Supermarket Review

Review of ACT Supermarket Competition Policy Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Review of ACT Supermarket Competition Policy Prepared by John Martin | Martin Stone Pty Ltd | September 2009

ISBN-13: 978-0-642-60519-1 ISBN-10:0-642-60519-X © Australian Capital Territory, Canberra 2009 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the Territory Records Office, Community and Infrastructure Services, Territory and Municipal Services, ACT Government. GPO Box 158, Canberra City ACT 2601. Produced by Publishing Services for the: Business and Industry Chief Minister’s Department Enquiries about this publication should be directed to: 1800 244 650 www.business.act.gov.au Publication No 09/1280 http://www.act.gov.au Telephone: Canberra Connect 132 281 ii

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Table of Contents Foreword Consultant’s Brief Overview

1 2 3

1 Findings and Recommendations

10

1.1

Competitive Dynamics of the ACT Supermarket Grocery Sector 1.1.1 Price Competition 1.1.2 Non-Price Competition Factors

10 11 12

Likely Future Trends in the ACT Supermarket Grocery Sector 1.2.1 Trends in Shopping Centre Distribution

13 14

Adequacy of the ACT Government’s Supermarket Competition Policy

15

1.4 Competition and Diversity Policy Initiatives 1.4.1 Role of the Trade Practices Act and the ACCC 1.4.2 Market Cap Proposals 1.4.3 Sources of Competitive Tension and Diversity in the ACT 1.4.4 New Entry Facilitation through Planning/Zoning Mechanisms and/or the Direct Sales Process 1.4.5 Competition Analysis and Criteria in Assessing Candidates for New Entry Facilitation

16 16 17 18 19

1.5

An Overarching Framework for Planning/Zoning Reform and Coordination

24

1.6

Identification of New Entry Opportunities in Existing and Growth Areas 1.6.1 Growth Areas 1.6.2 Existing Areas

26 26 27

1.2 1.3



21

2 Process of the Review

29

2.1

Current Policy

29

2.2

2008 ACCC Inquiry Into Retail Grocery Competition

30

2.3

Review Schedule

31

2.4

Private Stakeholder Meetings, Submissions and Other Source Material

31

2.5

Public Consultation

31

3 Outline of ACT Supermarket Structure

32

3.1

Introduction

32

3.2

Unique Characteristics of the ACT Market

33

3.3

Distribution of Supermarket Activity by Centre Levels

33

iii

iv

3.4

Floorspace by Operator

34

3.5

Supermarket Sales

38

4 Impact of the ACT Planning System on Supermarket Competition

41

4.1

How the Centres Hierarchy has Operated

41

4.2

Local Centre Supermarkets 4.2.1 Giralang Local Centre – Woolworths Proposal

43 44

4.3

Fyshwick – the Clearing House without a Supermarket

46

4.4

Group and Town Centre Supermarkets 4.4.1 Competition in the Group and Town Centres 4.4.2 Existing Group Centres, Kingston and Dickson Under Review

46 47 48

5 Current Competitive Dynamics of the ACT Supermarket Grocery Sector

49

5.1

Influence of the Major Chains

50

5.2

Influence of the Independent Sector

51

5.3

Influence of Supabarn

53

5.4

Influence of ALDI

53

5.5

ACT Price Comparisons

53

5.6

Non-Price Competition Factors

55

6 Approaches to Future Development and Re-Development Opportunities

59

6.1 Supermarket Competition Outcomes in the ACT 6.1.1 Impact of Planning and Site Allocation Policies in the ACT 6.1.2 Planning/Zoning Restrictions and Rigidities 6.1.3 Reform of the ACT’s Planning System and Direct Land Sales 6.1.4 Potential Conflict Between Competition and Revenue Objectives 6.1.5 Importance of Coordination and Facilitation to the Supermarket Competition Policy

59 62 62 63 64 65

6.2

The Challenge for Independents to Secure Competitive Wholesale Supply

65

6.3

Future Trends and How They are Likely to Play Out in the ACT 6.3.1 Socio-Demographic Trends in the ACT Population 6.3.2 Trends in the Grocery Market 6.3.3 Trends in Shopping Centre Development and Redevelopment

66 66 67 68

6.4

Measuring Adequacy of the ACT Government’s Supermarket Competition Policy 6.4.1 The ACCC Recommendations on Planning and Zoning 6.4.2 Impact of Metcash Dominance of Wholesaling to the Independent Sector

69 69 70

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

6.5 Policies, Procedures and Processes That Might be Applied on a Site By Site Basis 6.5.1 Competition and Diversity Policy Issues Relating to Facilitating New Entry 6.5.1.1 Role of the Trade Practices Act and the ACCC 6.5.2 Sources of Competitive Tension and Diversity in the ACT 6.5.2.1 Supply Chain Issues 6.5.2.2 Retail Market Competition Performance 6.5.3 Market Cap Proposals 6.5.4 New Entry Facilitation Through Direct Sales 6.5.5 Framework of New Entry Opportunities in Existing and Growth Areas 6.5.5.1 Growth Areas 6.5.5.2 Existing Areas

71 71 72 73 74 74 75 76 77 77 79

6.6

Competition Analysis and Criteria to Assess Eligibility for Direct Sales 6.6.1 Market Definition 6.6.2 Competition Analysis 6.6.3 Eligibility Criteria

81 82 82 84

6.7

An Overarching Framework for Planning/Zoning Reform and Coordination 6.7.1 Coordination Mechanism 6.7.2 Regular Review and Assessment 6.7.3 Applying Competition and Diversity Procedures and Criteria 6.7.4 ‘Fast Lane’ Priority to Central Canberra Shortages 6.7.5 Other Group and Town Centre Reviews 6.7.6 Facilitating Sustainable Local Centre Competitiveness

84 85 85 85 85 86 86

Appendices

87

Appendix 1

2009 Update of Supermarket Retailing Floor Space in the ACT

88

Appendix 2

ACT Grocery Choice Price Comparisons – November 2008 to June 2009

93

Appendix 3

List of Submissions

96

Appendix 4

Reports on Community Consultations

97

v

vi

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

FOREWORD This Report is an edited version of a confidential Report to the ACT Government based on a Review I undertook of Supermarket Competition Policy in the ACT. The confidential Report has informed the ACT Government’s reconsideration of its Supermarket Policy. This edited Report excludes commercially sensitive material that was provided by stakeholders and interested parties. Otherwise it represents issues, data and analysis that were covered in the Review. I would like to acknowledge the frank and open approach of stakeholders and community members who participated in the Review and the input provided to me by officers of the Chief Ministers’ Department (CMD), ACT Planning and Land Authority (ACTPLA), Land Development Agency (LDA), ACT Treasury and other agencies. In particular I would like to express my appreciation for the guidance and support from CMD personnel David Dawes, Ian Cox, Ross James and Heidi Stratford.

John Martin

Canberra September 2009

1

Consultant’s Brief On 16 June 2009 the ACT Chief Minister and Minister for Business and Economic Development Jon Stanhope announced my appointment as expert advisor to the ACT Government’s Review of Supermarket Competition Policy. I was required to report on: •

the adequacy of the ACT Government’s Supermarket Competition Policy in the light of the 2008 ACCC Inquiry into the competitiveness of retail prices for standard groceries, and the Commonwealth Government’s response to that report;

•

current competitive dynamics of the ACT supermarket grocery sector including the various players (the major grocery retailers, the small and independent retailers, wholesale suppliers and so on);

•

likely future trends in the Australian supermarket grocery sector and how they are likely to play out in the ACT;

•

ways the ACT Government can support effective and sustainable competition in the grocery sector over the short, medium to longer term, taking into account the findings and recommendations of the 2008 ACCC Grocery Inquiry;

•

the implications of government action for the wholesale sector;

•

an overarching policy framework to guide the long run development of the supermarket grocery sector in the ACT;

•

policies, procedures and processes that might be applied on a site by site basis to ensure site allocation supports the ACT Government’s longer term policy objectives;

•

the role of local planning authorities in supporting competition policy;

•

appropriate competition criteria that might be used in assessing the eligibility of applicants for direct sales; and

•

any other additional measures that might be considered by the ACT Government to facilitate a diverse and competitive retail grocery sector.

I was also asked to advise on any current supermarket development proposals seeking ACT Government support.

2

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Overview The ACT Government has a Supermarket Competition Policy (see Section 2.1) that seeks to maintain a balance of competitive retail grocery performance throughout the Territory in respect of keen prices, service delivery, convenience, product diversity, innovation and adaptation to changing market trends. The current Review aimed to establish a transparent and objective framework and criteria for future actions under the policy. The Review was prompted in part by recommendations of last year’s national ACCC Inquiry into the competitiveness of Retail Grocery prices. In my former role as an ACCC Commissioner I was a member of that ACCC Inquiry. The ACCC found that zoning and planning regulations and decision-making processes can create barriers to new supermarkets entering particular area markets and recommended that decisions affecting additional supermarket space should take into account the impact on competition between supermarkets in an area. In addition the ACCC also found that if independent stores could achieve better wholesale terms of supply for dry groceries that, combined with their existing quality and keen pricing of fresh produce, could make the larger independent stores in particular, a more telling force against the major chains. The ACCC findings placed a focus on the activities of the dominant national wholesaler of groceries, Metcash, in its dealing with independent retailers when they sought alternative sources of wholesale supply. In the ACT there are many small independent supermarkets but few larger independent stores. The Review sought to establish the adequacy of the current approach to supermarket competition policy, the effect of likely future trends in the sector and recommendations for an overarching policy framework to create competition and diversity.

How the Review was Conducted A full outline of the process followed in the Review is set out in Section 2.1. My approach was to talk in-depth to key industry stakeholders, ACT planners and other arms of government and to seek submissions to establish how planning regulations, decision-making and development facilitation affecting retail grocery competition has worked in the ACT. Generally the confidential responses from industry stakeholders and agencies were frank and forthcoming. In addition considerable effort was placed on informing the community of the competition issues being reviewed. The consultant undertook a range of radio, television and newspaper interviews. Five Community Consultations were conducted in each of the four town centres (Tuggeranong, Woden, Gungahlin, and Belconnen) and in the City Centre. The Consultations were an opportunity for members of the public to gain an understanding of the process and to make comments on their own experiences with the ACT supermarket sector.

3

Material relating to the Supermarket review – including a filmed version of the Consultant’s presentation at the Gungahlin community consultation – was also presented on YouTube and MySpace. Submissions were formally accepted up until 24 July 2009 although some were informally accepted as late as 3 August 2009.

Outline of the ACT Grocery Market The ACT has a rigid retail hierarchy comprising local centres, group centres and town centres in which supermarkets have played a key role as ‘anchor tenants’. In the ACT region specialty grocery and fresh food retailing (i.e. other than supermarkets) make up a smaller proportion of the total than in other capital cities apart from Darwin. Overall the independent supermarkets (like IGA) in the ACT have a greater share of supermarket space compared to other parts of the country. This derives from the domination by independent supermarkets of local shopping centres in the ACT. Local centre supermarkets account for just over 25% of total supermarket space in the ACT in 2007. However, since 1980 local centre share of total Canberra retail sales declined from 14 to 11%. This decline is considered to result from factors including extended trading hours at higher-level centres, the population’s preference to undertake supermarket shopping (based on range and price) at larger centres, the small population catchments of some local centres and the increased workforce participation of women. In response to these trends ACTPLA has stated local centres in developing areas are either being spaced more widely to provide a greater population catchment to assist their viability or the lease conditions, while requiring commercial space, do not mandate the requirement for the provision of convenience retailing. The independent supermarkets are generally much smaller than the major chains. The IGA type and smaller stores are typically in the range of 200 to 800 m2 with a few exceptions. This compares to the major chains that are almost universally in excess of 2000 m2 and they have gone on record as saying they do not, as a rule, consider a store of anything less than 2500 m2 as suitable to their business models. The two major supermarket chains, Woolworths and Coles, have a substantial presence in the ACT. They compete face-to-face in the four town centres (although neither has a presence in the City Centre). One of the major chains operates in most of the Territory’s group centres. Each group centre has only a single full line supermarket. Woolworths are in a particularly strong position in the ACT with 39.2% of supermarket floor space and 51.6% of turnover. The only independent supermarkets in Canberra that operate in group or town centres which are in the larger category are the Supabarn stores at Canberra City Centre, Wanniassa and Kaleen plus three smaller Supa IGAs at Kingston, City Centre East and Hawker (the latter is currently being expanded to over 2200 m2 floor space).

4

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Until 1996 there were four additional independent Cannons group supermarkets in Calwell, Erindale, Kambah and Kippax group centres. These were acquired by Woolworths in 1996 when Woolworths took over the Cannons group in a deal approved at the time by the ACCC. Included in that acquisition was Cannon’s wholesale distribution centre in Hume that Woolworths subsequently closed, cutting off an important alternative source of wholesale supply to Canberra independent retailers. In addition the Franklins chain in its earlier form exited the ACT market when the sell-off to Woolworths and Metcash occurred in 2002. Over recent years Australia and the ACT has seen the entry of an international player ALDI, as a substantial fourth force in Australian supermarkets. ALDI operates a restricted selection per category, budget priced and mainly own-label product range. It has established over 200 stores in Eastern Australia including seven stores in the ACT region and has created competitive price pressure wherever it has located.

Planning Issues Raised by the Review There has been ever rapid change to factors affecting the nature of grocery retailing – product range, shopping hours and workforce participation by women have extended markedly plus demographics have altered in different areas. Equally there have been drastic changes affecting demand on retail space for eating out, fast food and other non-grocery shopping trends. Submissions have called for the rigid planning hierarchy of retail shopping centres in the ACT, especially the mix between local and group centres and between group and town centres, to become more flexible. To some extent actions under the ACT Government’s retail planning policies have already seen that begin. The Review received consistent comments that there is a case for some of Canberra’s 17 group centres being upgraded including provision for a second large supermarket in a manner similar to the entry of ALDI stores at Weston, Kippax and Jamison group centres. Submissions were also received that some local centre supermarkets could be more competitive if they increased floor space to the 800 to 1200 m2 range. While the opportunity for this depends on space availability in various local centres, it does raise issues for future area developments and in the case of re-development, the challenge of further rationalisation of the overall number of existing local centres. A significant impediment to re-development in group and local centres is the fragmentation of ownership. In some centres there has been a lack of coordinated effort by owners to upgrade and in other cases underinvestment in infrastructure by centre owners. It has also been suggested by several stakeholders that these deficiencies have been reinforced by the rigidities and slow pace of the planning and zoning decision-making. Representatives of independent interests commented that in gaining access to sites, direct land sales are a way round the ‘deep pockets’ of major chains and developer speculation that otherwise thwart competitive outcomes. ALDI was also critical of planning/zoning restrictions in group centres and outside the main centres hierarchy. 5

Others involved in shopping centre property development put an alternative view that ACTPLA will respond in a market sensitive manner if a well argued case for additional supermarket space or change-to-lease-clauses is put to them.

Current Competitive Dynamics It was established that ACT grocery prices are generally in line with equivalent regions. Price surveys such as Grocery Choice and ACT Treasury’s Supermarket Survey indicate the two major chains are 5 to 10% cheaper than the larger independents in the ACT and even further ahead of smaller independents. In some categories such as fresh food the independents often are price, and certainly quality, competitive. ALDI with its more limited range is the most economic for a staples basket, almost 25% less than the two major chains. Relative non-price performance was more difficult to establish. Woolworths provided ACT supermarket monitor reports that demonstrated good performance in comparison to all its larger competitors except Supabarn which was not included in the report. Supabarn provided its own independent Mystery Shopper assessment of consumer satisfaction. The survey confirms Supabarn’s own service, quality and ambience that includes a three minute maximum wait time at check out. It is also noted that successful smaller independents in local centres are able to secure competitive advantage from excellent personal service, utilising local suppliers, meeting special customer needs in terms of products not supplied by the major chains and links to local community activities. The main competition deficiency in terms of choice and diversity is within the market for full line supermarket services. Also of concern for competitive dynamics has been the slow pace in adding new supermarket capacity in areas of apparent under supply in central Canberra and Gungahlin.

Future Supermarket Trends The current pattern towards larger format outlets complemented by ALDI at the price sensitive end of the market is likely to continue. That trend complements the conglomerate strategy of the major chains linking to their liquor, petrol and their other electronics, hardware and general merchandise interests. The dominance of the full line sector by the major chains is likely to be strengthened unless planning and development authorities take some pro-competitive initiatives. Smaller independent supermarkets will continue to fill an important convenience shopping niche and are continually looking for more competitive wholesale supply sources.

6

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

There are signs of new types of specialty grocery outlets entering centres, a major redevelopment of the fresh food market in south Canberra and emergence of other farmers’ markets. These developments will bring further competitive responses from the supermarkets.

What We Sought from Community Consultations The consultations provided an opportunity for consumers to comment on how they rate supermarket competition in the ACT. Effective competition is not just measured by prices – although prices are the biggest factor for most consumers. The Review encouraged submissions that provide survey information on wider consumer satisfaction measures. The community consultations were an opportunity for comment and suggestions relating to: •

ease and convenience of shopping experiences;

•

service levels, presentation, standard of facilities, queue times and complementarities to other (non supermarket) shopping needs;

•

product ranges and diversity, innovation and adaptation to changing market trends;

•

the Review sought in these consultations, community views on what drives peoples’ grocery shopping preferences and suggested responses to some of the following issues;

•

should there continue to be a supermarket in every suburb or is there a preference for larger, more competitive supermarkets (and possibly additional retail and service outlets) in targeted local centres;

•

should there be a more flexible approach to group centre development to enable the provision of additional supermarket operators (not just the expansion of an incumbent supermarket) in certain existing group centres; and

•

is the best competition outcome in some group centre developments or upgrades achieved by restricting the entry of additional supermarkets (via the direct land sale process) to new entrants such as an ALDI and/ or a large format independent supermarket chain, provided that could be achieved through a transparent and objective process.

A wide range of comments and questions were made at the consultations as listed in Appendix 4 of the Review. There was recognition of the competitive contribution of ALDI’s entry but statements that this took competition only so far because of ALDI’s restricted range and hours of operation. There was strong support for more independent full line supermarkets. Some issues raised fell outside the ambit of a competition policy review. These included suggestions that there should be control of trolley usage, opposition to pay parking at town and group centres and problems for disadvantaged consumers having to pay higher prices at local centre independent stores because they are unable to travel to larger format supermarkets.

7

Adequacy of Current Supermarket Competition Policy It is apparent that the ACT Government has taken initiatives in recent years aimed at achieving a better facilitation of potential shopping centre modernisation and expansion while not prejudicing sound urban planning procedures. This has involved a series of direct sales to enable ALDI entry in two group centres and expansion by Woolworths, Coles, Supa IGA and Supabarn in existing group centres. In 2008 the ACT Government established new legislation to facilitate reform of the ACT’s planning system and introduced changes to the statutory framework for granting leases, including the direct sale of land. Administrative changes have been developed to complement the legislative reforms and significantly improve the timeliness of direct sales through a more effective, streamlined process. There are indications that ACTPLA has become more flexible in recent years to respond to market demands and issues of competition. This and the establishment of the LDA along with the efforts of the CMD projects facilitation arm have provided support to new entry. However, the supermarket competition policy in the ACT requires substantial overhaul to address: •

impediments in the planning and development regime;

•

a present shortage of full line supermarket capacity particularly in central Canberra and Gungahlin; and

•

the projected population growth of 50,000 in the ACT between 2007 and 2019.

A framework taking competition factors in account is required to: •

free up retail zoning provisions particularly in group centres;

•

better reflect evolving consumer and market needs; and

•

address the barriers to new supermarket entrants at the retail and wholesale levels identified in the ACCC Retail Grocery Inquiry.

