The majority of recommendations affect participants in the grocery and supermarket industries. The recommendation to introduce a general creeping acquisitions law will affect all businesses contemplating a merger or acquisition.
What do you need to do?Be prepared for the introduction of a creeping acquisitions law. If you are a supermarket operator or landlord, be prepared for the ACCC to assess competition issues arising from restrictive provisions in lease arrangements. If you are involved in local planning/zoning, be prepared for a push to consider the state of competition in the relevant area as part of the assessment processes.
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Ellie Parker
The ACCC’s Report of its inquiry into the competitiveness of retail prices for standard groceries (Report) was publicly released 5 August 2008. The Report took into account 265 public submissions and extensive information, data and documents from industry participants including Coles and Woolworths.
Key findings
The Report found that grocery retailing is “workably competitive” and that ALDI has been a vigorous price competitor since entering the Australian market. The ACCC concluded that the steady rise in food prices has been substantially related to domestic and international market trends, rather than low levels of competition in the market. The ACCC was also unable to identify anything “fundamentally wrong” with the grocery supply chain.
However, the ACCC also found that a number of factors currently limit the level of price competition including:
- high barriers to entry and expansion;
- limited incentives for the major supermarkets to compete aggressively on price; and
- limited price competition from independent supermarkets who tend to focus on convenience and service.
Key recommendations: Local planning, creeping acquisitions and restrictive leases
The Report recommends that all levels of government reassess the zoning and planning laws having regard to the likely impact of a supermarket on existing competition between supermarkets in that area. The Government’s preliminary action plan has prioritised this issue as a matter of urgency and has referred the issue to the Council of Australian Governments (COAG).
The ACCC also expressed its support for the introduction of a creeping acquisitions law of general application. This follows the ACCC’s stated concerns that section 50 of the TPA does not currently deal effectively with a series of acquisitions over time that individually do not lessen competition but that taken together may have a significant competitive impact. The ACCC believes amendments are warranted notwithstanding its finding that acquisitions by Coles and Woolworths are not a significant current concern in the supermarket retail sector.
The Government’s preliminary action plan promises to implement a creeping acquisitions law. According to yesterday’s media release from Assistant Treasurer Chris Bowen MP, the Government will aim to release a discussion paper on the proposed creeping acquisitions reform by the end of August 2008.
Finally, the ACCC will be undertaking a review of restrictive provisions in leasing arrangements between supermarkets and landlords with a view to assessing whether specific cases give rise to competition concerns. The ACCC noted that the competitive effect of any particular arrangement will depend on the specific nature of the restriction and the characteristics of a market in which it applies.
Other recommendations
The Report recommends the introduction of a mandatory, nationally consistent unit pricing regime for standard grocery items advertised both on in-store and in print labelling. This regime is recommended to apply only to significant supermarket stores.
Senator Bowen indicated yesterday that the Government’s action plan would consider the best way to introduce the regime, including the types of products that will be captured and the supermarkets required to comply with the regime.
The Report also recommends a number of specific changes to the Horticulture Code of Conduct to increase the effectiveness of the Code, including the introduction of civil pecuniary penalties. The Government has advised that the Minister for Agriculture will work together with the horticultural industry to consider each of the recommendations.
The Government’s full response to the Report is due to be released shortly.