about putting control in the hands of the consumer, why are you, and you think this is such a genius idea, why give Coles and Woolworths maybe 18 months before they have to do it?
CHRIS BOWEN:
Well we have to balance the compliance cost for business, we don't want to say to them 'you have to do this tomorrow', and therefore that increases the compliance cost. Not only of Coles and Woolworths, but of every other grocery retailer in the country.
DEBORAH CAMERON:
But it must all be very computerised. I mean they can shell out the prices pretty quickly as they go up. They don't hesitate to alter a price day-to-day, so they've got the computer at work.
CHRIS BOWEN:
Sure, but I think there would be different software for unit pricing and it's not at simple as perhaps sounds.
DEBORAH CAMERON:
But can't they just borrow Aldi's?
CHRIS BOWEN:
Well Aldi already has unit pricing, Woolworths has indicated they are going to roll it out, they've got a trial at the moment in one of their stores in which they're ironing out the bumps and they'll be transferring it across the country. Coles has indicated they're more than happy to comply. But we do need to ensure that we minimise the compliance cost, we need to get the balance right.
I can't have unit pricing in the convenience store on the corner for example if it increases their compliance costs substantially as a percentage of their operating costs. And the ACCC recognised that and said 'look, you need to do an analysis of where you'll draw the line'. They used the term 'significant supermarkets'. Now there are a lot of ways that we could draw the line – you could do it on floor space, you could do it on turnover, staff. We need to talk with the industry about the best way of setting up the unit pricing system.
I have to say Deborah I want a flexible light-handed system, which doesn't force retailers to do it in a particular way but ensures that we have the right outcome, that we have the same information, it's not confusing, that we don't have a different system for every store we go into. So we do have a bit of a balancing act to do, which will take a little bit of time to work through with the industry.
DEBORAH CAMERON:
Well it's an interesting thing because if there was a message from consumers that said 'look unit pricing will really help', then Coles and Woolworths might respond by saying 'we're doing it next week'.
CHRIS BOWEN:
Well they may well do it before its mandatory and if they do that's great. As long as they comply with the mandatory system and we have a uniform system across all retailers. As I say, Woolworths has indicated they will be rolling it out, Coles have indicated they're more than happy to co-operate with the mandatory system, Aldi already has it and we also need to bear in mind the others – Franklins and the independents who will need to implement this as well.
DEBORAH CAMERON:
Let's check out an aisle or two – Good morning Robyn.
CALLER 1:
Good morning Deborah. Deborah I have been doing mine, I would say for the last 10, 15 years. When I go shopping if there's something in a 250 gram package or tin as opposed to 500 grams, I would mentally, quickly work out whether it was worth buying the two 250's or the one 500.
DEBORAH CAMERON:
Now do you do that in your head or do you take a little calculator with you?
CALLER 1:
I do that in my head Deborah.
DEBORAH CAMERON:
Alright, you've got a very elastic brain. More so than me. Thanks very much for calling in.
I guess, Chris Bowen, is that one of the keys to this – that consumers have to participate and not be bystanders in the market?
CHRIS BOWEN:
Well of course it's up to consumers as to whether they want to use the system that we've put in place. Some people will say 'well that's nice, but I'm going to continue to buy whatever I've always bought' and good luck to them. It's a market economy and what it's about is giving people more information and choice and that's the system that we operate on.
DEBORAH CAMERON:
Well let's talk about consumer behaviour in this. How much of the enemy's in the picture when if we're demanding supermarkets have, for example, at Coles and Woolworths, 25,000 lines of goods in one place. That's an enormous amount of logistical work just there to assemble that selection. Aldi, to return to that model, according to the reports today, has about 500 to 700 lines in the supermarkets that they run. Do consumers actually need to ease up a bit, not demand so much.
CHRIS BOWEN:
Well look, again, I think it comes down to a matter of choice. Some people will say 'well Aldi's significantly cheaper and I'm prepared not to have the very significant choice of ranges that you get at Coles and Woolworths and I'm prepared to go to Aldi and have a little bit less choice, but pay a lot less'. Other people will say 'I prefer the choice thanks very much and I'll stick at Coles and Woolworths'. Other people, again, will say 'well I'll do some shopping at Aldi and I'll get the basics at Aldi, but when I want something a bit special I'll go to the others'.
So it's really about giving consumers that choice. If we didn't have Aldi, you wouldn't have that opportunity and it comes back to the original point, what can we do to bring more competition in to the market?