Specific Policies and Procedures The Review considered a range of suggestions in respect of how a targeted promotion of new entry could be justified on the basis of market and competition analysis and related eligibility criteria. The implications of the Trade Practices Act were considered and it was established that the ACT government is not constrained by recent clearances of Woolworths proposals for site acquisitions in Kingston and Giralang, to seek a better competition outcome for those markets. One approach suggested to restrict entry was to set a cap on market share in the ACT to act as a ‘line in the sand’ in respect of further group centre development. Based on current data such a cap (depending on what basis and at what level it was set) would most likely impact on Woolworths because of its dominance of ACT supermarket. On the other hand a cap would not affect Coles. 8

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

The Review accepted the many sound arguments put against introducing a market share cap as distorting the operation of the market place and unduly punishing Australia’s most popular and efficient supermarket chain. However, grounds were identified for concrete action by the ACT Government to facilitate entry of truly independent larger format supermarkets. The Review recommends processes, procedures and competition criteria to enable the government to facilitate entry of independent full line chains in suitable new and redeveloped group centres to secure a better balance of competitive tension, choice and diversity. The ACT is in a unique position to achieve this objective because of its extensive ongoing ownership of land within centres. The Review sets out recommendations for the application of limited tender direct sales or possible use of zoning provisions to facilitate a series of identified opportunities for entry by a truly independent full line supermarket chain. Apart from the major chains it is recommended that applicants such as Supa IGA under the control of the dominant wholesaler Metcash should also be excluded from the process. It is proposed that the initial approach and the associated eligibility criteria be reassessed within a three year period under an overarching supermarket framework.

Development of an Overarching Policy Framework The review has identified an overarching policy framework to guide freeing up retail zoning provisions and direct sales processes applying the recommended competition processes, procedures and criteria. The proposed framework builds on the current ACT Supermarket Competition Policy to provide: •

an effective coordination mechanism to oversight planning/zoning reform and direct sales initiatives;

•

a regular assessment forum between government and stakeholders;

•

identification of immediate priorities in existing and growth area group centres;

•

a review of other existing group and town centres over time; and

•

facilitating local centres competitiveness.

The findings and recommendations are set out in Section 1 of this Review.

9

1. Findings and Recommendations The findings and recommendations cover: •

competition and diversity performance and future trends;

•

adequacy of the current policy;

•

proposed competition and diversity policies, procedures and criteria; and

•

planning and zoning reform and coordination.

1.1 Competitive Dynamics of the ACT Supermarket Grocery Sector For the purpose of assessing competitive dynamics in the current ACT supermarket regime, data and definitions applied by the market players were utilised to arrive at the following current competitive break down of supermarket operations based on the floor space data in Appendix 1. ACT Supermarket Share of Floor Space and Turnover 2009 Group

Floor Space %

Turnover %

ALDI

7.5

8.7

Coles

21.0

20.6

7.0

7.7

Woolworths

39.2

51.6

IGA and other smaller independents

25.3

11.4

Supabarn

The ACT has placed emphasis on ensuring provision of local centre convenience supermarket shopping. Hence the high proportion of floor space going to IGA and other independents. However, these smaller independents wherever they are located do not compete on price with larger supermarkets that in Canberra have traditionally been housed only in the group and town centres. In the past 15 years there have been dramatic shifts in this larger end of the market with the exit of two independent chains Cannons and Franklins that operated full line supermarkets from the ACT. Countering the adverse impact of these larger independents exiting the market saw the emergence of a new hybrid, the limited range, keenly priced ALDI stores. This has meant that competitive pressures have been increased around centres where ALDI has located. It has meant that a flaw has developed in competition for the full line supermarket sector with Woolworths dominant at 59% of that market, Coles 31% and Supabarn the only independent chain operating at that level

10

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

in Canberra with 10%. There are signs that Supa IGA are tentatively moving into this space with a Supa IGA at Hawker group centre expanding into a full line service following a similar (but smaller) venture at Karabar in neighbouring Queanbeyan. The combined 90% share of this sector in the ACT held by the two major chains is slightly above the national average of 87% identified in the 2008 ACCC Grocery Report. The main competition deficiency in terms of choice and diversity is not between other retail grocery sources and full line supermarkets but within the market for full line supermarket services. Also of concern for competitive dynamics has been the slow pace in adding new supermarket capacity in areas of apparent under supply in central Canberra and Gungahlin.

1.1.1 Price Competition The Review drew on an ACT Treasury Survey of May 2009 and the November 2008 to June 2009 Grocery Choice National Survey as an indication of price competiveness among supermarket operators in the ACT and between the ACT and other regions. The Review also received price comparison information from the major chains. The two independent surveys came up with reasonably similar outcomes and demonstrated that the ACT market is reasonably competitive. Both surveys have deficiencies associated with static and limited collections of price information. Based on the most recent price surveys the following limited points can be made: •

ALDI has lower prices for a basket of basic staples around 25% less than the major chains but once again there are deficiencies in ensuring comparison of like with like. The ACCC had reported that proximity to ALDI stores by the major chains tended to result in lower prices by the chains but the Treasury survey found no compelling evidence that proximity to ALDI impacts on prices charged by other supermarkets.

•

Coles and Woolworths have generally similar prices across stores in the ACT with only very small price differences where they are co-located in Town Centres.

•

Supabarn, the only independent chain operating larger format supermarkets (at three locations) in the ACT, appears to be in the range of 5 to 10% above the major chains for the Grocery Choice summation of baskets and the basic staples basket. However, the ACT Treasury Survey demonstrates that in comparison to some individual Coles and Woolworths stores the difference for the basket is of the order of 3 to 5%.

Grocery Choice also indicates that ACT grocery prices are on a par with most surrounding NSW and Sydney metropolitan regions for the two major chains and ALDI. Franklins – the larger format NSW independent not tied to Metcash – rates slightly ahead of the prices of its ACT equivalent, Supabarn. The biggest difference is in the general independents/IGA category where the ACT appears to be less competitive than other NSW regions. This would reflect the fact that the ACT does not tend to have larger format independents such as Supa IGAs and virtually all ACT independents are below 800 m2 in floor space.

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1.1.2 Non-Price Competition Factors There are approximately 50 independent supermarkets in the ACT in the smaller (under 1000 m2) category. The main banner group by far is IGA but other independent banners represented include Friendly Grocer, Foodworks and Five Stars. These smaller independents are generally located in local centres or industrial areas. They are owned and operated by small entrepreneurs and are generally regarded as convenience retailing. They have approximately three to five thousand lines per store. The successful independents’ competitive advantage derive from excellent personal service, utilising local suppliers, meeting special customer needs in terms of products not supplied by the major chains and links to local community activities. As the only full line competitor to the two major chains in the ACT, Supabarn maintains its claim to have a significantly wider and diverse range than Woolworths. This claim was disputed by Woolworths but it is not for this Review to adjudicate on these relative claims. However, as an independent full line operator, Supabarn has an impressive number of lines. Further, Supabarn submits that its independent Mystery Shopper Surveys demonstrate levels of service, range, quality of fresh produce and presentational points of difference that put their three ACT stores ahead of the major chains and other supermarkets in terms of consumer satisfaction. The Supabarn benchmark is a maximum of three minute waiting at check-out counters Throughout the Review and particularly during the community consultation what appeared to be neutral comments were received as praising the Supabarn shopping experience. Based on Roy Morgan Supermarket Monitor ACT data from June 2007 to May 2009, Woolworths perform ahead of other competitors in the majority of questions. However, the Roy Morgan Survey paradoxically does not include Supabarn because it claims their sample size in Canberra is insufficient to pick up the three Supabarn stores. Given that the Supabarn Independent Mystery Shopper Survey has been applied to some of Supabarn competitors it is the only comparative indicator available. Woolworths submits it performs very well in terms of customer satisfaction measures, such as convenience of trading hours, availability of parking, location and range of brands. They suggest different responses also give strong evidence of the way in which the different competitors contribute to customer choice. For example, the diversity allows customers whose sole focus is low price, to shop at ALDI, whereas customers who want to balance broader range, a stronger fresh produce offer, convenience and good value, can choose to shop at a full line supermarket. Woolworths pointed to efforts to introduce more express lanes to deal with the large number of smaller basket shoppers in some stores. Woolworths also pointed to the self-serve check-out systems they are trialling that appear to be another solution.

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Each of the main stakeholders pointed to their contribution to employment in the ACT and efforts to improve environmental impacts of their operations.

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Recommendation 1 The Review recognises that while there is reasonable supermarket competition in the ACT region retail grocery market, there is a need to address: •

a shortage of larger full line supermarket capacity generally in central Canberra and Gungahlin; and

•

the benefits of encouraging further full line independent supermarket chains to expand in the ACT to provide competition and diversity and potentially support an alternative source of wholesale grocery supply that could contribute to the price competitiveness of independents including smaller retailers.

1.2 Likely Future Trends in the ACT Supermarket Grocery Sector Likely future trends are that the major chains will continue to expand their grocery, petrol, liquor, electronics and general merchandise conglomeration to the extent allowable under Section 50 of the Trade Practices Act. Woolworths has demonstrated world class supply chain management and will continue to set the pace in supermarket development. There are signs Coles/Wesfarmers are lifting their supermarket performance. Whether this will alter the competitive stalemate the ACCC identified between the two chains remains to be seen. The ACCC observed that the lack of incentives for Coles and Woolworths to compete strongly across the board on prices reflects the high levels of concentration in the industry and frequent monitoring of competitors’ prices. Evidence indicates that if one player attempts to lead prices down, the other will follow, making it extremely difficult for either to win significant numbers of customers from the other through an aggressive pricing strategy. The third major force, the independent grocery retail sector supplied by wholesaler Metcash is likely to continue to be constrained by Metcash’s domination of the supply chain. However, Metcash is a very efficient operator and expansion of alternative independent wholesale supply (beyond Franklin’s current arrangements) could provide beneficial competitive outcomes. The opportunity for the ACT’s own Supabarn to be part of an expanded alternative wholesaling operation may be an extra justification (beyond that of diversity and choice) to facilitate further Supabarn entry into retail outlets in Canberra. Unless a similar style overseas competitor also enters the Australian market ALDI can anticipate continuing to penetrate its niche in the market as a complement rather outright competitor with full line operators.

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One potential new entrant to the ACT in time may be Costco which is in the process of introducing a new style of ‘big box’ retailing to Australia. Costco is only open to members, offering business and individual memberships. Currently, the annual fee for membership in Australia is $60. Costco is due to open its first Australian store in Melbourne’s Docklands precinct mid August 2009. Costco will occupy a 14,000 m2 warehouse format store in the Docklands. It is expected to stock about 4000 product lines of groceries, whitegoods, electronics, cosmetics, jewellery, hardware and furniture. Given its different format, the extent to which consumers view Costco as a substitute to a full service supermarket remains to be seen. Neither this Review nor the ACCC Inquiry found evidence of any marked shift to on-line grocery shopping although this is a market channel that warrants monitoring.

1.2.1 Trends in Shopping Centre Distribution Over time population growth, changing demographics and lifestyles have resulted in changes in the role and function of Canberra’s hierarchy of commercial centres. Group centres were introduced in Canberra in the 1960s in response to the emergence of supermarket retailing and have subsequently also become a focal point for fast food, coffee shops, restaurants, bars and speciality stores such as DVD Rental. This has put pressure on many local centres some of which have declined but many of which are able to reinvent themselves in some cases with the local centre independent supermarkets able to expand capacity and competitiveness with full line stores in the group and town centres. In response to these trends, local centres in developing areas are either being spaced more widely to provide a greater population catchment to assist their viability or the release conditions, while requiring commercial space, do not mandate the requirement for the provision of convenience retailing. In the latter case, generally adopted to serve areas with a small population catchment, planners are leaving it up to the market to determine the mix of commercial uses at the centre. ACT consumers will continue to prefer supermarkets to cover off most of their needs but the trend to patronising specialty stores and fresh food markets is likely to continue albeit with solid competitive response from the supermarkets.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Recommendation 2 Given the trends identified, planners and decision makers in the ACT need to ensure there is an adequate response to market and competition signals demanding larger format supermarkets relative to the overall size of centres. This includes reinforcing efforts to ensure local centre viability by enabling some local supermarkets to expand. This should be complemented by a more flexible approach to allow new entrants into new area development and in existing group centres.

1.3 Adequacy of the ACT Government’s Supermarket Competition Policy The ACT’s unique planning centres hierarchy has created a systematic structure for supermarket and broader retail development that at times has exhibited considerable rigidity. Yet there is also considerable support for the effectiveness of the hierarchy in creating balanced socio economic outcomes. Further, it should be noted at the outset that the issue of an adequate retail grocery offering in the ACT cannot be artificially de-coupled from the wider question of retail competition policy. The main ongoing impediment to supermarket competition and diversity is the legacy of an immutable ‘one full line supermarket per group centre’ throughout the ACT. Despite a statement as far back as 1999 in a CMD policy paper on retail planning that ‘the concept of a rigid retail hierarchy will be replaced by a more flexible and dynamic structure which better reflects changing and evolving consumer and market needs’ – the most frequent comment in submissions and during discussions focussed on the adverse impact of planning hierarchy rigidities. Sometimes this rigidity combined with pressure from interested parties, has stifled adequate supply of supermarket capacity particularly in central Canberra and Gungahlin and new entry by supermarket competitors. A problem in many of the group and local centres in the ACT is the disparate and fragmented ownership, including different strata ownership within particular centres and the failure by many of those owners to re-invest to keep the centre up-to-date and competitive. The existing Territory Plan appears to respond poorly to demands of the market. In particular planning rules for group centres concentrate on micro managing land without due regard to emerging market trends and it has been suggested the various zoning categories should be deregulated and the whole centre zoned ‘core’ to allow greater density development for mixed commercial and residential uses.

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There are indications that ACTPLA has become more flexible in recent years to respond to market demands and issues of competition. This and the establishment of the LDA along with the efforts of the CMD Strategic Project Facilitation has provided ad-hoc support to new entry and expansion of existing capacity. New legislation reforming the ACT’s planning system and changing to the statutory framework for granting leases, including the direct sale of land came into effect in 2008. Administrative changes have been developed to complement the legislative reforms and significantly improve the timeliness of direct sales through a more effective, streamlined process.

Recommendation 3 The supermarket competition policy in the ACT requires substantial overhaul to address impediments in the planning and development regime. A framework taking competition factors into account is required to free up retail zoning provisions particularly in group centres, to better reflect evolving consumer and market needs and address the barriers to new supermarket entrants at the retail and wholesale levels.

1.4 Competition and Diversity Policy Initiatives 1.4.1

Role of the Trade Practices Act and the ACCC

The ACCC considered that the challenge of freeing up planning/zoning impediments to achieve improved retail grocery competition could not be left solely to its role in enforcing and promoting compliance with the Trade Practices Act. The Trade Practices Act sets ground rules where commercial activity may become anti competitive through collusion in price fixing or market sharing, misuse of market power, certain exclusive dealing and acquisitions or mergers that result in a substantial lessening of competition in a market. However, not running foul of the Trade Practices Act does not mean that the actions of a corporation are positive for competition. For instance, ACCC clearance of a proposal by a major supermarket chain for a particular site acquisition means that it is unlikely to substantially lessen competition and therefore is not illegal. A decision by the ACCC not to intervene does not imply there is no alternative outcomes that would increase competition, nor that the acquisition will not result in some lessening of competition, albeit a lessening that falls short of being substantial. 16

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

In the case of some recent clearances by the ACCC of proposed Woolworths acquisitions of potential supermarket sites in the ACT at the Kingston group centre, it would be open to the ACT Government to form a view that a restricted allocation of a site to a new or less dominant entrant through a direct sale or some modified form of bid process would result in an increase in supermarket competition. The ACCC in applying a ‘with and without’ test to an acquisition is constrained by the legal definition in Section 50 of the Trade Practices Act if the proposed acquisition would lead to a substantial lessening of competition in a market. Acquisition decisions by the ACCC under the Trade Practices Act can be contested in the Federal Court. Over recent years the ACCC has extended and refined its analysis of sectors with sensitive degrees of market dominance, links to market power in related sectors and concerns over creeping acquisitions. The ACCC decision in 2008 to oppose a proposed Woolworth’s acquisition of an independent store site at Karabar in Queanbeyan, NSW (just over the south east border of the ACT) demonstrated the extent of market and competition analysis applied to the ‘with and without’ testing of independent acquirer alternatives for the site. An implication for ACT region supermarket competition is that two earlier ACCC clearances are likely with the benefit of hindsight, to have been rejected under current intensive analyses. In these instances Woolworths acquired, firstly four group centre independent Cannons store sites in 1996 (three in Tuggeranong and one at Kippax) and, secondly an IGA store site at Charnwood group centre in 2004. This has created the situation where the ACT currently only has three independent full line supermarkets compared to 21 run by the two major chains.

Recommendation 4 The ACT Government note that it is in no way constrained from intervening through the planning and land allocation system to achieve increased supermarket competition at sites where proposed acquisitions by a major chain have received informal ACCC clearance.

1.4.2 Market Cap Proposals The Review received a range of suggestions as to how improved competition and diversity outcomes might be achieved including calls for a cap on market share. This included proposal of a floor space dominance test set at 25% of the floor space owned or managed by a single retail operator within both regional catchments and within the ACT overall. 17

However, many sound arguments were put against introducing a market share cap of any kind. Apart from the definitional and measurement problems it was regarded as distorting the operation of the market place and potentially punishing success of Australia’s most efficient and popular supermarket chain.

Recommendation 5 Any form of cap on the market share of participants should be rejected.

1.4.3 Sources of Competitive Tension and Diversity in the ACT The ACCC in its Inquiry found that new ways of incorporating competition analysis into planning decisions should be considered as a means of overcoming the high barriers to entry in supermarket retailing particularly the difficulty of new entrants to an area obtaining suitable sites. It does not require sophisticated competition analysis to demonstrate that planning/zoning approaches in the ACT have left some regions deficient of competition in a quantum sense and that because of the rigidity of the planning hierarchy there has been a structural competition issue (in group centres) that has only begun to be addressed in recent years. In the ACT the only real competitive tension and diversity comes from ALDI and the full line independent chain Supabarn. Local IGAs and other independent stores and the few Supa IGAs in Canberra while also providing diversity are basically convenience outlets. They are so dependant on the high cost wholesaler Metcash that they are not generally considered price competitive. The lack of price competitiveness of local centre independents is offset by their greater personal attention, preparedness to supply of unique products and links to the local community. Metcash is now purchasing and developing supermarket sites, funding their IGA operators into supermarket development on the basis that the supermarket operation is tied to IGA and trading terms are dictated by Metcash to the operator for the duration of the supermarket’s trading life. It is also known that Metcash have taken an ownership position in certain independent retail chains which operate some larger independent supermarkets in different parts of the country.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

The vertically integrated ALDI has achieved a remarkable competitive impact as a fourth force in the sector. ALDI has indicated its further entry intentions in the ACT and removing barriers to that entry should be facilitated where possible. Whether that needs to extend to direct intervention through further direct sales should be assessed on a case by case basis. Supabarn is an independent chain that sources a lower proportion of its supply from the wholesaler Metcash in comparison to other independent retailers. Many independents source 70 to 80% from Metcash. In becoming less dependent on Metcash, Supabarn has traded off better direct deals with suppliers and greater variety against poorer terms of trade with Metcash. Any expansion by an independent opens up the possibility of it becoming a wholesaler and hence becoming a competitor in a market that needs competition.

  As the ACCC Report identified the opportunity exists for the entry of a second wholesaler to compete with Metcash. That could also provide an alternative source of wholesale supply for smaller ACT independents. The most obvious scenario could involve a strategic alliance with the only vertically integrated full line independent chain Franklins which currently has 80 stores in NSW. Metcash is a very efficient operator and an expansion of alternative independent wholesale supply could provide considerable competition benefits. The opportunity for an expanded alternative wholesaling operation is an extra competition justification (beyond that of retail diversity and choice) to facilitate further truly independent entry into retail outlets in Canberra.

Recommendation 6 An alternative source of wholesale supply would be encouraged by a restricted approach for particular sites that precluded Metcash controlled ventures as well as the two major chains.

1.4.4 New Entry Facilitation through Planning/Zoning Mechanisms and/or the Direct Sales Process Given the ACT Government’s unique degree of ongoing land ownership within and adjacent to community centres, direct land sales offer an efficient and transparent way of short circuiting planning and redevelopment constraints to enable new entry or expansion of existing supermarkets. Any actions by the ACT Government to support retail diversification over time through site facilitation, involves consideration of localised issues and factors as well as broader competition issues. It also needs to consider the integration of the new supermarket into the overall amenity and attractiveness of a centre. The 2008 ACT planning reform has significantly improved the timeliness of the direct land sale process. 19

In the last five years, direct land sales related to supermarkets involved new ALDI stores at Conder and Kippax and expansion to existing supermarkets at group centres in Curtin (Coles), Mawson (Woolworths), Calwell (Woolworths) and Wanniassa (Supabarn). There was strong support through submissions and consultations for concrete action by the ACT Government to facilitate entry of truly independent larger format supermarkets. ALDI and the independent locally based chain Supabarn both put in submissions in support of pro-competition government intervention. The major chains, particularly Woolworths oppose use of direct land sales in this manner unless it is based on an open tender. Yet the major chains have themselves been the beneficiary of direct land sales to facilitate expansion of capacity in existing group centres. Those facilitated expansions while favouring incumbents have been good for overall competition. The economic argument in favour of an open tender is that it allows the market to determine what the true value of a site is and returns the maximum revenue to the community. The counter argument is that a participant aiming to maintain a degree of market power may be willing to pay well in excess of the market value (sometimes referred to as ‘deep pockets’ or ‘whatever it takes’ syndromes). In order to get the best competitive outcome it may be necessary to apply some restrictions. Processes and procedures involving consistent market and competition analysis and eligibility criteria could determine suitable new entry candidates tor some centre developments.

