SUBJECTS: Grocery prices, ACCC inquiry, Trade Practices Act, Foreign Investment
Graeme Samuel is currently conducting an inquiry into grocery prices; he could stop it right now. The facts, in my view, are disclosed in Woolworth's financial reports, which tell you how they fattening their profit margins. How? By you paying more.
Chris Bowen is the Assistant Treasurer, the bloke who set up this grocery inquiry. He's been good enough to have a chat with us on a Friday afternoon. Chris g'day.
CHRIS BOWEN:
Good afternoon Mike, how are you going?
MICHAEL SMITH:
Yeah, I'm well. How's your inquiry going; the ACCC's inquiry?
CHRIS BOWEN:
Look it's almost finished. I'll be receiving a report on the 31st of July. I'll then take a few days to read it. I expect it to be very long, very comprehensive and I'll release it to the public, with an indication of the Government's early response. This is the most comprehensive inquiry we've had in the grocery industry ever in Australia. The hearings have been very interesting; I'm sure that you've been following the hearings and some of the evidence that's been brought before the hearings. It's predicted to be a very good and thorough report.
MICHAEL SMITH:
Righto. Well that's all sort of background Chris. What's your real view, what's your opinion? What do you think?
CHRIS BOWEN:
Well, I think you covered some of the points in your opening remarks that I was listening to, just as I was waiting to come on. We do have, on any measure, a fairly concentrated grocery market in Australia. Coles and Woolworths say they have 50% of the market, others say it's 80%. Whichever one, even if you take Coles and Woolworths figures, that's quite concentrated for two big players. Compare that to say, the United Kingdom, admittedly with a lot bigger population, they have seven or eight large grocery players. We have two. We also have the highest price food inflation in the developed world. Over the last ten years we have food inflation was in the order of 40%.
MICHAEL SMITH:
The OECD proves that right?
CHRIS BOWEN:
That's correct. That compares to other countries we normally compare ourselves too - New Zealand, Canada, the United States are about 20% and the UK are about 12%. So we do have an issue. Clearly our drought has had an impact on that, there's no question about that. I'm not saying it's all down to concentration, but we do have an issue and that's why we've instigated this inquiry and that's one of the early things we did when we came to office and it's been going now for some time and as I say, reports to me in a couple of weeks.
MICHAEL SMITH:
Chris would you countenance breaking these behemoths up, forcing them to divest themselves of some of their shops to other competitors, so we get a little more competitive activity?
CHRIS BOWEN:
Well I haven't seen the inquiry...
MICHAEL SMITH:
No, but would you consider doing that?
CHRIS BOWEN:
I'd consider anything that inquiry recommended to me, but...
MICHAEL SMITH:
Hang on Chris. You talk about the inquiry recommending it to you; you can see the size of these two companies right now, you don't need an inquiry. You can see the OECD data which talks about the last 15 years and how much extra we are paying. Will you consider breaking them up, forcing them to sell some of their outlets to competitors?
CHRIS BOWEN:
Let me put it this way Mike - we've got this comprehensive inquiry and I'm not interested in ruling things in or out until I've seen the results of that inquiry. But I would say this - there are other things that we've done. You're quite right, you don't need to wait for an inquiry to tell you that there are things you should be doing. So, there are things that we've done like we've had the biggest reform of the Trade Practices Act in 23 years. Because one of the problems is, and it's not just in groceries, it's across the board, you get big players coming in and saying 'we're going to open up here and we're going to have really cheap prices for a while and that forces small business out of operation and then you find all of a sudden prices going up. So we've really beefed up the ACCC's ability to take on those cases with changes in the law. [There are] things the ACCC have been asking for, for years and they've been neglected.
One of the things that we will do is give the ACCC power to regulate creeping acquisitions. I'll give you an example - a hypothetical example. Let's just say Woolworths tomorrow say 'we want to buy Franklins, every Franklins store in Australia.' The ACCC would say 'hang on, we have a view on that - that's probably going to increase your market power by too much.' But if Woolworths buy every Franklins store - one store a week every week for the next 50 weeks, there's nothing the ACCC could do about that. That's what we call creeping acquisitions and I just used that as an example - it applies across the economy. We will give the ACCC the power to regulate creeping acquisitions and I'm just waiting for the inquiry to see if that makes any recommendations of the particular form that it should take, but in any event we will regulate that - that was an election commitment.
We've also, just for example, made a fairly modest change to our foreign investment rules. Up until recently, if you're a foreign company wanting to open a grocery store in Australia and you bought a block of land you had 12 months to develop it. That's very hard to do by the time you've bought the land, gotten approvals and commenced construction, so we've increased that to 5 years and that's something that people like Aldi and Franklins have said will increase their ability to compete in the market place. Cosco, a big US chain has indicated they want to come into Australia.
So they're a few of the things we've done, in terms of broader reforms there's only a few weeks to go for this inquiry and I think it will be, as I say, it'll make some clear recommendations to the Government. I don't know what they are yet, I'm yet to see it, but when I see it I'm sure there'll be a series of clear recommendations which we'll take on board.
MICHAEL SMITH:
I'm speaking with Chris Bowen the Assistant Treasurer and the issue is Woolworths and Coles and their market power. Chris, how did they get so big?
CHRIS BOWEN:
Well we do have this issue of creeping acquisitions where they have, in the past, acquired stores one by one. The ACCC has, in the past, expressed a view on that, but if anybody ever challenges that view that would be very hard for the ACCC to uphold in court. So we do find that they are aggressive, they come in and open up stores in new areas et cetera, that's fine, I mean that's what I want - competition. I'm not here to support Franklin's or Aldi or IGA or anybody else over Coles or Woolworths, or Coles and Woolworths over anybody else. But I'm here to do my job as Competition Minister, to promote competition.
When you've got more people fighting for your dollar, we're all better off and that's been shown in the figures there's a number of examples where you find you've got three or four or even more in some cases, supermarkets in one town, prices are lower than when you've got one or two, so that's what it's all about, promoting that extra competition.
MICHAEL SMITH:
Good on you, Chris Bowen the Assistant Treasurer.
CHRIS BOWEN:
Pleasure
MICHAEL SMITH:
Thanks for speaking with us Minister.