DEBORAH CAMERON:
Let's find out what Ed Halmagyi thinks, he's a chef. Good morning Ed.
CALLER 2:
Hello Deborah, how are you?
DEBORAH CAMERON:
Hello! Pretty good Ed.
CALLER 2:
Just the one thing that really concerns me about the process, and I really applaud the Government for taking some active steps on this matter, is that with downward pressure on pricing, we've got two things that we need to avoid.
First and foremost, we need to avoid too much downward pressure on farm gate prices of primary producers. They're already doing it tough enough and if the supermarkets are going to re-jig their pricing arrangements with suppliers, you'd hate to see the farmers out of pocket. But I guess the other component is, do we run the risk of seeing a reduced nutritional content of what's being offered if we lower quality of goods simply because they can be achieved more cheaply?
DEBORAH CAMERON:
Both excellent questions, thank you Ed.
CHRIS BOWEN:
I'll deal with the second one first. I don't think that lower quality is necessarily a result of increased competition, if you have more choices it doesn't necessarily mean you're going to get lower quality.
The Cancer Council issued a very interesting study a couple of months ago and they made a submission to the inquiry about the cost of good food, the cost of good quality food and how it varies. But if you have more competition you put downward pressure on prices across the board – good quality and lesser quality.
In relation to farmers of course, he's right, the farmers are doing in tough. The ACCC has recommended a series of changes to the Horticultural Code which is the code which manages the interaction between the farmers and retailers and they've recommended that they be considered by a body called the Horticultural Code Committee. The Minister for Agriculture and I have agreed that that's an appropriate thing to do. So they have recommended a bit more protection in there for farmers and I do find that Coles and Woolworths are tough to deal with for farmers. They drive a tough bargain, in many senses, that shows that we do have competition and that we, as consumers, do get the benefit of that through the system as it comes down the line. There's no doubt that farmers are doing it tough and they don't get the prices increases that we see because they comes from other factors, in terms of demand and the difficulties that have been caused by the drought.
DEBORAH CAMERON:
You're not worried about Coles and Woolworths, those giants, grinding the prices further downwards and therefore really impacting the income and life choices for farmers.
CHRIS BOWEN:
When you have more competition, you will find that competition is more vigorous across the board. The ACCC has heard evidence from farmers and has made those recommendations to change the Horticultural Code. They did say that they could not find any across the board evidence of unfair or overly onerous activities by the major retailers or any others in relation to the farmers. They did say look, come and give us evidence confidentially we will respect it et cetera. But across the board, while they did find reason to recommend changes to the Horticultural Code, they were not concerned about any untoward or overly burdensome practices.
DEBORAH CAMERON:
Let's see what Anne thinks, good morning Anne.
CALLER 3:
Good morning Deborah. I think the gentleman was saying there was a huge amount of choice in the big supermarkets, the big chains. But I have noticed, more and more, particularly in the last 18 months, one of the big chains is more and more replacing brand names that we know and many of us love, with their own brand.
All I am saying is that I think that their squeezing those brands out – look, I don't know how it works, I don't know who manufactures these things for people – maybe that's something you could inquire about?
Also I think unit pricing is fantastic – I will be certainly be looking at it.
DEBORAH CAMERON:
Thank you very much for calling in. The idea there, that consumers are very aware of what's going on in those aisles, and I was interesting in one of the other things that Anne, and I think other callers touched on, which was the idea of how you might change your patterns, change your habits as a consumer.
Now you talked about the planning laws and what an obstacle they are – Coles and Woolworths are very practiced lobbyists in their local areas, and planning laws are local matters. So how are you going to get around the problem of a Federal Government trying to influence what is going on in a municipal government?
CHRIS BOWEN:
Well local government implements state laws. So local government, while being the planning authority, will have to comply with the State Planning Act. So COAG is an appropriate body to say to the states 'lets have a look at the planning system and ensure it is not anti-competitive in any way'. Planning harmonisation was already on the COAG agenda try to get more uniform planning laws across the country. What we are now saying is that COAG needs to bear in mind what the ACCC has said.
There are a number of issues here Deborah, two main ones. Firstly, in some planning systems you can object to a development on the grounds that it will affect your business. You can object to a new supermarket opening up by saying this is going to take business away from me. And really, is that a legitimate cause of objection? Planning should be about traffic and environmental factors and amenity, it shouldn't be about protecting one business against another coming in.
DEBORAH CAMERON:
Well thank you very much Chris Bowen for coming in this morning, it has been a very interesting and engaging discussion. Roll on unit pricing.