Recommendation 7 Processes, Procedures and Criteria Establish and regularly review processes, procedures and competition criteria to enable the government to facilitate entry of suitable independent full line chains in suitable new and redeveloped group centres to achieve a better balance of competitive tension, choice and diversity. The approach could involve either limited tender direct sales or appropriate clauses in the lease requirements if it was considered more appropriate to ensure ownership integration in the sale of a new group centre (possibly even a single developer). Special zoning mechanisms for this purpose could be cumbersome and vulnerable to legal challenge in contrast to the targeted, site by site and transparent direct land sales process. The redevelopment of existing group centres is where flexibility in approach is most likely to be required to secure the best overall outcome in collaboration with property owners.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

1.4.5 Competition Analysis and Criteria in Assessing Candidates for New Entry Facilitation The criteria recommended to assist new independent supermarket entry through the planning and land distribution needs to be based on transparency and objectivity. The approach adopted should be consistent with broad market definition and competition analysis applied by the ACCC in its assessment of acquisition proposals. These parameters are set out below.

Market Definition a)

Potential Parties •

b)

Site Details •

c)

d)

e)

Analysis of the potential supermarket companies likely to bid for a site.

Identification and description of the characteristics of the potential site.

Market Participants •

Competitors.

•

Potential competitors.

•

Customers and consumer representatives.

•

Wholesale suppliers.

•

Government bodies.

•

Other interested parties.

Market size •

The ACCC generally consider a local retail supermarket area of 3-5 km radius.

•

ACCC uses a ‘forward looking purposive approach’ taking into account that a new supermarket may attract customers from further afield.

•

ACCC also takes into account the state wide wholesale market.

Liquor markets • Local market for retail sale of liquor. • Statewide wholesale market for liquor.

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Competition Analysis a)

‘With/without test’ •

In assessing a merger pursuant to section 50 of the Trade Practices Act, the ACCC must consider the effects of the transaction by comparing the likely competitive environment post merger if the transaction proceeds (the ‘with’ position) to the likely competitive environment post merger if the transaction does not proceed (the ‘without’ position).

•

This tool has been used by the ACCC in measuring competitive impacts in supermarket competition.

b)

Price competition

c)

•

Competitive analysis of relative prices provided by the potential competitors in other markets.

•

Use of promotions.

•

Ability to shop around for the best prices at different supermarkets.

Range of products •

d)

Fresh produce •

e)

Examination of supply chains for fresh produce.

Levels of service •

f )

Numbers of staff per customer.

Liquor •

g)

Combined offerings of supermarket and liquor.

Other competitive responses •

h)

Additional promotional activity.

Local considerations •

Road access.

•

Other development in the area.

i)

Wholesale markets for food •

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Differences in the composition and range of products offered.

Impact on competition at the wholesale level.

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

j)

Wholesale market for liquor •

Impact on wholesale competition.

Eligibility Criteria Criteria for a suitable operator could be adopted along the following lines: •

A full line retailer and competitor to the major supermarket chains as identified by the ACCC inquiry Report and not controlled by a major wholesaler.

•

A minimum of 10 years trading history in full line supermarket.

•

Demonstrated ability and infrastructure to run several full line supermarkets.

•

Demonstrated financial capacity.

•

Acceptance of restrictive conditions if resale of the site occurs within a period of 15 years.

Additional weight be placed on potential for the site acquisition to improve the applicant’s capacity to operate at the wholesale level through the establishment of a supermarket warehouse in the ACT which would be available to all independent operators. They are applicable to the growth area centres and appropriate existing centres as identified through the overarching planning and zoning framework examined in the next section. The use of direct sales of sites for ALDI entry in growth centres and expansion of existing centre supermarkets should be facilitated on a case by case basis where there appear to be to be undue market impediments. The above analytical framework and criteria should be reviewed within a three year period to assess impact on supermarket competition and diversity and any necessary adjustments made to this element of the competition strategy.

Recommendation 8 The ACT Government endorse the above market and competition analysis approach together with the adoption of suitable eligibility criteria to identify and facilitate entry by new full line supermarket competitors.

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1.5

An Overarching Framework for Planning/Zoning Reform and Coordination

Based on information and analysis put to the Review, an overarching supermarket competition framework requires a transparent coordination mechanism, regular review and assessment and priority initiatives including the approach to facilitating new entry of full line supermarket competitors. The elements of that framework are covered in the following recommendations.

Recommendation 9 Coordination Mechanism Establishing a formal coordination mechanism between ACTPLA, LDA, ACT Treasury and the facilitation arm of CMD to create a cohesive and transparent approach to planning and competition issues in growth areas and existing centres addressing: •

zoning reform in group and town centres;

•

the evolvement of local centres;

•

facilitation of new supermarket entry on a site by site basis; and

•

maintaining up to date data and analysis of the sector.

Recommendation 10 Regular Review and Assessment CMD establishing and chairing a forum between the key agencies and industry stakeholders to periodically (at least yearly):

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•

review planning/zoning processes;

•

assess progress on the supermarket competition framework;

•

identify changes required to the framework;

•

ensure processes are updated to respond to changes in grocery retailing development; and

•

make recommendations to the ACT Government on possible changes.

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Recommendation 11 Urgent Attention be Given to Central Canberra Shortages Addressing the shortage of full line supermarket capacity and competition in some existing central Canberra group centres (south Canberra/Kingston, north Canberra/Dickson). Utilising a combination of direct sales (consistent with recommended procedures and criteria) and zoning flexibility in tandem with the ongoing ACTPLA planning framework reviews of Dickson and Kingstown town centre precincts.

Recommendation 12 Other Group and Town Centre Reviews The ACT Government should progressively review other group and town centres, moving away from the ‘one size’ fits all approach, learning from and drawing on redevelopments such as Jamison where new entry and expansion of existing supermarkets has improved competition.

Recommendation 13 Facilitating Local Centre Competitiveness Drawing on Recommendation 2, no artificial constraints should be placed on supermarkets in appropriate local centres to expand in a way that is consistent with public amenity and enables those stores to provide a more competitive offer against full line stores in larger centres. Local centre independent stores could be boosted if moves to increase independent wholesale competition are successful. Reinforce ACTPLA’s approach to allow the market to determine these parameters in existing local centres and to space local centres in developing areas either more widely or apply more flexible conditions subject to regular market feedback. For existing local centres facing sustainability pressures, solutions should be based on conversion to intense, multi - story residential usage combined with a proportionately scaled commercial and convenience usage.

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1.6 Identification of New Entry Opportunities in Existing and Growth Areas The following scenarios developed by the Review are indicative only, are subject to the criteria described in Section 1.4.4 and are scheduled in a loose fashion for potential assessment and follow through in the context of the overarching policy framework outlined in Section 1.5.

1.6.1 Growth Areas The only full line supermarkets in Gungahlin are in the town centre with the predictable combination of Coles and Woolworths plus an ALDI. There are presently no group centres operating in Gungahlin. The proposed group centres are Casey, Amaroo, Kenny and Moncrieff. The Casey and Amaroo Centres will be released in 2010/11. The Moncrieff and Kenny centres are scheduled to be released in accordance with population growth. Reflecting a more flexible approach ACTPLA consider the Casey and Kenny sites will be of sufficient size to accommodate two large supermarkets.

Recommendation 14 Growth Area Initiatives New approaches will be needed in Gungahlin and Molonglo. The following options are based on the present proposed group centre configuration and the two major chains position in the town centre. Amaroo – consideration of full line independent plus a possible ALDI (released in 2010/11). Casey – one of the two full line supermarkets to be an independent plus a possible ALDI (released in 2010/11). The future multiple supermarket group centre development in Molonglo offers a further opportunity to facilitate specific independent entry but the approach should be informed on progress in Gungahlin and some existing centre ‘gap filling’ under the overarching approach to supermarket competition policy.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

1.6.2 Existing Areas The options in existing areas lie in shifting over time from the ‘one size fits all’ approach in the 17 group centres that has effectively precluded the introduction of a second full line supermarket until recent precedents have seen centres like Jamison re-invented – largely through planning flexibility and the collaborative efforts of investors.

Central Canberra Immediate opportunities arise in the inner north and south of Canberra and justify some direct sales to ‘jump start’ and guide the process. There is a strong case on competition and diversity grounds for a full line independent store that meets the criteria being established in the Kingston/South Canberra centre renewal. This case is based on: •

Woolworths current dominance in north Canberra;

•

Coles dominance in south Canberra; and

•

the expectation that at least one of the majors will be able to establish a further full line store in Canberra City.

The two ACTPLA Urban Planning Framework Reviews for Dickson and Kingston/south Canberra present an immediate opportunity to apply the overarching supermarket competition policy framework proposed by this Review including the competition criteria linked to direct land sales. ACTPLA have been responsive to supermarket competition aspects of these two reviews. The scenarios are quite different and it is reassuring that ACTPLA has recognised the constraints on a re-developed Kingston centre to accommodate appropriate full line supermarket and ALDI entry consistent with suitable ambience, amenity and infrastructure performance. Canberra consumers would be concerned if mistakes of the Manuka re-development were to be repeated. Accordingly, the Kingston review has embraced a more lateral approach that could result in the re-development being focussed in the Eastlake/Fyshwick market area where considerable scope would appear to exist for a full line supermarket and an ALDI at more realistic market entry costs. While Dickson is far less constrained, ACTPLA has indicated that all options are on the table to free up zoning restrictions within and to the east of the current centre precinct to facilitate a possible additional full line supermarket and/or expansion of Woolworths and certainly entry of ALDI. A second full line supermarket in Dickson could be justified from a competition perspective but it is difficult to see a basis for excluding Coles from contesting the entry stakes given Supabarn’s presence in Canberra City and Kaleen. The eventual capacity and mix at Dickson will have an impact on the demand for and nature of an additional large format store in the Canberra city town centre which the market will determine when the Canberra Centre lease restrictions run out in a few years.

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Other Group and Town Centres Over time it would be appropriate under the overarching frame-work to review other group and town centres by region, drawing on experience from successful redevelopments such as Jamison and central Canberra as it unfolds.

Local Centres ACTPLA’s stated approach is to: •

allow the market to determine how existing local centres expand in a way that is consistent with public amenity and enables those stores to provide a more competitive offer against full line stores in larger centres; and

•

space local centres in developing areas either more widely or apply more flexible conditions.

This seems to combine competition and planning requirements. For existing local centres facing sustainability pressures, the most suitable and least distortive approach is proposed in the submission by the Greens spokesperson based on local centre conversion to intense, multi-story residential usage combined with a proportionately scaled commercial and convenience usage. These processes should be subject to regular market feedback and monitoring within the supermarket competition framework.

Recommendation 15 Existing Area Redevelopment Dickson and Kingston Group Centres As a priority pursue the immediate opportunities offered by the two ACTPLA Urban Planning Framework Reviews for Dickson and Kingston/South Canberra to apply the overarching supermarket competition policy framework proposed by this Review including the competition criteria linked to direct land sales. Other Group and Town Centres Over time it would be appropriate under the overarching framework to review other group and town centres. Local Centres As stated in Recommendation 13, reinforce the ACTPLA market driven approach to new local centre renewal. For declining local centres facilitate conversion to intense, multi-story residential usage combined with a proportionately scaled commercial and convenience usage. 28

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

2. Process of the Review This assessment of Supermarket Competition Policy in the ACT, results from the ACT Government’s desire to review its current Retail Supermarket Competition Policy to make provision for recent market developments and in particular to take into account the implications of the 2008 ACCC Retail Grocery Inquiry. Following political debate including a motion in the Legislative Assembly by the Greens Party, along with ongoing dialogue with supermarket industry representatives, the ACT Government is seeking to develop an over-arching policy framework including competition criteria that could determine circumstances where a direct land sale approach to allocation of supermarket capacity would be merited. The consultancy review has covered assessment of: •

adequacy of the current policy;

•

the current competitive dynamic of the players in the ACT market;

•

likely future trends in supermarket supply and demand;

•

ways the ACT Government can support sustainable competition at both retail and wholesale levels for the region (including bordering NSW markets);

•

specific competition criteria in assessing individual proposals; and

•

any additional measures that can be undertaken by the ACT Government.

2.1 Current Policy The current ACT Government policy for supermarket competition established in 2008 aims at achieving a competitive and diverse sector to provide consumer choice and convenience. It is expressed in the following terms: ‘The ACT Government believes that Canberrans are best served by a diverse and competitive retail grocery supermarket sector that supports consumer choice and convenience. In considering the use or sale of land for grocery supermarkets, the ACT Government will take into account the capacity of a retailer to access suitable sites as well as the nature of the benefits a particular type of supermarket may bring, such as product diversity, quality of service, environmental gains, integration with existing retail/commercial centre, footprint and car parking.’ Taking into account some of the above factors from the Supermarket Competition Policy the ACT Government may consider direct land sales to facilitate entry of new supermarkets in a manner similar to two direct sales of sites in 2004 to enable ALDI to set up supermarkets in the Kippax and Conder group centres.

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2.2 2008 ACCC Inquiry into Retail Grocery Competition In its 2008 review of the Australian grocery retailing sector, the ACCC found that while the sector is ‘workably competitive’ there are a number of factors that currently limit the level of price competition, including: •

high barriers to entry and expansion, particularly in relation to difficulties in finding new sites for development;

•

the limited incentives for Coles and Woolworths to compete aggressively on price;

•

limited price competition that Coles and Woolworths face from the independent sector. Independent supermarkets tend to focus on convenience and service. A key factor inhibiting price competition from the independent retailers is the wholesale prices of packaged groceries supplied by Metcash;

•

price competition is strongest on promotions of key value items (which are products known by the supermarkets to be used by consumers to assess value); and

•

ALDI has been a vigorous price competitor since its entry into Australia and has the incentive and ability to engage in sustained price competition. This has had a dynamic impact on the grocery sector and brought about competitive responses from Coles and Woolworths on many products.

The ACCC Report recommended actions to lower barriers to entry and expansion in both retailing and wholesaling to independent supermarkets and potential new entrants. The ACCC considers more regard should be had to competition issues in considering zoning or planning proposals. The specific recommendation from its report in this respect is: ‘All appropriate levels of government consider ways in which zoning and planning laws and decisions in respect of individual planning applications where additional retail space for the purpose of operating a supermarket is contemplated, should have specific regard to the likely impact of the proposal on competition between supermarkets in the area. Particular regard should be had to whether the proposal will facilitate the entry of a supermarket operator not currently trading in the area.’ The ACCC also found that if independent stores could achieve better wholesale terms of supply for dry groceries than those currently supplied by the national wholesale distributor, Metcash that, combined with their existing quality and keen pricing of fresh produce, could make the larger independents in particular a more telling force against the major chains. The ACCC expressed the view that Metcash’s wholesaling arrangements with suppliers could make direct dealing between suppliers and independent retailers economically unattractive and enable Metcash to inhibit competitive supply. In response, Metcash informed the ACCC in December 2008 that it was amending its agreements with suppliers. The Commonwealth Government’s response to the ACCC Inquiry Report was to refer the zoning and planning issues to a meeting of COAG to review the anti-competitive impact of state and local planning laws.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

2.3 Review Schedule The review took place between 9 June and 7 August 2009 and involved inter alia: •

development of a methodology and consultation plan;

•

private meetings with and submissions from key stakeholders;

•

public consultation including submissions and five community meetings;

•

final date for submissions 24 July (although several were received and accepted in the subsequent week); and

•

Draft Report on 7 August 2009.

2.4 Private Stakeholder Meetings, Submissions and Other Source Material Private meetings were held with a series of stakeholders and interested parties. The stakeholders covered most interest in the sector although supplier representatives did not make a submission on the grounds that their issues had been raised during the ACCC Inquiry and that given the sensitivity with major retailers they did not wish to go over ‘old ground’ of grievances they had already raised during the ACCC Inquiry. The review received submissions and background material from 19 stakeholders. It should be noted that much of the material provided was Commercial-In-Confidence.

2.5 Public Consultation Community Consultations were conducted in the week beginning 13 July 2009 at Tuggeranong, Woden, Gungahlin, Belconnen and Canberra City. Reports on the consultations are set out at Appendix 4.

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3. Outline of Supermarket Structure in the ACT 3.1 Introduction Regional retail grocery markets such as the ACT have undergone significant transformations over the past 50 years as a result of socio - economic influences relating to car usage, higher real disposable incomes, expanded household buying and storage patterns, eating out and consumption of personal services. These and other socio-economic changes including longer retail trading hours, reduced average household size, increased labour force participation of women and the growth of e-commerce have led to decentralisation of grocery retailing, the ever increasing influence of supermarkets as they took over from small convenience centres. Two key characteristics of grocery retailing has been the increased concentration of ownership with two dominant vertically integrated chains now operating throughout the country including the ACT and increased size of supermarkets particularly at the group and town centre level, as fresh food elements have been incorporated. ACTPLA pose the question ‘How should new forms of retailing that widen consumer choice and increase competition be accommodated without compromising objectives related to equity, accessibility and the environment?’1 According to ACTPLA2 the provision of retailing in Canberra occurs in the context of a metropolitan structure based on accommodating growth by the development of separate urban districts. The associated centres hierarchy of Civic, town, group and local centres is designed to offer residents of each district convenient and equitable access to goods, services and facilities. The hierarchy was based on meeting the three basic types of shopping trips – trips to local centres to provide goods bought daily; trips to group centres for weekly grocery shopping and trips to town centres to primarily meet the needs for higher order goods which were bought less frequently and for which customers would travel further. Currently there are town centres in each of the new towns of Woden-Weston Creek, Belconnen, Tuggeranong and Gungahlin, 17 group centres, over 70 local centres and retail components in the industrial estates. The hierarchy has been regarded by ACTPLA3 as an important management tool for allocating commercial activity to achieve retail objectives. Its intention has not been to protect individual businesses from competition but to provide certainty to commercial investors about where to invest; to ensure good accessibility to retail facilities, to coordinate infrastructure and to provide certainty to home occupiers that the amenity of their residential area will not be threatened by retail and commercial developments that have unacceptable noise and traffic impacts. ACTPLA4 indicate the hierarchy has not remained static and has been modified to respond to social and economic changes. Changing retail formats such as large supermarkets have been accommodated. ACTPLA note that except in some local centres, retailing blight has been avoided.

‘Retailing in Canberra‘ ACTPLA Background Paper, June 2009. Ibid. 3 Ibid. 4 Ibid. 1 2

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

3.2 Unique Characteristics of the ACT Market Woolworths point out the ACT is distinct from other states for being well connected by roads. There is a backbone of four lane highways linking each one of the five regions, enabling shoppers to move easily across the full range of food and grocery offerings. The ACT has a car-based culture, and parking is cheaper and more readily available than in other metropolitan areas such as Sydney and Melbourne. Not only is there a range of supermarket and specialty food and grocery options in each of the five ACT regions, each of the regions is a 10 to 15 minute drive from the closest of the other four regional centres. Estimated travelling time between each of the five regional centres is set out below. Travelling Times Between ACT Relevant Shopping Centres Point A

Point B

Distance

Time

Tuggeranong Hyperdome 49 Anketell St, Tuggeranong

Westfield Woden Keltie St, Phillip

11 km

12 min

Westfield Woden Keltie St, Phillip

Canberra Centre Bunda St, Canberra City

10.6 km

13 min

Canberra Centre Bunda St, Canberra City

Westfield Belconnen Benjamin Way, Belconnen

9.1 km

11 min

Westfield Belconnen Benjamin Way, Belconnen

Gungahlin Marketplace 33 Hibberson St, Gungahlin

11 km

12 min

Westfield Woden Keltie St, Phillip

Woolworths Queanbeyan Crawford St, Queanbeyan

15.2 km

15 min

3.3 Distribution of Supermarket Activity by Centre Levels Information in this section has been provided by ACTPLA outlining the existing provision and trading performance of supermarkets in the ACT5. Appendix 1 identifies the existing supermarket space (Gross Floor Area) by centre. It should be noted that the ACTPLA material is based on stocktakes in 2007. The material in Appendix 1 has been updated to 2009 drawing on information provided by ACTPLA and industry participants. This data includes any outlet that could be loosely described as a ‘supermarket’, whereas the tabular and graphical material set out in the remainder of Section 3 is based on the 2007 Stocktake. Subsequent upgrades and corrections of data will only have a minor effect on the trends noted.

5

ACTPLA ‘Supermarket Retailing in the ACT – Background Paper June 2009’

33

Table 1 below indicates the supermarket space by district and hierarchy level while Table 2 indicates the share of space by district and hierarchy level. Table 1: Supermarket Floor Space at Centres 2007 Town

Town Centre

Group Centre

Local Centre

Total

Canberra Central

5173

8227

8149

21549

Belconnen

9238

14963

6174

30375

Woden-Weston Ck

8878

6575

4114

19567

Tuggeranong

10800

14751

4833

30384

Gungahlin

10109

0

1794

11903

Total

44198

44516

25064

113778

* In addition to supermarket space at centres, there is a limited amount of supermarket space in Mitchell (288 m²), Fyshwick (55 m²), the ANU (56 m²) and the University of Canberra (196 m²).

Table 2: Supermarket Floor Space at Centres 2007 – Per Centage Town

Town Centre

Group Centre

Local Centre

Canberra Central

24.0

38.2

37.8

Belconnen

30.4

49.3

20.3

Woden-Weston Ck

45.3

33.6

21.0

Tuggeranong

35.5

48.5

15.9

Gungahlin

84.9

0

15.1

Total

38.8

39.1

22.0

Of the supermarket space, 40% is at town centres, 38% at Group Centres, 21% at local centres, and 0.6% elsewhere.

3.4 Floor Space by Operator Figure 1 indicates the location of supermarkets in Canberra and their operator.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Figure 1: Location of ACT Supermarkets by Operator

35

Figure 2 and Table 3 indicate that based on ACTPLA 2007 data 36% of space is operated by Woolworths and 22% by Coles and that these chains operate 73% of supermarket space at town and group centres. It should be noted that revised 2009 data shows that Woolworths have 39% and Coles 21% of total supermarket space. Supabarn and ALDI are also represented at the town and group centre level. None of these chains are found at local centres, which only have independent operators such as IGA. The data analysed in this Section has been updated in Section 5 to reflect current floor space levels. Figure 2: Supermarket Space ACT 2007 by Operator % Figure 2: Supermarket Space ACT 2007 by Operator % 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Woolworths

Coles

Supabarn

ALDI

Other

Table 3 – Share of Floorspace by Operator at Centres Per Cent 2007 Operator

36

Town centre

Group centre

Town and Group Centre

Local

Total

Woolworths

41.3

51.0

45.7

0

36.0

Coles

31.0

24.3

27.6

0

21.8

ALDI

8.2

10.7

9.4

0

7.4

Supabarn

8.0

7.3

7.6

0

6.0

Other

11.5

6.7

9.7

100

28.8

Total

100

100

100

100

100

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Per Capita Supermarket Floorspace Figure 3 indicates the floorspace (GFA) per capita by hierarchy level. The overall provision was 0.35 m² per capita of which 0.14 m² was at town centres, 0.13 m² at group centres and 0.08 m² at local centres. While the overall per capita provision is similar between districts, the per capita provision by hierarchy level varies considerably. The local centre provision per capita in Tuggeranong and Gungahlin was 0.05 m² whereas in Canberra Central the provision was 0.11 m². Gungahlin had a per capita provision of 0.29 m² per capita at the town centre and an absence of group centre supermarkets. Belconnen (0.16 m²) and Tuggeranong (0.17 m²) have the highest per capita supermarket provision at the group centre level. The variation in per capita provision by hierarchy level reflects the outcome of planning and development processes. The low supermarket provision per capita at the group centre level in Canberra Central for example is a product of the group centre level in the hierarchy not being introduced until after 1960, while the absence of group centre space in Gungahlin is a reflection of the focus on establishing the town centre in the initial stages of the town’s development. The release of the Amaroo and Casey group centres in 2010/11 will address this deficiency. Figure 3: Per Capita Supermarket Floor Space (GFA) by Hierarchy Level 0.40 0.35 0.30 0.25 Local m

2

0.20

Group Town

0.15 0.10 0.05 0.00 Canberra Central

Belconnen

WodenWeston CK

Tuggeranong

Gungahlin

ACT Total

37

3.5 Supermarket Sales The ACT Retail Model (2007) indicated that sales at supermarkets represented 23.8% of retail expenditure at retail outlets in the ACT (see Figure 4). Spending at supermarkets by people who live, work or are tourists in a suburb varied from 20.2% in South Canberra to 27% in Tuggeranong. The Canberra average was 24.4%. Figure 4: Supermarket Share of Spending By District Supermarket Share of Spending by District

30.0 25.0

Per cent

20.0 15.0 10.0 5.0 0.0 North Canberra

South Canberra

Belconnen

Woden

Weston Creek

Tuggeranong Gungahlin

Other

ACT Total

Supermarket Sales Per Capita In 2007, the average per capita expenditure at supermarkets in the ACT by ACT residents was $2742. The level varied from $2397 per capita by Tuggeranong residents to $4272 by the residents of South Canberra.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Figure 5: Supermarket Sales Per Capita by District Sales Per Capita at Supermarkets 2007

4500 4000 3500 3000 $

2500 2000 1500 1000 500 0 North Canberra

South Canberra

Belconnen

Woden

Weston Creek

Tuggeranong Gungahlin

Other

ACT Total

Supermarket Sales Per M² NSA Generally the sales per m² are higher at supermarkets found at Town and Group Centres. Figure 6: Supermarket Share of Sales by Hierarchy Level

Supermarkets Share of Sales By Hierarchy Level 2007 - %

80.0 70.0 60.0 50.0

Town Group

40.0

Local

30.0

Other

20.0 10.0 0.0 Canberra Central

Belconnen

WodenWeston CK

Tuggeranong

Gungahlin

ACT Total

39

Supermarkets at group centres had the highest sales per m² in the ACT with the exception of Woden-Weston Creek, where the sales per m² were highest at town centres supermarkets (see Figure 7). Figure 7: Sales Per m2 by Hierarchy Level Sales Per M2 NSA By Hierarchy Level 2007

25000 20000

Town

15000 $

Group Local

10000

Other

5000 0 Canberra Central

Belconnen

WodenWeston CK

Tuggeranong

Gungahlin

ACT

Share of Floor Space and Share of Sales There is a relationship between the level of floorspace in a district and the levels of sales attracted. At the ACT level, town centres had 39% of supermarket floor space and attracted 38% of sales. In Canberra Central (Civic), Belconnen and Woden-Weston Creek, town centres attracted a higher share of sales than the share of floorspace, while Gungahlin and Tuggeranong town centre share of sales were less than their floorspace share. At the Group Centres the share of sales (43%) was higher than the share of floorspace (38%), most notably in Tuggeranong and Woden-Weston Creek with the shares approximately in balance in Canberra Central and Belconnen. At Local Centres the share of sales (19%) was lower than the share of floorspace (23%) with the exception of Gungahlin. The share of sales and floorspace were approximately equal in Canberra Central.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

4. Impact of the ACT Planning System on Supermarket Competition Retailing development of the ACT over the last 50 years has been unique in comparison to other jurisdictions because of direct government control over land distribution related to the leasehold system operating in the Territory. Retailing decisions in Canberra have been assisted by information provided by the Canberra Retail Model and the Commercial Centres and Industrial Areas Inventory. ACTPLA explain6 that the provision of retailing in Canberra occurs in the context of a metropolitan structure based on accommodating growth by the development of separate urban districts. The associated centres hierarchy of Civic, town, group and local centres is designed to offer residents of each district convenient and equitable access to goods, services and facilities. ACTPLA consider the centres hierarchy has been an important management tool for allocating commercial activity to achieve retail objectives7. Its intention has not been to protect individual businesses from competition but to: •

to ensure good accessibility to retail facilities;

•

coordinate infrastructure; and

•

provide certainty to home occupiers that the amenity of their residential area will not be threatened by retail and commercial developments that have unacceptable noise and traffic impacts.

ACTPLA contend the hierarchy has not remained static and has been modified to respond to social and economic changes and accommodate changing retail formats (e.g. large supermarkets, big box retailing, category killers etc). Except for some local centres ACTPLA point out that ‘retailing blight’ has been avoided. However, according to stakeholders, the rigidity of the centres hierarchy and the inflexible manner it has been administered has contributed to shortcomings in competitive responses in the ACT supermarket sector.

4.1 How the Centres Hierarchy has Operated The ACT Government’s most recent comprehensive retail policy review occurred in the late 1990s. In December 1997, the ACT Government engaged BIS Shrapnel to examine the structure and hierarchy of the ACT retail industry with particular reference to the types and mix of retail space to best suit Canberra. This study suggested that there should be a relaxation of the rigidity of the existing retail hierarchy in the ACT and the associated planning regime. The study argued that this would allow greater competition, leading to increased levels of investment and ultimately improvements in retailing facilities and amenities for the consumer. From this study the Chief Minister’s Department released a report ‘ACT Retail Sector – New Directions for Government’ (1999) which stated in part that:

6 7

‘“Retailing in Canberra’, ACTPLA Planning Services Branch, June 2009. Ibid.

41

‘The concept of a rigid retail hierarchy will be replaced by a more flexible and dynamic structure which better reflects changing and evolving consumer and market needs’. Yet the most frequent comment in submissions and during discussions focussed on criticism of planning hierarchy rigidities. On the other hand ACTPLA submit that the hierarchy has been adjusted in response to changed conditions claiming this can be illustrated by changes at the local centre level and at Fyshwick. ACTPLA suggest its approach is based on the rigorous application of data collection and analysis in relation to the socio-economic characteristics of the population, an awareness of forces shaping retailing and an appreciation of the administrative, legal, physical controls and financial tools available to achieve objectives. ACTPLA consider that future retail assessment will increasingly be about the impacts of the expansion of existing centres, rather than the planning of centres in green field areas. The ACTPLA material provided to the Review draws on information from the 2007 Update of the Retail Model8 prepared by IBECON Pty Ltd and the 2007 Commercial Centres and Industrial Areas inventory. In a discussion paper9 prepared for IGA it is argued that for competition to operate effectively, consideration needs to be given to competition within centres, as well as competition between centres. In the case of local centres, for example, the IGA study suggests an uncompetitive environment arises where a neighbourhood centre consists of a single supermarket and ‘tied’ specialties e.g. liquor. The paper suggests a balanced local centre would generally have some 30-50% of its floor space as supermarket, providing scope for specialty stores to co-locate to assist to both improve the range of offer and improve competition. Synergistic benefits occur where a larger retail anchor provides the ‘drawing power’ to assist specialty shopping. In this respect the discussion paper considers a supermarket anchor in the order of 850-1250 m² is adequate to provide drawing power, whilst still allowing overall floorspace of a neighbourhood centre to sit below the 1700-2500 m² threshold which defines a good walkable centre. The discussion paper finds that overall consumer benefits are maximised when this occurs, as the need for car travel is minimised whilst still providing a competitive retail environment for most daily needs. The discussion paper suggests that competition between larger centres means ensuring that market dominance does not occur, in terms of the main retail anchors in competing centres, and in terms of the ownership of those centres. This also relates to be identification of appropriate sub-markets and looking at the market dominance of single retail operators within that area.

8 9

42

ACT Retail Model – Final Report Dec 2007 prepared by Ian booth IBECON Pty Ltd. ‘Enhancing retail competition through the planning system’ – discussion paper of July 2009 prepared by Angus Witherby, Director Wakefield Planning.

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

4.2 Local Centre Supermarkets ACTPLA describe10 the intended primary function of local centres as meeting convenience-shopping needs and providing community and business services to meet the daily needs of neighbourhoods, particularly for people with low mobility. They provide a community focus and potentially reduce the dependence on private or public transport. While local centres can be argued as promoting sustainability (lower car usage), social (provision of a community focus, locally available goods and services) and health benefits (encouragement of walking), ACTPLA consider such benefits are only achieved if the centres remain viable. In 1980, local centres provided 11% of the retail space in Canberra and received 14% of retail expenditure. In 2007 the estimated share of sales at local centres was 11%, this decline is considered to result from factors including extended trading hours at higher-level centres, the population’s preference to undertake supermarket shopping (based on range and price) at larger centres, the small population catchments of some local centres and the increased workforce participation of women. The local centres developed in Canberra Central prior to the mid 1960s were larger with the size reduced thereafter to reflect the introduction of group centres into the hierarchy. The retail and services components at local centres range in size from 100 m² to 3,500 m² (gross floor area). In response to the declining trading position the ACT Government introduced measures to facilitate change at the local centres. The initiatives have included programs to upgrade public infrastructure, the widening of lease purpose clauses and the land uses permissible, incentives to undertake redevelopment, the development of vacant land and the provision of business advice (ACT Government, 1999). Higher density housing is now permitted adjacent to local centres in excess of 500 m² gross floor area. Some centres have responded by reconfiguring themselves to attract speciality clientele from a wider area with planning policies relaxed to remove the requirements for convenience retailing where a centre providing convenience retailing was within 1500 m2. Several centres have closed, primarily in locations with small population catchments while another centre has redeveloped at a greatly reduced scale of retail provision. Local communities, valuing the service and focal point provided by the local shops, are often opposed to the redevelopment proposals. In response to these trends local centres in developing areas are either being spaced more widely to provide a greater population catchment to assist their viability or the release conditions, while requiring commercial space, do not mandate the requirement for the provision of convenience retailing. In the latter case, generally adopted to serve areas with a small population catchment, it is up to the market to determine the mix of commercial uses at the centre. While noting that the size of the local centres has changed over time in response to planning philosophy and market trends, ACTPLA indicate that there is no specific space limitation on the ‘anchor’ supermarkets other than it should be proportionate to the associated retailing and commercial space. 10

Retailing in Canberra ACTPLA Planning Services Branch June 2009.

43

Discussions with and submissions from IGA independent supermarket operators emphasised the competitive opportunity many perceive from enlarging their floor space areas. However, they argued for a limit of 1000 m2 despite the fact that would restrict competitiveness with larger format stores. ALDI point out that there are a number of group centres in the ACT where, for a variety of reasons including planning inflexibility, there are no short term prospects for the establishment of competing supermarkets. In these particular circumstances, ALDI believes there is scope for relaxation of planning/zoning rules in adjacent local centres to enable the establishment of smaller supermarkets. ALDI’s stores, for example are substantially smaller than those operated by the MSCs (around 1300 m2 including amenities versus 4500 m2 respectively) and have shorter operating hours and controlled delivery times. ALDI contends that there is a strong case for consideration of supermarkets under 1500 m2 as appropriate in local centres where there is no realistic prospect of supermarket competition in the adjacent group centre. Introduction of new and expanded formats at local centres or any other level in the retail hierarchy can only be pro-competitive. Stakeholder objections to such initiatives appear to reflect incumbents’ self-interest to protect their own competitive position rather than promoting retail grocery competition. ACTPLA’s approach to allow the market to determine these parameters in local centres seems more appropriate than applying some threshold that would inhibit efficient and diverse competition.

4.2.1 Giralang Local Centre – Woolworths Proposal The Review’s attention was drawn to a Development Application for a large format Woolworths store of 2570 m2 to be established in a re-development of the Giralang local centre in Belconnen. Beyond constraints of the planning hierarchy and claimed impact on other local centres and the Kaleen group centre competitive sustainability, there would not appear to be any trade practices based competition problems with such a development. The Review has been informed that on 17 July the ACCC gave informal clearance to Woolworth’s acquisition of the Giralang supermarket site. However, this merely means that the ACCC are indicating that the Giralang development would not be illegal under the substantial lessening of competition provisions of Section 50 of the Trade Practices Act. It does not mean that in the ACT market there are not alternatives to the Woolworth’s acquisition that would be more pro-competitive. There are issues related to achieving an optimum competitive mix in north east Belconnen. There are also wider issues of Woolworth’s market dominance in the ACT that are discussed later in this review. Similar issues relate to the acquisition by Woolworths of a site at Kingston in South Canberra.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

The Review held meetings with the President of the Giralang Resident’s Action Group. A site visit was conducted to the Giralang local centre and the Kaleen group centre. ACTPLA was in the process of assessing the Giralang Local Centre Development Application when this Review was being finalised. Caroline Le Couteur, ACT Greens MLA in her submission11 to the review emphasised the importance of flexibility in reacting to positive and negative aspects of local centre evolution. She stated in this respect: ‘As local centres continue to be upgraded, largely to reflect the fact that the majority of people now do the bulk of their shopping at large major supermarkets, the need for local shops and the use of the areas is changing. Lively local shops tend to have a small supermarket, plus some of the following: a café, a bakery, a pub, a chemist, local services, a second hand shop, some restaurants, etc. Often (and preferably) the shops are situated next to the local school.’ ‘For such local centres to continue to be viable, they need to be in a place where people go, where people live. As transport modes have moved more and more towards multiple car ownership in each household, car-based shopping has become the norm. Thus it is up to the planners to ensure that transport/commuter routes pass by the local shops. Otherwise the local centre is likely to be unviable.’ ‘One way for planners to improve the scenario for unviable local centres, in neighbourhoods which desperately need to be enlivened, is to allow for development with mixed uses. This would mean possibly allowing two or three story developments whereby there are residential units above commercial shops and offices. This also serves to make local shopping centres safer in the evening, and almost guarantees a customer base for the businesses below.’ ‘I note that the Master Plan for Braddon has a mandatory level of commercial use on the ground floor across the whole area of proposed redevelopment (South of Haig Park), with residential use above. This mixed use development will add life to the area, while allowing Canberra to densify more sustainably. Perhaps this kind of development could be proposed around local shopping centres when they are redeveloped. At present maximum building heights are two stories for local centres, but perhaps in some suburbs – with local community consultation of course, it would make more sense to remove this restriction. This would allow the developer to make his profit, without having to resort to allowing the larger supermarket operators in to inappropriate smaller local centres.’ ‘This could work in Giralang. In many local centres, although only two stories are allowed on the area, there are three story apartment and townhouse buildings across the road. This seems inconsistent.’

11

Submission by Greens MLA Caroline Le Couteur to ACT Supermarket Competition Policy review.

45

4.3 Fyshwick – the Clearing House without a Supermarket ACTPLA cite Fyshwick as a further example of the planning hierarchy’s responsiveness to changing conditions. Fyshwick’s intended role was as an industrial area. From the late 1960s its function began to expand. A combination of weak, non-enforced lease purpose clauses and the lack of sufficient mixed use space near town centres, led to Fyshwick becoming the location of single level, low rent retailing floor space. The changed role of Fyshwick as a location for uses requiring a metropolitan catchment was recognised in the 1989 Fyshwick Policy Plan. The Plan did not limit the amount of retailing, but effectively excluded major supermarkets, discount department stores and department stores being developed in the area. The planning restrictions were eased in 2003 to further accommodate market demands by removing the floor space limit on bulky goods retailing. Another interpretation of the Fyshwick experience is that it became the ‘clearing house’ to keep the remaining ACT retailing centres ‘pure’ from unwanted market place intrusion. In terms of the current review it is not clear how the Fyshwick Policy Plan could exclude major supermarkets when it would appear that market demand would have justified at least one major supermarket in that area. Discussions with ACTPLA and other arms of ACT Government suggest that over the years existing retail food and grocery interests have lobbied heavily to oppose extensions of supermarket capacity that would have promoted competitive tension. Fyshwick is but one example.

4.4 Group and Town Centre Supermarkets Based on ACTPLA’s own analysis set out in Section 3 of the Review, the competitive heart of supermarket action in the ACT is at the group and town centre level where the large format supermarkets operate and account overall for 77% of supermarket floor space. Group centres are located at Calwell, Charnwood, Chisholm, Conder, Curtin, Dickson, Erindale, Hawker, Jamison, Kaleen, Kingston, Kambah, Kippax, Manuka, Mawson, Wanniassa and Weston. The 17 current group centres account for 38% of supermarket floor space and 43% of sales. The five town centres account for 39% of supermarket floor space and 38% of sales. Town centres and group centres contain the same intricate CZ1, CZ2 and CZ3 commercial zones. CZ1 Core Zone is the main business core of higher order commercial centres and is the primary location of shops, non-retail commercial uses, restaurants, commercial accommodation, and indoor entertainment facilities. Residential and community uses are also permissible, subject to design and siting to minimise incompatibility with primary uses.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

CZ2 Business Zone is intended for more fringe commercial activities, primarily non-retail commercial uses, commercial accommodation, and some restaurants and indoor entertainment and recreation facilities. Residential and community uses are also permissible, subject to design and siting, provided they are not incompatible with primary uses. CZ3 Services Zone is intended for fringe retailing, which includes bulky goods, light industry, service trades, service stations, restaurants and indoor entertainment and recreation facilities. Residential, non-retail commercial and community uses are also permitted subject to compatibility with predominant land uses. Until recently there has been a rigid adherence to a model of one larger supermarket per group centre and a standard approach of each of the two major chains competing head to head in the town centres. The town centre supermarket configurations are not of ACTPLA’s making as they reflect the general preference for owners of larger shopping centres historically to have at least one and generally two major chains as anchor tenants because of their purported drawing power. The 2008 ACCC Retail Grocery Inquiry expressed concern that the dominance of the major chains in the larger shopping centres appears to have been reinforced by covenants in lease agreements effectively denying the entry of an additional supermarket for a considerable length of time. The ACCC has announced it is investigating some restrictive covenants for possible breaches of the Trade Practices Act.

4.4.1 Competition in the Group and Town Centres The two major supermarket chains, Woolworths and Coles compete face to face in the four town centres (although neither has a supermarket presence in the City Centre) and in virtually all the group centres (but not face to face). Woolworths are in a particularly strong position in the ACT with 13 stores, 36% of supermarket floor space and approaching 50% of turnover. The only independents supermarkets in Canberra that operate in group or town centres and are in the larger category are the Supabarn stores at Canberra City Centre, Wanniassa and Kaleen plus the Supa IGAs at Kingston and Hawker (the latter is currently being expanded to over 2200 m2 floor space). Until 1996 there were four additional independent Cannons group supermarkets in Calwell, Erindale, Kambah and Kippax group centres. These were acquired by Woolworths in 1996 when Woolworths took over the Cannons group in a deal approved at the time by the ACCC. Included in that acquisition was Cannon’s wholesale distribution centre in Hume that Woolworths subsequently closed, cutting off an important alternative source of wholesale supply to Canberra independent retailers. In addition, in July 2004 the ACCC did not oppose Woolworth’s acquisition of the IGA Charnwood, a group centre supermarket in West Belconnen although Woolworths had two large format supermarkets at Belconnen town centre and Kippax group centre, 4.5 km and 2.5 km distance respectively from the Charnwood centre. The ACCC found that the anticipated entry of ALDI at the Kippax centre and a number of IGA stores in adjacent suburbs as well as a Coles supermarket at Belconnen town centre meant that the Woolworth’s acquisition ‘was unlikely to result in a substantial lessening of competition’ in Charnwood and the surrounding area retail market.

47

The entry of ALDI stores in three town centres and four group centres over the last eight years has provided an important competitive dynamic in the ACT, as it has in other parts of eastern Australia where ALDI have established 205 outlets. The seven current ALDI locations are at: Conder, Kippax, Jamison and Weston group centres and Tuggeranong, Canberra City and Gungahlin town centres. Of these seven ACT locations, only the first two are freehold sites which were facilitated by the ACT Government’s direct land sales to ALDI. The remaining five ACT stores are leased properties in existing shopping centres.

4.4.2 Existing Group Centres, Kingston and Dickson Under Review ACTPLA is currently undertaking an Urban Planning Framework Review for two key group centres in central Canberra, Kingston in south Canberra and Dickson in north Canberra. The supermarket implications of these reviews and the opportunity to enhance competition are discussed in Section 6.5.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

5. Current Competitive Dynamics of the ACT Supermarket Grocery Sector The material in Sections 3 and 4 demonstrate the unique characteristics of the way the ACT food and grocery market has evolved and been influenced by various stakeholders. The manner in which the centres hierarchy has developed in the ACT has created a spread of supermarket offering from local convenience shopping to the more price competitive and larger product range of the group and town centre supermarkets. The overall comments made to the Review suggest the supermarket grocery sector has worked reasonably well – almost despite itself. The ‘big brother’ role of the planning system has come in for criticism as being too rigid and something of a silo from the competitive market place. However several stakeholders noted ACTPLA’s preparedness to consider market based arguments to facilitate upgrades and increased capacity in centres. ACTPLA has also indicated they are responding to competitive market dynamics in regards to future development at Molonglo and centre renewals. One sign of a disconnect has been the detailed data and analysis ACTPLA provided to the Review on retailing and supermarkets in Canberra based on a 2007 stocktake. This data adopted its own definition of a ‘supermarket’ that is wider than the generally accepted market definition and included many stores that would be regarded more as specialty (e.g. Asian) rather than a mainstream supermarket. It is recognised that the distinctions can become blurred particularly as new formats like organic food supermarkets and green grocers extending into dry grocery lines emerge. For the purpose of assessing competitive dynamics in the current ACT supermarket regime the Review has utilised data and definitions applied by the market players as set out in Appendix 1 to arrive at the following broad competitive breakdown of supermarket operations. ACT Supermarket Shares of Floor Space and Turnover 2009 Group

Floor Space %

Turnover %

ALDI

7.5

8.7

Coles

21.0

20.6

7.0

7.7

Woolworths

39.2

51.6

IGA and other smaller independents

25.3

11.4

Supabarn

49

Canberra has placed emphasis on ensuring provision of local centre convenience supermarket shopping. Hence the high proportion of floor space going to IGA and other independents. However these smaller independents wherever they are located do not compete on price with larger supermarkets that in Canberra have traditionally been housed only in the group and town centres. In the past 15 years there have been dramatic shifts in this larger end of the market with the exit of two independent chains - Cannons and Franklins that operated full line supermarkets from the ACT. Countering the adverse impact of these larger independents exiting the market saw the emergence of a new hybrid, the limited range, keenly priced ALDI stores. This has meant that competitive pressures have been increased around centres where ALDI has located. But it has meant that a gap has developed in competition for the full line supermarket sector with Woolworths dominant at 59% of that market, Coles 31% and Supabarn the only independent chain operating at that level in Canberra with 10%. There are signs that Supa IGA are tentatively moving into this space with a Supa IGA at Hawker group centre expanding into a full line service following a similar (but smaller) venture at Karabar in neighbouring Queanbeyan. The combined 90% share of this sector in the ACT held by the two major chains is slightly above the national average of 87% identified in the 2008 ACCC Grocery Report. Of perhaps the greatest concern for competitive dynamics has been the slow pace in adding new supermarket capacity in areas of apparent under supply in central Canberra and Gungahlin. How this issue is best addressed is covered in Section 6.

5.1 Influence of the Major Chains Woolworths emphasised in their submission that supermarkets compete with a range of alternative retailers for the sale of food and groceries. These retailers include a range of alternative retailers such as butchers, fishmongers, bakeries, greengrocers, produce markets, convenience stores, pharmacies, delis and multi-cultural grocers. Woolworths consider competition between these retailers occurs across a spectrum of relevant competitive factors, including price, quality, service, range and convenience. While these formats have different characteristics, they are ultimately seeking to meet the same consumer demand, and to increase their sales and share of sales in the face of competition. In the ACT, Woolworths is the clear supermarket leader with 39% of total floor space and 51% of sales which is a remarkable performance in efficiency of floor space utilisation. However, when the market is defined more narrowly to full line supermarkets in the ACT, Woolworths accounts for 59% of market share of full line supermarkets.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Woolworths submitted that its commitment to quality, range, value, service and convenience in a competitive landscape makes it an important part of the diverse and competitive retail food and grocery sector, consistent with the ACT Supermarket Policy. Woolworths emphasises that it competes with other retailers not just in relation to price and range, but also service levels, convenience and product quality. Coles in its submission pointed out that ACT supermarkets attract a higher share of the total food market12 (82.9%) compared to other States (except the Northern Territory) due, according to the virtual non existence of strip centre shopping and relatively weak local centre hierarchy to support alternative food retailers. Coles has 21% of floor space and 21% of turnover which indicates it is attracting less patronage per square metre of retail space than Woolworths. Coles consider that the ACT market is diverse in terms of number and style of supermarket operators. They note the small number of new store developments over the past 10 years. They have identified a three point strategy covering growth in new centres, gaps in existing centres where there could be a new entrant and expansion of existing stores. The Coles’ and other stakeholders’ forward strategy is discussed in Section 6. The Review was informed that as anchor-tenants the major chains pay a decreasing level of real base rent over time. This was because the supermarkets are the main drawing mechanism for a centre and all the other specialist stores feed off the traffic the supermarkets create. Both the major chains have increased their private label ranges partly in response to the competitive pressure from ALDI’s entry into the Australian market and partly as a means of maintaining discipline on suppliers. Both Coles and Woolworths have significantly expanded their activities in petrol and liquor retailing developing loyalty shopper docket schemes linked to their supermarket operations. These schemes have been criticised by independent competitors in each of these sectors but the ACCC found that the schemes were on balance procompetitive. There can however be no question that this bundled marketing increases the market power of the two major chains. In addition the two majors’ operation of general merchandise stores like Big W and Target and electronics stores like Dick Smith provide strong bargaining power (compared to competing supermarket chains) over centre developers with an alternative to by-pass centre developers and control shopping centres themselves.

5.2 Influence of the Independent Sector There are approximately 50 Independent supermarkets in the ACT in the smaller (under 1000 m2) category. The main banner group by far is IGA but other independent banners represented include Friendly Grocer, Foodworks and Five Stars. These smaller independents are generally located in local centres or industrial areas. They are owned and operated by small entrepreneurs and are generally regarded as convenience retailing. They have approximately three to five thousand lines per store. 12

ABS Retail Trade Catalogue 8501

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There are presently only three Supa IGAs in the ACT. These are generally around 1000 m2 to 1500 m2 and have approximately 12 000 lines per store. IGA Distribution stress it is not a franchise, bound by rules of engagement and their retailers have elected to utilise a representative group called the IGA NSW/ACT State Board. This Board is formed by the IGA membership electing 4 representatives of SUPA IGA and 4 representatives of IGA from across NSW. The ACT is guaranteed one seat on the board. John Krnc (from Hawker, Lyneham IGA and Karabar Supa IGA) is the current ACT representative. This group meets monthly with IGAD to discuss current strategy issues and opportunities, as well as the health of the brand and future strategies. IGA Distribution offers a wide range of retail services to support the IGA Network. Some are user pay, but many are not. IGA Distribution also apply a set of standards relating to product, service and other performance in order for supermarkets to maintain membership of the IGA banner group. These are discussed below in Section 5.6 Non-Price Competition Factors. IGA’s are supplied by Metcash. Metcash were identified by the ACCC as having a virtual monopoly on the wholesale supply to independent supermarkets nationally. Metcash are the dominant wholesale supplier to independent supermarkets in the ACT. IGA and the other smaller independents are considerably more expensive (as identified by Grocery Choice) and are not considered direct competition for the two major chains or other full line supermarkets. It has been submitted that Metcash are now purchasing and developing supermarket sites. It is also suggested Metcash are funding their IGA operators into supermarket development sites on the basis that the supermarket operation is tied to IGA and trading terms are dictated by Metcash to the operator for the duration of the supermarkets trading life. Metcash is also identifying supermarket sites and acquiring the head lease then subletting to an IGA operator and once again dictating the trading terms for the ultimate benefit in the main of Metcash’s wholesale operations. Metcash are known to have taken an ownership position in certain independent retail chains which operate some larger independent supermarkets in different parts of the country. Local IGA operators who spoke to the Review claimed they were not controlled by Metcash and while they secured a majority of their supply from Metcash they are able to source some dry grocery items and most fresh items from alternative suppliers. As reported in Section 4.2 Review, discussions with and submissions from IGA independent supermarket operators emphasised the competitive opportunity many perceive from enlarging their floor space areas although also suggesting an overall limit around the 1000 m2 mark.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

5.3 Influence of Supabarn Supabarn is a locally owned independent full line supermarket. Supabarn is the largest independent supermarket chain in ACT/NSW (apart from Franklins) and has approximately 35,000 lines per store. It competes directly with Coles and Woolworths with three stores in the ACT and at four sites it has developed in parts of Sydney. Supabarn’s competitive position against the major chains was identified by the ACCC in its decision to oppose the Woolworths acquisition of an independent site at Karabar, Queanbeyan. It has greater volume than smaller independents to buy direct from suppliers and bypass Metcash if it can get a better supply deal which results in cheaper prices. Supabarn is particularly competitive on price and quality in its fresh departments. Woolworths has challenged Supabarn’s claim that Supabarn has thousands more items than Woolworths. The Review did not have the resources to verify either party’s claims. Suffice to say that as an independent full line operator, Supabarn has an impressive number of lines and appears to have put real competitive pressure on the major chains. The issues of price competitiveness and non price competition factors between the full line supermarket groups are discussed in Sections 5.5 and 5.6.

5.4 Influence of ALDI In relation to at least a number of its seven current ACT stores (and as is the case in numerous locations around Australia), ALDI contends that its presence has served to revitalise commercial precincts in a state of significant decline. ALDI anticipates an expansion program in Australia of around 25 stores a year for the foreseeable future and a medium to long term national store network of between 400 to 500 stores. ALDI currently has 7.5% of supermarket floor space in the ACT and 8.7% of turnover and is actively looking to expand its business in the ACT and has been doing so for some time. ALDI is currently in the process of finalising an eighth store at Belconnen town centre in the ACT – this store is scheduled to commence operation by around the end of 2010. Overall, ALDI considers its current store network in the ACT is still relatively thin with large gaps appearing in the store network coverage. ALDI’s approach is informed by the objectives of building the market in areas that are relatively undersupplied or have poor access to supermarkets as well as building the ALDI brand. Possible areas for further ALDI entry are identified in Section 6.

5.5 ACT Price Comparisons The Review drew on an ACT Treasury Survey of May 2009 and the November 2008 to June 2009 Grocery Choice national survey as an indication of price competiveness among supermarket operators in the ACT and between the ACT and other regions. The Grocery Choice data for the period to June 2009 is set out in Appendix 2.

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The Review also received price comparison information from the major chains. The two independent surveys came up with reasonably similar outcomes and are consistent with the finding in last year’s ACCC national Inquiry into Retail Grocery Prices that the market is workably competitive. Both surveys have deficiencies associated with static and limited collections of price information. It is noted that the Commonwealth Government has announced its discontinuation of support for Grocery Choice because of inherent deficiencies. Supermarket chains have been urged by the Commonwealth Government to make their pricing transparent by publishing full and real time prices on their web sites. Based on these most recent price surveys the following limited points can be made: •

Coles and Woolworths have generally similar prices across stores in the ACT with only very small price differences where they are co-located in Town Centres.

•

ALDI has lower prices for a basket of basic staples around 25 % less than the major chains but once again there are deficiencies in ensuring comparison of like with like.

•

The ACCC had reported that proximity to ALDI stores by the major chains tended to result in lower prices by the chains but the ACT Treasury survey found no compelling evidence that proximity to ALDI impacts on prices charged by other supermarkets. It is noted in this regard that Woolworths had signalled to the ACCC Inquiry an intention to move to nationally based prices for items apart from fresh food a development confirmed to this review by Woolworth’s representatives.

•

Supabarn the only independent chain operating larger format supermarkets (at three locations) in the ACT appears to be in the range of 5 to 10 % above the major chains for the Grocery Choice summation of baskets and the basic staples basket. However the ACT Treasury Survey demonstrates that in comparison to some individual Coles and Woolworths stores the difference for the basket is of the order of 3 to 5 %.

Grocery Choice also indicates that ACT grocery prices are on a par with most surrounding NSW and Sydney metropolitan regions for the two major chains and ALDI. Franklins – the larger format independent – rates slightly ahead of but very close to the prices of its ACT equivalent, Supabarn. The biggest difference is the general independents category where the ACT appears to be higher than other NSW regions. This would reflect the fact that the ACT does not tend to have larger format independents such as Supa IGAs and virtually all ACT independents are below 800 m2 in floor space.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

5.6 Non-Price Competition Factors As mentioned in Section 5.3 Woolworths submitted that range and price comparisons conducted by them in the context of the ACCC’s consideration of the Karabar site in 2008 indicated that Woolworths had a broader range of products offered at lower prices than Supabarn. As the only full line competitor to the two major chains in the ACT Supabarn maintains its claim to have a significantly wider and diverse range than Woolworths. As stated previously it is not for this Review to try to adjudicate on these relative claims. However, as an independent full line operator, Supabarn has an impressive number of lines. Supabarn submitted that its independent Mystery Shopper surveys demonstrate levels of service, range, quality of fresh produce and presentational points of difference that put their three ACT stores ahead of the major chains and other supermarkets in terms of consumer satisfaction. The Supabarn survey use as a benchmark a maximum of three minute waiting at check-out counters. Throughout the Review and particularly during the community consultation, what appeared to be neutral comments were received praising the Supabarn shopping experience. Based on the syndicated Roy Morgan Supermarket Monitor, analysing only ACT data from June 2007 to May 2009, Woolworths claims to perform ahead of other competitors in the vast majority of questions. However, the Roy Morgan Survey paradoxically excludes Supabarn because it claims their sample size in Canberra is insufficient to pick up the three Supabarn stores. Woolworths submits it performs very well in terms of customer satisfaction measures, such as convenience of trading hours, availability of parking, location and range of brands. They suggest different responses also give strong evidence of the way in which the different competitors contribute to customer choice. For example, the diversity allows customers whose sole focus is low price, to shop at ALDI, whereas customers who want to balance broader range, a stronger fresh produce offer, convenience and good value, can choose to shop at a full line supermarket. Woolworths pointed to efforts to introduce more express lanes to deal with the large number of smaller basket shoppers. Woolworths also pointed to the self-serve check-out systems they are trialling that appear to be another solution. The Roy Morgan Supermarket Monitor asked the question ‘which, if any of the following statements do you associate with each supermarket?’ It should be noted that data was used for the period June 2007 to May 2009 rather than the usual one year period to increase the sample size and was among each store’s own shoppers.

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Roy Morgan Supermarket Monitor ACT – Among Store’s Own Shoppers

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WOW

ALDI

Coles

IGA

Sample size

525

276

418

261

They have convenient trading hours

75%

31%

69%

44%

They offer discounts on petrol

72%

0%

64%

3%

They are close to home

68%

48%

49%

68%

They have easy parking

64%

55%

62%

45%

They are located where I do other shopping

62%

45%

56%

13%

They have a good range of brands

55%

9%

51%

18%

You can buy everything there

55%

6%

45%

10%

They are clean and tidy

51%

47%

53%

38%

They have a good range of homebrands

48%

27%

41%

6%

They have a good delicatessen

47%

2%

30%

9%

They have good weekly specials

47%

45%

44%

19%

They have the brands I want

47%

15%

43%

15%

They have a good range of fruits and vegetables

45%

18%

39%

12%

They are well laid out

44%

31%

43%

23%

They have a good range of packaged groceries

41%

25%

39%

14%

They are good value

39%

70%

36%

17%

They have a good range of bread and bread rolls

38%

13%

29%

10%

They have good quality fresh bread and bread rolls

36%

21%

24%

12%

They have good quality fresh meat

36%

30%

29%

16%

They have good quality fresh fruits and vegetables

35%

30%

27%

15%

They have Internet shopping facilities

34%

0%

15%

0%

They provide good service at the delicatessen

32%

2%

22%

7%

The brands I buy are always in stock

30%

12%

28%

10%

They have trolleys that are clean and work well

30%

52%

28%

13%

They have low prices

29%

76%

26%

9%

They have high standards of food safety

29%

20%

24%

15%

They have friendly and helpful staff

29%

26%

28%

31%

They give good service at the checkouts

28%

38%

26%

34%

They offer good nutritional food

27%

25%

28%

17%

They have hygienically prepared food

26%

18%

21%

13%

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

WOW

ALDI

Coles

IGA

They have good convenience food

24%

16%

23%

12%

They have good quality seafood

23%

6%

12%

3%

They have a good range of already prepared/semi-prepared meals

22%

11%

20%

5%

They are handy to work

21%

13%

15%

15%

They have low fruit and vegetable prices

20%

47%

20%

5%

They have low meat prices

20%

42%

21%

4%

They offer discounts to their shareholders

9%

1%

9%

1%

They have special discounts for regular shoppers

9%

4%

8%

2%

They offer a good range of financial services

6%

1%

2%

1%

They are a fun and entertaining place to shop

3%

6%

3%

5%

Source: Roy Morgan Supermarket Monitor, Data period coverage: June 2007 - May 2009.

Woolworths referred to the fact that the ACT Government is currently in the process of establishing principles and developing a strategy for growing a ‘Green Economy’ for the ACT.13 Woolworths contends it is a prime example of a sustainable business with a coherent and innovative Sustainability Strategy that sets clear goals and targets. Woolworths submits that it not only has the opportunity to secure environmental sustainability but also secure jobs and industry well into the future. In the ACT, Woolworths employs a total of 3,096 employees who work across all divisions, with 2,309 employed in the supermarket area. Woolworths says its commitment to the ACT community extends far beyond the simple construction of retail facilities, and as a result Woolworths brings significant community benefit to areas where it develops supermarkets. For example, in relation to the Conder Group Centre Woolworths developed the design for a community plaza (which has since been constructed adjacent to the main entrance of Lanyon Marketplace); and developed and handed over accommodation to the ACT Playgroups Association at no cost to the Association. These aspects of the project were clearly onerous to Woolworths, but resulted in the provision of facilities of significant community benefit. Both Coles and Supabarn pointed to significant steps they have taken to improve the environmental impact of their stores. IGA adopts a uniform retail strategy focusing on consumer needs and desires. The focus is on delivering a consistent high quality and good value retailing experience to customers.

13 Media Release, Chief Minister Jon Stanhope, ‘UC study to kick-start Green Economy strategy’ (18 June 2009) < http://www.chiefminister.act.gov.au/ media.php?v=8131>.

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IGA Distribution submits that it is a brand that leverages both buying power and harnesses the enterprise of small business entrepreneurs. The success is measured by growth, competitiveness and the sustainability of the IGA network, as judged and facilitated by the consumer. IGA is a brand that independent supermarkets can apply for. The primary application criteria is store standards - an IGA brand on a supermarket means it is a superior independent supermarket. The Retail Standards Appraisal – ‘RSA’ is utilised to determine the standard of Independent Supermarkets that hold the IGA Brand. Operating under a range of standard benchmarks has proven to be a successful formula for growth and business health. Legislative compliance is highly weighted in the score. The RSA scores store standards and brand compliance benchmarks as a ‘STAR RATING SYSTEM’: 5 stars is excellent - 0 stars results in warnings to comply or brand cannot be maintained on the outlet. The IGA standard benchmarks include: •

size dictating range and offer and competitiveness;

•

food safety criteria;

•

cleanliness;

•

overall shopping experience;

•

customer service;

•

promotional compliance; and

•

community involvement and donation.

IGA Distribution employs AC Nielson to independently assess the ‘scores’. AC Nielson does not check the stores, rather it checks consumer feedback which IGA Distribution claims is the ultimate test of competitiveness, honouring the brand promise and rating IGA versus its competition. These feedback reports from the focus points of improvement and are discussed in Regional Meetings with IGA Retailers to get improved strategies set and executed. There are nine regions in the IGA NSW/ACT division and each has varied results. IGA Distribution believes that examining consumer sentiment on a state and territory-wide basis is the best approach to determining standards.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

6. Approaches to Future Development and Re-Development Opportunities This Section draws together the implications of the three previous Sections relating to ACT supermarket structure, the planning hierarchy and the current competitive dynamics to address the key questions the ACT has sought from this Review relating to: a) The effectiveness of competition and diversity in the current supermarket structure and how future trends are likely to play out in the ACT. b) The adequacy of present arrangements and the ACT Government’s supermarket competition policy in the light of the ACCC Inquiry into the competitiveness of retail prices for standard groceries, and the Commonwealth Government’s response to that report. c) Ways the ACT Government can support effective and sustainable competition in the retail and wholesale grocery sector over the short, medium to longer term including advice on: •

an overarching policy framework to guide the long run development of the supermarket grocery sector in the ACT;

•

policies, procedures and processes that might be applied on a site by site basis to ensure site allocation supports the ACT Government’s longer term policy objectives;

•

the role of local planning authorities in supporting competition policy;

•

appropriate competition criteria that might be used in assessing the eligibility of applicants for direct sales; and

•

any other additional measures including responses to any current supermarket development proposals that might be considered by the ACT Government to facilitate a diverse and competitive retail grocery sector.

6.1 Supermarket Competition Outcomes in the ACT Like the national retail grocery market, the ACT market appears to be reasonably competitive in terms of both price and non-price measures especially since the entry of the ALDI budget stores. However, the supply of supermarket capacity has fallen behind demand in central Canberra and Gungahlin. Given that population projections 2007 to 2012 show a 50,000 (15%) increase in the ACT population, there will be increasing pressure on supermarket capacity. The current competitive situation continues to have deficiencies in terms of choice and diversity despite market initiatives such as the entry of a contemporary Asian food chain the Hub, fruit and vegetable outlets Mother Nature and the renovation and expansion of the South Canberra fresh food markets at Fyshwick.

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At the local centre convenience level a reasonable range of choice and diversity is available but there are question marks around the sustainability of some centres. There is a clear need to facilitate expansion of some local centre independent supermarkets to enable them to be more price competitive. Woolworths submitted that the high proportion of customers currently shopping for their food and groceries at smaller supermarkets and other specialty retailers in the ACT demonstrates that there is no reason for the ACT planning regime to be amended to specifically favour smaller operators or to distinguish between larger and smaller operators. Woolworths refers to Roy Morgan market research from the ACT that indicates customers engage in cross-shopping across different supermarket operators and the differing store formats such as specialists. For example, the Venn diagram below (prepared by Roy Morgan on the basis of the Roy Morgan Supermarket Monitor as at May 2009, surveying the supermarkets that participants shopped in over the last month) showed that 74.3 % of consumers shopped at other retailers in addition to or instead of Woolworths and Coles for their food and groceries.

Supermarket monthly cross-shopping behaviour in the ACT

Woolworths (incl. Online and Plus Petrol) (78.7%)

Coles/Coles Express/Coles Online (59.3%) 8.3%

2.7%

14.6%

29.2%

26.6%

12.9%

5.7%

Other Supermarkets/Convenience Stores (74.3%)

Base: All supermarket shoppers in the last 4 weeks in ACT. Source: Ray Morgan Supermarket Monitor (2 years to May 2009).

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

A significant trend in grocery retailing has been customers making more frequent, lower-value purchases in each visit to meet their short term needs for food and groceries (top up trend). This has resulted in a shift away from a shopping mode in which customers make infrequent visits to a single retailer for a high value purchase of a ‘trolley’ of products. As a result of this trend Woolworths argue, larger scale supermarkets compete ever more closely with small supermarkets, convenience and specialty stores for the same retail sales, with each format adopting competitive strategies to capture these customers. The Review accepts that implicit in the ACT supermarket policy is the emphasis upon small food stores/diversity to meet customer demand. Cross shopping data and other survey results are evidence that customers are currently choosing to shop regularly at other grocery retailers in addition to large format supermarkets. From views and information put to the Review through private submissions and the community consultations, the main competition deficiency in terms of choice and diversity is not between these other retail grocery sources and full line supermarkets but within the market for full line supermarket services. As the issues from the community consultations set out at Appendix 4 indicate there was concern to have greater choice and dynamism at some of the group centres. The entry of ALDI stores in group centres Jamison and Cooleman Court was considered to have lifted the competitive vitality of these centres and seen as a complementary lift in supermarkets in some surrounding local centres. For the reasons mentioned in Section 4 and 5, five larger format independent stores in ACT group centres were acquired and replaced by full line Woolworths stores. Now in Canberra the only full line supermarkets are three stores of the independent Supabarn chain, two of which are in group centres. It is in this area that the adequacy of current supermarket competition can be challenged. Given the dominance of the two major chains the difficulty for an independent full service supermarket chain to gain a solid foothold in the ACT is almost insurmountable without some form of government intervention to reduce the barriers to their further entry. When the ACT Government announced the current policy for supermarket competition, it was from a starting point that competition outcomes had historically been determined by the ACT’s retail planning and zoning hierarchy. It is somewhat artificial to extrapolate ‘supermarket specific’ issues from wider retail planning and zoning issues in the ACT. The following assessment examines factors affecting supermarket competition in an overall retail planning context and efforts the ACT Government has made in recent years to make the system more adaptable.

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6.1.1 Impact of Planning and Site Allocation Policies in the ACT Some submissions to the Review felt the planning system in the ACT worked despite the rigidities. There was recognition among many stakeholders and members of the community that Canberra is well served by its centres hierarchy fed by an excellent road infrastructure. The ACT is considered to be a unique market because average incomes are 30-40 % above the national average. The ACT region market is currently around 340,000 residents but population growth has been relatively slow. Representatives of shopping centre owners indicated that Canberra is markedly different to other regions they operate in. In particular there is a gap between the town centre and group centre level which has had to be picked up by extending the concept of both. In other states there is a greater tendency to nominate what are termed ‘activity centres’ and allow the developers greater freedom to determine the sizes of the various retail outlets including supermarkets. Developers consider the rigid planning system has for 30 to 40 years tended to stutter in its allocation of sufficient retail space. In 1996, the ACT had a moratorium on future retail space expansion because of projections that retail spend per capita would decline. In fact the retail spend has subsequently increased and as a result there have been shortages of retail space supply that led to developments such as the brand depot outlet in Fyshwick. Section 4.1 described how a BIS Schrapnel study in 1997 suggested that there should be a relaxation of the rigidity of the existing retail hierarchy in the ACT and the associated planning regime. The study argued that this would allow greater competition, leading to increased levels of investment and ultimately improvements in retailing facilities and amenities for the consumer. From this study the Chief Minister’s Department released a report ‘ACT Retail Sector – New Directions for Government’ (1999) which stated in part that: ‘The concept of a rigid retail hierarchy will be replaced by a more flexible and dynamic structure which better reflects changing and evolving consumer and market needs.’ Yet the most frequent comment in submissions and during discussions focussed on criticism of planning hierarchy rigidities.

6.1.2 Planning/Zoning Restrictions and Rigidities The main competition criticism of the existing system is the rigidity of the approach to the 17 group centres that has effectively precluded the introduction of a second supermarket until recent precedents created by the entry of ALDI into four group centres – two of which were facilitated by direct land sales by the Government to ALDI.

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Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

A problem in many of the group and local centres in the ACT is the disparate and fragmented ownership, including different strata ownership within particular centres and the failure by many of those owners to re-invest to keep the centre up-to-date and competitive. It has been suggested that the existing Territory Plan responds poorly to demands of the market. In particular it is claimed planning rules for group centres concentrate too much on micro managing land without due regard to emerging market trends and the various zoning categories should be deregulated and the whole centre zoned ‘core’ to allow greater density development for mixed commercial and residential uses. ALDI considers planning/zoning restrictions within group centres inhibits supermarket competition and recommends that planning instruments be updated and modified for all relevant group centres within the ACT to allow for and, in fact, encourage competition between supermarket operators. As noted earlier ALDI believe that a complementary short term measure would be to free up entry of their medium size store into a limited number of local centres. ALDI also believes that in order to achieve a greater degree of supermarket competition in the ACT, the Government should also consider modifying the Territory Plan so that it is possible for standalone supermarkets to be considered in other zonings. For example, ALDI does not believe there is any good public policy or planning reason why one of its stores would not be appropriate in a bulky goods or light industrial zone in close proximity to other group centres. On the other hand the Review heard from ACTPLA, other arms of government and some stakeholders of a willingness to respond to market and competition dynamics by facilitating expansion of supermarket capacity in some local, group and town centres including through direct sales of government land where appropriate. The ongoing reviews of the Kingston Group Centre and Dickson Group Centre Urban Planning Framework Reviews and the supermarket entry issues involved provide live case studies of how supermarket competition policy can be integrated with the planning and re-development system. These two Reviews offer an important opportunity to enhance supermarket competition in its widest sense in the inner north and inner south of Canberra. These redevelopments are discussed further in Section 6.5.

6.1.3 Reform of the ACT’s Planning System and Direct Land Sales The Planning and Development Act 2007 (Planning Act) came into effect on 31 March 2008 and repealed the Land (Planning and Environment) Act 1991. This new legislation reforms the ACT’s planning system and introduces changes to the statutory framework for granting leases, including the direct sale of land. Administrative changes have been developed to complement the legislative reforms and significantly improve the timeliness of direct sales through a more effective, streamlined process.

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s.240 of the Planning and Development Act states the Executive may approve a direct sale if it meets one or more of the following objectives: •

benefit the economy of the ACT and region;

•

contribute to the environment or social or cultural features in the ACT;

•

introduce new skills, technology or services in the ACT;

•

contribute to the export earnings and import replacement of the ACT and region; or

•

facilitate a major policy objective.

The LDA provide leases under delegation from ACTPLA and control direct sales of sites in conjunction with the CMD. The LDA regularly receive applications for direct sales and have over recent years developed much tighter criteria for eligibility to replace the previous ‘first-in first-served’ system. A key feature of the current process is an interdepartmental ‘Assessment Panel’ to assess the eligibility of direct sale applicants and their proposed use of land before they can lodge their Direct Sale Application with the LDA. The Panel is co-ordinated and supported by a Secretariat located within the CMD. The role of the Assessment Panel is to: •

assess the eligibility of applicants and their proposed use of land;

•

assess from a whole-of-government perspective how a proposed direct sale will benefit the community and meet or contribute to the achievement of government policy objectives; and

•

identify alternative means to a direct sale where appropriate, eg an expression of interest.

Direct sales offer an efficient and transparent way of short circuiting planning and redevelopment constraints to enable new entry or expansion of existing supermarkets. Any actions by the ACT Government to support retail diversification over time through site facilitation, involves consideration of localised issues and factors as well as broader competition issues. It also needs to consider the integration of the new supermarket into the overall amenity and attractiveness of a centre. As mentioned earlier, recent reform of the ACT’s planning has significantly improved the timeliness of the direct sales process. LDA advise that in the last five years direct sales related to supermarkets involved new ALDI stores at Conder and Kippax and the expansion to existing supermarkets at group centres in Curtin (Coles), Mawson (Woolworths), Calwell (Woolworths) and Wanniassa (Supabarn).

6.1.4 Potential Conflict Between Competition and Revenue Objectives Some submissions raised a problem in the ACT of a conflict of interest that occurs where the government as the operator of the land release program also has direct control over site usage of privately owned land. In other words, the government may see itself as a competitor and could use its powers to ensure a maximum sale price for new land that it owns. 64

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The ACT is not the only jurisdiction to face such a challenge but strong adherence to a coherent retail and supermarket competition policy should ensure that a proper balance is maintained.

6.1.5 Importance of Coordination and Facilitation to the Supermarket Competition Policy It is apparent that an important element of the Supermarket Competition Policy is the development and coordination arm of ACT Government moving to improve responsiveness to market and competition needs. The establishment of the Land Development Authority and the 2008 Planning and Development Act are key parts of improving that process. Given the limited understanding and reactions demonstrated by some stakeholders of these reforms to the ACT system, it seems there needs to be a much clearer structure to facilitate optimal competition outcomes. This could include consideration of whether some levelling of the playing field for large format independent entrants is justified and how it could be achieved with minimal distortions and within a pro-competitive framework. Possible approaches including an overarching policy framework are discussed in Section 6.7.

6.2 The Challenge for Independents to Secure Competitive Wholesale Supply There are no wholesale operators in the ACT and region for the grocery industry. Previously G&L Warehouse operated by a group of independents on a co-operative basis was purchased by David’s/Metcash and subsequently closed. Further, a warehouse operated by the Cannons group in Hume was purchased by Woolworths and was also subsequently closed. Woolworths, Coles, and ALDI all service their ACT stores from Sydney or Melbourne warehouses. Independents are serviced by a warehouse in Sydney owned by Metcash, the only wholesaler available to independents. Major manufacturers/suppliers generally refuse to supply independent retailers direct and refer them to Metcash. Alternatively, the suppliers will only supply the independents at the same price as Metcash will supply them. This ‘catch 22’ relating to the monopoly wholesaler was an important finding from the ACCC Retail Grocery Report. The wholesaler Metcash maximises returns to its wholesale operation in such a manner that independent retail prices are non competitive with the major chains to be sustainable.

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6.3 Future Trends and How They are Likely to Play Out in the ACT Shopping Centre Council representatives indicated that with the global financial crisis there is far less private investment available. For the ACT just to maintain its share of retail investment they considered there needs to be less direct and rigid control by ACT planners and greater flexibility in working with investors to get good competitive outcomes. They referred to comparable retail planning systems in other states some of which have also initiated reviews prompted in part by the ACCC Grocery report. For the ACT the challenge going forward is not just to facilitate effective supermarket and overall retail competition in the full sense of the term, but to ensure it successfully attracts the capital to secure the necessary new centre developments and re-developments.

6.3.1 Socio-Demographic Trends in the ACT Population Distinguishing features of the demographic profile of the ACT population that would influence the purchasing power and buying patterns of ACT consumers include: •

ACT income levels are substantially higher than averages for each other metropolitan areas and above Australia overall;

•

the average age of ACT residents is lower than relevant benchmarks, with representation in the 20-29 and 30-39 age groups well above national averages; and

•

the proportion of households comprising couples with dependent children is greater in the ACT than nationally, as well as slightly higher than other metropolitan averages.

The ACT population is projected to increase by 50,350 persons, to a total population of 390,100 persons by 2019. Much of the Territory’s population growth is projected to occur in the new development areas of Gungahlin and Molonglo, with these areas increasing by 20,500 and 10,300 persons respectively. Lower-level growth is projected to occur in Belconnen, North Canberra, South Canberra, Woden Valley and Weston Creek. Tuggeranong is projected to experience a small decline of around 0.1 per cent per annum. The ACT’s population is expected to continue to age, with the percentage of the ACT’s population aged 65 years and over to rise from approximately 10.0% in 2007 to 14.3% in 2019. Overall, there is an expectation that the average number of persons in a household will decrease slowly over time, in line with national expectations from the ABS. The following table sets out population growth trends by major district.

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Table: Population Trends for Major Canberra Districts District

Projected Population

Growth (2007-2019)

Median Age (Years)

Sex Ratio (% of District Population, 2019)

2007

2019

Persons

%

2007

2019

Males

Females

North Canberra

45,050

53,000

7,950

17.6

31

32

50.9

49.1

Belconnen

88,400

94,850

6,450

7.3

33

36

49.7

50.3

Woden Valley

33,200

35,300

2,100

6.4

39

40

48.6

51.4

Weston Creek

22,900

23,750

850

3.6

38

41

49.0

51.0

Tuggeranong

89,750

88,250

-1,500

-1.7

33

36

49.3

50.7

South Canberra

25,200

28,950

3,750

14.9

38

38

49.9

50.1

Gungahlin- Hall

34,950

55,450

20,500

58.6

30

33

49.6

50.5

-

10,300

10,300

#

N/A

29

50.2

49.8

300

300

-

-

32

32

53.7

46.3

339,750

390,100

50,350

14.8

35

36

49.6

50.4

Molonglo Remainder of ACT Total- ACT

Source: ACT Government, Chief Minister’s Department.

6.3.2 Trends in the Grocery Market The predictable trends are that the major chains will continue to expand their grocery, petrol, liquor, electronics and general merchandise conglomeration to the extent allowable under Section 50 of the TPA. Woolworths has demonstrated world class supply chain management and will continue to set the pace in the supermarket development. There are signs Coles/Wesfarmers are lifting their supermarket performance. Whether this will alter the competitive stalemate the ACCC identified between the two chains remains to be seen. The ACCC observed that the lack of incentives for Coles and Woolworths to compete strongly across the board on prices reflects the high levels of concentration in the industry and frequent monitoring of competitors’ prices. It also reflects artificial barriers related to planning and zoning practices and the widespread existence of restrictive covenants in long term shopping centre leases held by the major chains. Evidence indicates that if one player attempts to lead prices down, the other will follow, making it extremely difficult for either to win significant numbers of customers from the other through an aggressive pricing strategy. The third major force, the independent grocery retail sector supplied by wholesaler Metcash is likely to continue to be constrained by Metcash’s domination of the supply chain. However, Metcash is a very efficient operator and its competitive response to the expansion of an alternative independent wholesale supply could create great competition benefits. 67

Any expansion by an independent opens up the possibility of it becoming a wholesaler and hence becoming a competitor in a market that needs competition. The opportunity for the ACT’s own Supabarn to be part of an expanded alternative wholesaling operation would be an extra justification (beyond that of diversity and choice) to facilitate further Supabarn entry into retail outlets in Canberra. Unless a similar style overseas competitor also enters the Australian market, ALDI can anticipate continuing to penetrate its niche in the market as a complement rather outright competitor with full line operators.

Costco One potential new entrant to the ACT in time may be Costco which is in the process of introducing a new style of ‘big box’ retailing to Australia. As Costco derives the majority of its revenue through annual membership fees, it is able to price goods at between 8% and 15% above cost. Costco is one of the world’s largest retailers and operates an international chain of over 500 membership warehouses in eight countries. Costco operates out of simple warehouses and stocks a large range of products. Costco also operates petrol stations at a number of its United States and Canadian locations. It stocks 3500 to 4000 SKUs across categories that include groceries, sporting goods, jewellery and office supplies. The company claims that size and efficiency of these warehouses allow for lower costs than traditional retailers. Costco is only open to members, offering business and individual memberships. Currently, the annual fee for membership in Australia is $60. Costco is due to open its first Australian store in Melbourne’s Docklands precinct in mid-August 2009. Costco will occupy a 14,000 m2 warehouse format store in the Docklands with construction. It is expected to stock about 4000 product lines of groceries, whitegoods, electronics, cosmetics, jewellery, hardware and furniture. Given its different format, the extent to which consumers view Costco as a substitute to a full service supermarket remains to be seen.

6.3.3 Trends in Shopping Centre Development and Redevelopment Canberra has been designed around a hierarchy of commercial centres. Over time population growth, changing demographics and lifestyles have resulted in the role and function of centres changing. Group centres were introduced in Canberra in the 1960s in response to the emergence of supermarket retailing and have subsequently also become a focal point for fast food, coffee shops, restaurants, bars and speciality stores such as DVD rental. This has put pressure on many local centres some of which have declined but most of which are able to reinvent themselves in some cases with the local centre independent supermarkets able to expand capacity and competitiveness with full line stores in the group and town centres. 68

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This trend will continue and planners and decision makers in the ACT will need to ensure efforts to maintain local centre viability, including convenience grocery shopping facilities occurs, without impacting the higher priority of effective competition and diversity among the large format supermarkets in the group centres where the majority of grocery consumption occurs. This challenge requires appropriate competition responses to new area development and much needed redevelopment and new supermarket entry in existing group centres. ACT consumers will continue to prefer supermarkets to cover off most of their needs but the trend to patronising specialty stores and fresh food markets is likely to continue, albeit with solid competitive response from the supermarkets.

6.4 Measuring Adequacy of the ACT Government’s Supermarket Competition Policy The ACCC Inquiry into the competitiveness of retail prices for standard groceries, and government response to that report are relevant to the ACT Review in two main respects: •

planning barriers to entry of new competitors; and

•

adverse effect of the Metcash monopoly in wholesaling to the independent sector.

The following outline of these planning/zoning and wholesaling issues draws on extracts from the published ACCC Report.

6.4.1 The ACCC Recommendations on Planning and Zoning As stated in Section 2.2 the ACCC Grocery Report, inter alia, recognised that zoning and planning policies are designed to preserve public amenity. However, the ACCC identified that zoning and planning regimes, including existing centres’ policies, act as an artificial barrier to new supermarkets being established with the likely unintended consequence of potentially impacting on competition between supermarkets. In particular, existing centres’ policies, combined with the strong preference of existing centre owners to lease space to the major supermarket chains rather than independent supermarkets or new entrants, are likely to lead to a greater concentration of supermarket sites in the hands of Coles and Woolworths. The ACCC found that there is little regard to competition issues in considering zoning or planning proposals. Further, the complexities of planning applications, and in particular the public consultation and objections processes, provide the opportunity for the major chains to ‘game’ the planning system to delay or prevent potential competitors entering local areas. Given the high barriers to entry in grocery supermarket retailing, including the difficulty in obtaining suitable supermarket sites, the ACCC considered that new ways of incorporating competition analysis into planning decisions should be considered. 69

Hence the ACCC recommended that all appropriate levels of government consider ways in which zoning and planning laws and decisions in respect of individual planning applications where additional retail space for the purpose of operating a supermarket is contemplated, should have specific regard to the likely impact of the proposal on competition between supermarkets in the area. The ACCC recommended there should be particular regard to whether the proposal will facilitate the entry of a supermarket operator not currently trading in the area. As a result of endorsement of the ACCC finding by Commonwealth and State/Territory Governments, current reviews of retail planning systems are occurring in other states. It should be noted that the reviews in the other jurisdiction are covering retail wide planning issues and are not restricted to the impact on supermarket competition. In addition, the ACCC Report raised concern about the widespread use of restrictive covenants in long term centre leases held by the two major chains that effectively prohibited entry by a competing supermarket into those shopping centres. The ACCC contemplated recommending such restrictive covenants be made illegal but recognised that in some greenfield sites they were appropriate to underwrite risky large scale investments. Subsequently, the ACCC has been investigating restrictive covenants that could be having an anti-competitive effect. It is noted that recently the Commonwealth Minister responsible for Competition policy, Craig Emerson MP, raised the possibility the Government might consider a ban on the restrictive covenants. An alternative would be requiring that such arrangements go through the ACCC’s authorisation process to determine if their anti-competitive detriments are outweighed by public benefits.

6.4.2 Impact of Metcash Dominance of Wholesaling to the Independent Sector The ACCC identified that while Coles, Woolworths, ALDI and Franklins have their own wholesale operations, nearly all other supermarkets in Australia are supplied with their packaged groceries by Metcash. Most of these stores are smaller stores, which largely compete on the basis of convenience, service and local community ties rather than on the basis of price. Almost half the stores are below 500 m2 in size and only about a quarter are above 1000 m2. While small independent retailers provide a competition alternative, they do not contribute significantly to price competition. There are a reasonable number of independent supermarkets that have the size and location that should give them the ability to compete strongly with Coles and Woolworths on price. Indeed, some independent supermarkets do compete on price. However, the ACCC found that the prices Metcash sets for its wholesale packaged groceries are a significant factor holding many independent retailers back from more aggressive price competition. Metcash is the only significant wholesaler to independent supermarkets in Australia. Metcash sets its wholesale prices for packaged groceries in such a way that independent retailers can only compete with Coles and Woolworths on price by earning low net margins on the goods supplied by Metcash. Those independent retailers that attempt to compete on price make their profits on fresh products and individual items sourced directly from suppliers. 70

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Although Metcash is the only significant wholesaler to independent retailers, there are two significant threats that constrain Metcash’s pricing behaviour. First, independent stores can either individually or collectively establish their own wholesaling operations for packaged groceries, as Franklins has done. Secondly, there is the threat of the independent supermarkets losing sales to Coles and Woolworths. Both these factors were seen as constraints on Metcash’s pricing to independent supermarkets. However, they are limited constraints. Establishing a rival wholesale operation would involve overcoming many barriers and taking significant financial risk. Further, the agreements that Metcash has with independent retailers and suppliers, which restrict choice in dealing with players other than Metcash, may be protecting Metcash’s position and preventing the establishment of rival wholesalers. If Metcash raised its wholesale prices by a significant amount, many of the larger independent supermarkets that attempt to compete on price would struggle to survive and would lose sales. While sales to smaller independents that tend to compete on convenience rather than price would probably be less affected, overall the loss of sales would hurt Metcash. This constrains Metcash’s wholesale pricing to independents to some extent. However, Metcash has an incentive to set its wholesale prices to independent retailers under the pricing ‘umbrellas’ set by Coles and Woolworths. This limits the ability of independent retailers to compete aggressively on price. From the evidence available to it, the ACCC found the lack of scale is unlikely to be the reason for the higher wholesale prices for the independent sector.

6.5 Policies, Procedures and Processes That Might be Applied on a Site By Site Basis This section seeks to establish strategic policy responses to establish and regularly review processes, procedures and competition criteria to enable the government to facilitate entry of suitable independent full line chains in suitable new and redeveloped group centres to achieve a better balance of competitive tension, choice and diversity.

6.5.1 Competition and Diversity Policy Issues Relating to Facilitating New Entry The ACCC considered that new ways of incorporating competition analysis into planning decisions should be considered as a means of overcoming the high barriers to entry in supermarket retailing particularly the difficulty of new entrants to an area obtaining suitable sites. As discussed earlier in the Review it does not require sophisticated competition analysis to demonstrate that planning/zoning approaches in the ACT have left some regions deficient of competition in a quantum sense and that because of the rigidity of the planning hierarchy there has been a structural competition issue (in group centres) that has only begun to be addressed in recent years. 71

6.5.1.1 Role of the Trade Practices Act and the ACCC The ACCC clearly considered that the challenge of freeing up planning/zoning impediments to achieve improved retail grocery competition could not be left solely to its role in enforcing and promoting compliance with the Trade Practices Act (TPA). The TPA sets ground rules for where commercial activity may become anticompetitive through collusion in price fixing or market sharing, misuse of market power, certain exclusive dealing and acquisitions or mergers that result in a substantial lessening of competition in a market. However, not running foul of the TPA does not mean that the actions of a corporation are positive for competition For instance, an ACCC clearance of a proposal by a major supermarket chain for a particular site acquisition means that it is unlikely to substantially lessen competition and therefore is not illegal. A decision by the ACCC not to intervene does not imply there are no alternative outcomes that would increase competition, nor that the acquisition will not result in some lessening of competition, albeit a lessening that falls short of being substantial. In the case of some recent clearances by the ACCC of proposed Woolworths acquisitions of potential supermarket sites in the ACT at the Kingston group centre and the Giralang local centre, it would be open to the ACT Government to form a view that a restricted allocation of a site to a new or less dominant entrant through a direct sale or some modified form of bid process would result in an increase in supermarket competition. The ACCC in applying a ‘with and without‘ test to an acquisition is constrained by the legal definition in Section 50 of the TPA of a substantial lessening of competition in a market. Acquisition decisions by the ACCC under the TPA can be contested in the Federal Court. Over recent years the ACCC has extended and refined its analysis of sectors with sensitive degrees of market dominance, links to market power in related sectors and concerns over creeping acquisitions. The ACCC decision in 2008 to oppose a proposed Woolworth’s acquisition of an independent store site at Karabar in Queanbeyan, NSW (just over the south east border of the ACT) demonstrated the extent of market and competition analysis applied to the ‘with and without’ testing of independent acquirer alternatives for the site. An implication for ACT region supermarket competition is that two earlier ACCC clearances - where Woolworths acquired, firstly four group centre independent Cannons store sites in 1996 (three in Tuggeranong and one at Kippax) and, secondly an in IGA store site at Charnwood group centre in 2004 – are likely with the benefit of hindsight to have been rejected under current intensive analysis. While that is ‘water under the bridge’ it has created the situation where the ACT currently only has three independent full line supermarkets compared to 21 run by the two major chains. The real signal for the ACT Government is that it is in no way constrained by more recent ACCC clearances from intervening through the planning and land allocation system to achieve increased supermarket competition. 72

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A restricted approach for particular sites might not only preclude the two major chains but also Metcash controlled ventures. As discussed in Section 5.2 Metcash are now purchasing and developing supermarket sites, funding their IGA operators into supermarket development on the basis that the supermarket operation is tied to IGA and trading terms are dictated by Metcash to the operator for the duration of the supermarkets trading life. It is also known that Metcash have taken an ownership position in certain independent retail chains which operate some larger independent supermarkets in different parts of the country.

6.5.2 Sources of Competitive Tension and Diversity in the ACT The ACCC considered that new ways of incorporating competition analysis into planning decisions should be considered as a means of overcoming the high barriers to entry in supermarket retailing particularly the difficulty of new entrants to an area obtaining suitable sites. As discussed earlier in the Review, it does not require sophisticated competition analysis to demonstrate that planning/zoning approaches in the ACT have left some regions deficient of competition in a quantum sense and that because of the rigidity of the planning hierarchy there has been a structural competition issue (in group centres) that has only begun to be addressed in recent years. Section 5 identified that in the ACT the strongest competitive tension and diversity comes from ALDI and the full line independent chain Supabarn. Local IGAs and other independent stores and the few Supa IGAs in Canberra while also providing diversity are basically convenience outlets. They are so dependant on the high cost wholesaler Metcash that they are not generally considered price competitive. The lack of price competitiveness of local centre independents is to an extent offset by their greater personal attention, preparedness to supply unique products and links to the local community. The competition potential of further entry by ALDI or a full line independent chain not controlled by Metcash such as Supabarn, is discussed below.

ALDI As outlined earlier in this Review the vertically integrated ALDI has achieved a remarkable competitive impact as a fourth force in the sector. ALDI has indicated its further entry intentions in the ACT and removing barriers so that entry is being facilitated where possible. Whether that should extend to direct intervention through further direct sales needs to be assessed on a case by case basis.

Supabarn Supabarn is an independent full line chain that over time has sourced a decreasing proportion of its supply from the wholesaler Metcash.

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6.5.2.1 Supply Chain Issues As mentioned earlier in the Review, Metcash have got an overwhelming proportion of the independent retail sector locked in to sourcing dry groceries from the wholesaler at supply prices that make even full line independents uncompetitive with the majors. This ‘catch 22’ relating to the dominant wholesaler was an important finding from the ACCC Retail Grocery Report. Metcash also seemed intent on extending that exclusive supply arrangement across to fresh products but the ACCC intervened based on findings from its Grocery Inquiry. Thus there is a supermarket competition scenario where the market leader Woolworths, has a comfortable lead over its main competitor Coles, in supply chain efficiencies and an independent third force dominated by the wholesaler Metcash maximising returns to its wholesale operation in such a manner that independent retail prices are non competitive with the major chains to be sustainable. Metcash is a very efficient operator and if competitive pressure was placed on it via an expansion of alternative independent wholesale supply there could be considerable competition benefits.

6.5.2.2 Retail Market Competition Performance Woolworths challenged Supabarn claim to have a wider product range than Woolworths (according to Supabarn it has around 35,000 items approximately 4000 to 5000 more than the majors). These issues were discussed in Section 5. What is undeniable is that Supabarn: •

does stock items that the majors do not stock;

•

sources a large proportion of its fresh produce locally (as do most of the other ACT independents);

•

has fresh produce of reputedly equal or better quality and variety than the majors;

•

has a unique service culture and regime that provides assistance to customers to locate items and stipulates a maximum three minute delay at the cash register;

•

provides an attractive store format; and

•

maintains a continuous improvement regime underpinned by its Mystery Shopper survey in each of its three stores.

Anecdotally, Supabarn stores are popular with patrons for maintaining these key points of difference from the major chains. At the five community consultations there was support for more Supabarn stores and observations from consumers that they saw little difference between the two major chains.

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Supabarn prices appear to be in the range of 5 -10 % above the major chains for the Grocery Choice summation of baskets and the basic staples basket. However, the ACT Treasury Survey demonstrates that in comparison to some individual Coles and Woolworths stores the difference for the basket is of the order of 3-5%. There is scope for Supabarn to become more price-competitive if it can secure more favourable wholesale terms. Of course the real test of consumer preference, apart from dollars through the cash register, is hard survey data which the Review found difficult to obtain. Given that the survey material supplied by Roy Morgan to Woolworths does not cover Supabarn, it is difficult to draw conclusion on the relative non price merits of Supabarn and the majors. The Supabarn Mystery Shopper provides a limited snapshot that indicates the high level of performance Supabarn achieves and the fact that it seems to outperform some outlets operated by the major chains.

6.5.3 Market Cap Proposals The Review received a range of suggestions as to how improved competition and diversity outcomes might be achieved including calls for a cap on market share. A discussion paper prepared for IGA Distribution14 recommended that: ‘Implementation of a 25 % floor space dominance test within specified regional markets would ensure that new supermarket opportunities within regional and subregional markets were largely taken up by small players or new entrants. Given the network of existing supermarkets, this should ensure additional competition.’ It incorrectly claimed that this approach was supported by the ACCC Retail Grocery Inquiry. The discussion paper proceeded to conclude as follows: ‘To further the aims of National Competition Policy, the town planning system can be utilised to improve the competitive environment with respect to retailing. This can operate through a floor space dominance test set at 25% of the floor space owned or managed by a single retail operator within both regional catchments and within the ACT overall. A floor space dominance test can also be applied at the neighbourhood level to avoid dominance of a neighbourhood centre by a single retailer, and also to maintain neighbourhood centres at an appropriate scale to maximise walkability. A floor space dominance tests can be used as a ‘trigger’ for the conduct of rigorous and comprehensive net community benefit tests where proposals come forward outside the trigger levels. Finally, it is noted that the leasehold system within the ACT provides an alternative mechanism for implementing floor space dominance controls other than the conventional land use planning system. ‘ 14

‘Enhancing retail competition through the planning system’ Angus Witherby, Director Wakefield Planning July 2009.

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The Review’s attention was also drawn to the announcement on 17 July 2009 by the UK Competition Commission confirming its proposal for a planning ‘competition test’. The test seeks to ensure no single company accounts for over 60% of grocery sales in a given area. The UK issues are based on entirely different market density and structure and a less coherent competition regime than applies in Australia. The UK Competition Commission position and analysis has been questioned on technical and market reality grounds. The cap proposed in the IGA Distribution discussion paper, based on current data would impact immediately on Woolworths because of its domination of almost 40% of supermarket floor space in the ACT. Many sound arguments were put against introducing a market share cap of any kind. Apart from the definitional and measurement problems it was regarded as distorting the operation of the market place and punishing success of Australia’s most popular and efficient supermarket chain.

6.5.4 New Entry Facilitation Through Planning/Zoning Controls and/or the Direct Sales Process There was support through submissions and consultations for concrete action by the ACT Government to facilitate entry of truly independent larger format supermarkets. This is consistent with earlier discussion in this Review that given the impediments to independent full line supermarkets and/or ALDI entering new or existing group centres, there may be competition/diversity grounds in appropriately defined cases for the ACT Government to intervene through the direct land sales process. ALDI and the independent locally based chain Supabarn, both put in submissions in support of pro-competition government intervention. ALDI’s experience is that where land is released for general commercial or retail usage, supermarket operators will tend to be uncompetitive in a general auction situation. ALDI support land releases in both existing and new group centres that specify a supermarket usage for a given site and restrict it to an acquirer not already present in the area. ALDI contend that this latter requirement is particularly important because a likely market response by an incumbent MSC operator in a particular group centre would be to acquire the new site for a larger supermarket and ‘backfill’ their existing site with a different retail offering within their broader conglomerate interests. Supabarn submitted that supermarket competition should be promoted in the ACT through the direct sale of land to recognized full line supermarket operators who compete directly with Coles and Woolworths. The major chains did not support use of direct sales in this manner unless it is based on an open tender. Yet the major chains have themselves been the beneficiary of direct sales to facilitate extensive expansion of capacity in several group centres. Those facilitated expansions despite favouring a major chain have been good for competition. 76

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The economic argument in favour of an open tender is that it allows the market to determine what the true value of a site is and returns the maximum revenue to the community. The counter argument is that a participant aiming to maintain a degree of market power may be willing to pay well in excess of the market value (sometimes referred to as ‘deep pockets’ or ‘whatever it takes’ syndromes). In order to get the best competitive outcome it may be necessary to apply some restrictions. The Review considers the approach to facilitate entry of an independent could involve either limited tender direct sales or appropriate clauses in the lease requirements, if it was considered more appropriate to ensure ownership integration in the sale of a new group centre (possibly even a single developer). Special zoning regulation for this purpose could be cumbersome and vulnerable to legal challenge in contrast to the targeted, site-by-site and transparent direct sales process. Strategies should be developed for different areas and circumstances. The redevelopment of existing group centres is where flexibility in approach is most likely to be required to secure the best overall outcome in collaboration with property owners

6.5.5 Framework of New Entry Opportunities in Existing and Growth Areas The following scenarios are indicative only, are subject to the criteria in Section 6.6 and are scheduled in a loose fashion for potential assessment and follow through in the context of the overarching policy framework outlined in Section 6.7.

6.5.5.1 Growth Areas In the short to medium term, the main new centre developments are scheduled to occur at Gungahlin and subsequently the yet to be commenced West Canberra residential development at Molonglo. It is important that at an early juncture, the progression of the following plans that ACTPLA has advised the Review, for centre development in these two regions, be subject to coordination procedures and new entry criteria of the above overarching competition policy framework. The development of the procedures and competition/diversity criteria is discussed in Sections. 6.6 The Review received a range of comments over the planned new developments, many of which were based on self interest. Generally the blue print for Molonglo was regarded as realistically structured but questions were raised over the mix and apparent lack of flexibility in Gungahlin.

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Gungahlin The only full line supermarkets in Gungahlin are in the town centre with the predictable combination of Coles and Woolworths plus an ALDI. There are presently no group centres in Gungahlin. The proposed group centres are Casey, Amaroo, Kenny and Moncrieff. The Casey and Amaroo Centres will be released in 2010/11. The Moncrieff and Kenny centres are scheduled to be released in accordance with population growth. Reflecting a more flexible approach ACTPLA consider the Casey and Kenny sites will be of sufficient size to accommodate two large supermarkets. Existing Gungahlin local centres are Palmerston, Nichols, Ngunnawal, Platapus and Mitchell. There is also the mixed use development at Yerrabi Pond. New local centres (CZ4 policy) planned are Crace, Casey, Taylor, Jacka, Bonner, Forde, Harrison, Franklin, Throsby and possibly Kenny (CZ5). Noting earlier comments that the Supermarket Competition Policy framework should re-assess the centre mix and the overall approach in Gungahlin, the following options are based on the present proposed group centre configuration and the two major chain’s position in the town centre.

Amaroo Full line independent plus a possible ALDI (released in 2010/11).

Casey One of the two full line supermarkets to be an independent plus a possible ALDI (released in 2010/11). Progress with these and other similar developments should be closely monitored and assessed before any subsequent decisions are taken on other growth centres.

Molonglo Molonglo will be served by a large centre probably based around two large supermarkets and a discount department store. The timing of its release will be related to population growth in the area. The population of the area when fully developed will be approximately 55,000.

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A smallish group centre is planned north of the Molonglo River. The Territory Plan indicates five local centres (CZ4) and commercial retail is likely to be developed in the CZ5 areas of Coombs and Wright (first suburbs in the area). The future multiple supermarket group centre development offers a further opportunity to facilitate specific independent entry but the approach should be informed on progress with progress in Gungahlin and some existing centre ‘gap filling’ referred to below as well as experience with the overarching approach to supermarket competition policy

6.5.5.2 Existing Areas The main competition criticism of the existing system made to the review is the past ‘one size fits all’ approach in the 17 group centres that has effectively precluded the introduction of a second full line supermarket until recent precedents created by the entry of ALDI into four group centres – two of which were facilitated by direct land sales to ALDI. Although the Review has not had the opportunity to assess the impact on all those group centres where ALDI entered it was clear from submissions and comments at the Community consultations that the extra competition from ALDI was universally welcomed. It has lifted overall performance and consumer appeal in a group centre such as Jamison.

Central Canberra The immediate opportunities arise in the inner north and south of Canberra and justify some direct sales to ‘jump start’ and guide the process. There is a strong case on competition and diversity grounds for a full line independent store that meets the criteria in Section 6.6 being established in the Kingston/South Canberra centre renewal. This case is based on: •

Woolworths current dominance in north Canberra;

•

Coles dominance in south Canberra; and

•

the expectation that at least one of the majors will be able to establish a further full line store in Canberra City.

The Review was briefed on the Urban Planning Framework Reviews for Dickson and Kingston/south Canberra. These two ACTPLA reviews present an immediate opportunity to apply the overarching supermarket competition policy framework proposed by this Review including the competition criteria linked to direct land sales discussed in the following Section 6.6. According to views expressed to the Review these ACTPLA reviews are long overdue and their need is reflective of a serious shortfall in full line supermarket offering in central Canberra. 79

From submissions to this Competition Policy Review it seems the blatant delay in responding to a need to regenerate supermarket supply in these areas can only partly be attributed to planning rigidities. These two group centres also appear to have been subject to a degree of inertia by the respective investors not assisted by an antipathy in central suburbs (mainly engendered by local centre shop keepers) that would rise to a frenzy over any suggestion of introducing additional full line supermarket capacity. The ACTPLA Briefs for the Dickson and Kingston/South Canberra framework review provide the opportunity to fill a serious supermarket competition and diversity gap. ACTPLA have been responsive to supermarket competition aspects of these two reviews. The scenarios are quite different and it is reassuring that ATPLA has recognised the constraints on a re-developed Kingston centre to accommodate appropriate full line supermarket and ALDI entry consistent with suitable ambience, amenity and infrastructure performance. Canberrans would be concerned if mistakes of the Manuka re-development were to be repeated. Accordingly, the Kingston review has embraced a more lateral approach that could see re-development being partly based in the Eastlake/Fyshwick market area where considerable scope would appear to exist for a full line supermarket and an ALDI at more realistic market entry costs. For instance ACTPLA states it seeks to ‘identify opportunities and constraints for potential supermarket sites within the Kingston group centre and the broader area of Canberra’s inner south including:

80

•

site size;

•

pedestrian catchment;

•

existing servicing of area;

•

access to the site for pedestrians, cyclists, public transport and motorised vehicles;

•

impacts on existing surrounding uses ie noise, odour and visual;

•

existing uses which will support multi-purpose trips or opportunity to implement uses which support multipurpose trips;

•

effect of traffic from supermarket on road network;

•

effect of supermarket on existing retail ie Kingston group centre, Fyshwick and the urban renewal of Eastlake;

•

effect of future population growth and demographic;

•

is there physical infrastructure supportive of a supermarket such as the road network, sewer, water, stormwater, gas, electricity and gas;

•

what hazards affect the site ie contaminated land and flooding;

•

does the location create competition with other existing supermarkets; and

•

is the urban planning framework supportive of a supermarket?’

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

From the information collected an analysis is being undertaken to determine which sites would be appropriate for a supermarket. While Dickson is far less constrained, ACTPLA has indicated that all options are on the table to free up zoning restrictions within and to the east of the current centre precinct to facilitate a possible additional full line supermarket and/or expansion of Woolworths and certainly entry of ALDI. A second full line supermarket in Dickson could be justified from a competition perspective but it is difficult to see a basis for excluding Coles from contesting the entry stakes. The eventual capacity and mix at Dickson will have an impact on the demand for and nature of an additional large format store in Canberra City town centre which the market will determine when Canberra Centre lease restriction run out in a few years.

Other Group and Town centres Over time it would be appropriate under the overarching frame-work to review other group and town centres by region, drawing on experience from successful redevelopments such as Jamison and central Canberra as it unfolds.

Local Centres As referred to earlier, ACTPLA’s stated approach is to allow the market to determine how existing local centres expand in a way that is consistent with public amenity and enables those stores to provide a more competitive offer against full line stores in larger centres and space local centres in developing areas either more widely or apply more flexible conditions. This seems to combine competition and planning requirements. For existing local centres facing sustainability pressures, the most suitable and least distortive approach is proposed in the submission by the Greens spokesperson, based on local centre conversion to intense, multi story residential usage combined with a proportionately scaled commercial and convenience usage. These processes should be subject to regular market feedback and monitoring within the supermarket competition framework.

6.6 Appropriate Competition Criteria to Assess Eligibility for Direct Sales The criteria recommended to assist new independent supermarket entry through the planning and land distribution, needs to be based on transparency and objectivity. The approach adopted should be consistent with broad market definition and competition analysis applied by the ACCC in its assessment of acquisition proposals. These parameters are set out below.

81

6.6.1 Market Definition a)

Potential Parties •

Analysis of the potential supermarket companies likely to bid for a site.

b) Site Details •

Identification and description of the characteristics of the potential site.

c) Market Participants •

Competitors.

•

Potential competitors.

•

Customers and consumer representatives.

•

Wholesale suppliers.

•

Government bodies.

•

Other interested parties.

d) Market Size •

In the Karabar decision the ACCC considered a local retail supermarket area of 3-5 km radius surrounding the Karabar market.

•

ACCC uses a ‘forward looking purposive approach’ taking into account that a new supermarket may attract customers from further afield.

•

ACCC also takes into account the state wide wholesale market.

e) Liquor Markets •

Local market for retail sale of liquor.

•

Statewide wholesale market for liquor.

6.6.2 Competition Analysis a)

82

‘With/Without Test’ •

In assessing a merger pursuant to Section 50 of the Trade Practices Act, the ACCC must consider the effects of the transaction by comparing the likely competitive environment post merger if the transaction proceeds (the ‘with’ position) to the likely competitive environment post merger if the transaction does not proceed (the ‘without’ position).

•

This tool has been used by the ACCC in measuring competitive impacts in supermarket competition.

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

b) Price Competition •

Competitive analysis of relative prices provided by the potential competitors in other markets.

•

Use of promotions.

•

Ability to shop around for the best prices at different supermarkets.

c) Range of Products •

Differences in the composition and range of products offered.

d) Fresh Produce •

Examination of supply chains for fresh produce.

e) Levels of Service • f)

Numbers of staff per customer.

Liquor •

Combined offerings of supermarket and liquor.

g) Other Competitive Responses •

Additional promotional activity.

h) Local Considerations

i)

•

Road access.

•

Other development in the area.

Wholesale Markets for Food •

j)

Impact on competition at the wholesale level.

Wholesale Market for Liquor •

Impact on wholesale competition.

83

6.6.3 Eligibility Criteria The criteria recommended to assist balanced new independent supermarket entry through direct sales needs to be based on transparency and objectivity. Submissions and comments suggest criteria for a suitable operator along the following lines: •

a full line retailer and competitor to the major supermarket chains as identified by the ACCC Inquiry Report and not controlled by Metcash;

•

a minimum of 10 years trading history in full line supermarket;

•

demonstrated the ability and infrastructure to run several full line supermarkets;

•

demonstrated financial capacity;

•

acceptance of restrictive conditions if resale of the site occurs within 15 years; and

•

additional weight be placed on potential for the site acquisition to improve the applicant’s capacity to operate at the wholesale level through the establishment of a supermarket warehouse in the ACT, which would be available to all independent operators.

This criteria is likely to confine the potential candidates for initial sites to a Supa IGA not controlled by Metcash, Supabarn and the NSW independent chain, Franklins. They are applicable to the growth area centres and the Kingston/South Canberra renewal as identified in the previous section. The criteria should be reviewed within a three year period to assess impact on supermarket competition and diversity and any necessary adjustments made to this element of the competition strategy. The use of direct sales of sites for ALDI entry in some centres and expansion of existing centre supermarkets should continue to be facilitated as a priority on a case by case basis.

6.7 An Overarching Framework for Planning/Zoning Reform and Coordination This section examines ways the ACT Government can support effective and sustainable competition in the grocery sector over the short, medium to longer term, taking into account the findings and recommendations of the 2008 ACCC Inquiry. There is currently a somewhat disjointed set of components of a grocery competition policy that requires overhaul in terms of coherence, refinement and coordination to guide the ACT going forward. Part of the problem is that supermarkets are a subset of retail and community infrastructure more generally, which in turn, is a subset of overall urban planning and development. With its renowned planning hierarchy and limited geographic spread, Canberra is potentially in a good position to overcome these complexities. 84

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Based on information and analysis put to the Review, essential components of an overarching Supermarket Competition Policy framework that incorporates:

6.7.1 Coordination Mechanism Establishing a formal coordination mechanism between ACTPLA, LDA and the facilitation arm of CMD to create a cohesive and transparent approach to planning and competition issues in growth areas and exiting centres addressing: •

zoning reform in group and town centres;

•

the evolvement of local centres; and

•

facilitation of new supermarket entry on a site by site basis.

6.7.2 Regular Review and Assessment CMD establishing and chairing a forum between the key agencies and industry stakeholders to periodically (at least annually): •

review planning/zoning processes;

•

assess progress on the supermarket competition framework; and

•

update the type of data and analysis set out in this Review.

6.7.3 Applying Competition and Diversity Procedures and Criteria Applying the procedures and competition criteria discussed in Sections 6.5 and 6.6 to enable the Government to facilitate entry of suitable independent full line chains and/or ALDI in suitable new and redeveloped group centres to achieve a better balance of competitive tension, choice and diversity in this main area of supermarket retailing. That criteria and related objectives should be reviewed within a three year period to evaluate their impact and need for refinement.

6.7.4 ‘Fast Lane’ Priority to Central Canberra Shortages Addressing and using as ‘test cases’ the shortage of full line supermarket capacity and competition imbalance in some existing central Canberra group centres (south Canberra/Kingston, north Canberra/Dickson) and Canberra town centre by: •

utilising a combination of direct land sales (applying, analysis, criteria and processes described earlier in this section) and collaboration with existing investors in the context of ongoing urban planning framework reviews. 85

6.7.5 Other Group and Town Centre Reviews Over time, similarly reviewing other group and town centres, moving away from the ‘one size’ fits all approach, learning from and drawing on redevelopments such as Jamison.

6.7.6 Facilitating Sustainable Local Centre Competitiveness In relation to local centres, no artificial constraints should be placed on supermarkets in appropriate centres to expand in a way that is consistent with public amenity and enables those stores to provide a more competitive offer against full line stores in larger centres. Local centre independent stores could be boosted if moves to increase independent wholesale competition are successful. ACTPLA’s approach to allow the market to determine these parameters in existing local centres and to space local centres in developing areas either more widely or apply more flexible conditions should be reinforced subject to regular market feedback. For existing local centres facing sustainability pressures, solutions should be based on conversion to intense, multi story residential usage combined with a proportionately scaled commercial and convenience usage (as proposed in the submission by the Greens spokesperson).

86

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Appendices Appendix 1:

2009 Update of Supermarket Retailing in the ACT

Appendix 2:

ACT Grocery Choice Price Comparisons

Appendix 3:

List of submissions

Appendix 4:

Reports on Community Consultations

87

APPENDIX 1 2009 Update of Supermarket Retailing Floor Space in the ACT

m2 GFA

Town Centres Core North Canberra

Civic

1,400

ALDI

Tuggeranong

Tuggeranong

1,100

ALDI

Gungahlin

Gungahlin

1,326

ALDI

Belconnen

Belconnen

86

Asian Groceries

North Canberra

Civic

200

Asian Groceries

North Canberra

Civic

44

Asian Groceries

Tuggeranong

Tuggeranong

180

Asian Groceries

Belconnen

Belconnen

3,460

Coles

Tuggeranong

Tuggeranong

3,164

Coles

Gungahlin

Gungahlin

3,695

Coles

Woden

Phillip

3,400

Coles

Tuggeranong

Tuggeranong

270

Hub

Gungahlin

Gungahlin

354

Hub

Gungahlin

Gungahlin

140

Hub

North Canberra

Civic

401

IGA

North Canberra

Civic

837

IGA

Tuggeranong

Tuggeranong

1,303

Mother Nature’s

North Canberra

Civic

3,700

Supabarn

North Canberra

Civic

176

Unspecified

North Canberra

Civic

472

Unspecified

North Canberra

Civic

50

Unspecified

Belconnen

Belconnen

4,820

Woolworths

Tuggeranong

Tuggeranong

5,674

Woolworths

Gungahlin

Gungahlin

4,583

Woolworths

Woden

Phillip Core

4,100

Woolworths

Total Space

88

44,935

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

m2 GFA

Town Centres Core Town Centre Business Area Belconnen

Belconnen STA

230

Asian Groceries

Belconnen

Belconnen STA

102

Asian Groceries

Belconnen

Belconnen STA

111

Asian Groceries

Belconnen

Belconnen STA

60

Asian Groceries

Woden

Phillip STA

60

Asian Groceries

North Canberra

Braddon STA

Woden Woden

130

Indian Foods

Phillip STA

70

Indian Foods

Phillip STA

53

Unspecified

816

Total Space

Group Centres Core

 

 

Tuggeranong

Conder

1,720

ALDI

Woden/Weston

Cooleman Court

1,395

ALDI

Belconnen

Kippax

1,700

ALDI

Belconnen

Jamison

1,360

ALDI

Belconnen

Kippax

Woden

Mawson

Tuggeranong

Chisholm

2,508

Coles

Woden

Curtin

2,008

Coles

South Canberra

Manuka

3,362

Coles

Belconnen

Jamison

4,010

Coles

Woden

Mawson

90

Belconnen

Hawker

742

IGA

South Canberra

Kingston

1,136

IGA

South Canberra

Manuka

Belconnen

Kaleen

2,529

Supabarn

Tuggeranong

Wanniassa

1,546

Supabarn

Tuggeranong

Calwell

1,722

Woolworths

Belconnen

Charnwood

2,753

Woolworths

Tuggeranong

Conder

3,497

Woolworths

North Canberra

Dickson

3,055

Woolworths

62

Asian Groceries

168

Asian Groceries

178

Continental Groceries

Jones the Grocer

89

m2 GFA

Town Centres Core Tuggeranong

Kambah

1,611

Woolworths

Belconnen

Kippax

3,430

Woolworths

Woden

Mawson

4,000

Woolworths

Tuggeranong

Erindale

2,972

Woolworths

Weston Creek

Weston

2,778

Woolworths

48,937

Total GC Core

Group Centre Business Areas North Canberra

Dickson STA

40

Asian Groceries

North Canberra

Dickson STA

75

Asian Groceries

Tuggeranong

Erindale STA

132

Asian Groceries

Belconnen

Kippax STA

80

Mini Market

North Canberra

Dickson STA

170

Unspecified

North Canberra

Dickson STA

94

Unspecified

591 Local Centres

90

Belconnen

Charnwood Local

308

4 Seven Day Food

North Canberra

Braddon Local

130

5 Star

Weston Creek

Duffy Local

185

5 Star

Belconnen

Scullin Local

319

5 Star

Belconnen

Spence SE Local

354

5 Star

Tuggeranong

Theodore Local

270

5 Star

Woden

Farrer Local

264

Cut Price

Tuggeranong

Gordon Local

450

Foodworks

Belconnen

Higgins Local

395

Foodworks

Weston Creek

Holder Local

180

Foodworks

Belconnen

McKellar Local

480

Foodworks

Woden

Pearce Local

413

Foodworks

North Canberra

Campbell Local

280

Friendly

Belconnen

Cook Local

577

Friendly

Woden

Garran Local

223

Friendly

Tuggeranong

Gowrie Local

572

Friendly

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

m2 GFA

Town Centres Core Tuggeranong

Kambah Local - Castley

594

Friendly

South Canberra

Red Hill Local

441

Friendly

Belconnen

Spence NW Local

474

Friendly

Belconnen

Latham Local

175

Handymart

North Canberra

Ainslie Local

Tuggeranong

1,200

IGA

Banks Local

404

IGA

Weston Creek

Chapman Local

392

IGA

South Canberra

Deakin Local

1,029

IGA

Belconnen

Evatt Local

724

IGA

Belconnen

Florey Local

860

IGA

Belconnen

Fraser Local

293

IGA

North Canberra

Hackett Local

887

IGA

Belconnen

Holt Local

422

IGA

Woden

Hughes Local

768

IGA

Tuggeranong

Isabella Plains Local

385

IGA

Belconnen

Kaleen Sth Local

530

IGA

North Canberra

Lyneham Local

559

IGA

Woden

Lyons Local

566

IGA

Belconnen

Melba Local

263

IGA

Tuggeranong

Monash Local

450

IGA

South Canberra

Narrabundah Local

960

IGA

Gungahlin

Ngunnawal Platypus Centre

388

IGA

Gungahlin

Nicholls Local

630

IGA

North Canberra

O’Connor Local

385

IGA

Gungahlin

Palmerston Local

426

IGA

Tuggeranong

Richardson Local

606

IGA

Weston Creek

Rivett Local

273

IGA

Weston Creek

Waramanga Local

255

IGA

North Canberra

Watson Local

338

IGA

South Canberra

Yarralumla Local

600

IGA

Tuggeranong

Isabella Plains Local

100

Indian Foods

91

m2 GFA

Town Centres Core Woden

Mawson Local

40

Mini Market

North Canberra

Nth Lyneham Local

73

Mini Market

Weston Creek

Rivett Local

234

Mini Market

Gungahlin

Ngunnawal Local

180

Quik

South Canberra

Griffith Local

807

Shoprite

Tuggeranong

Mannheim

330

Sunshine

Tuggeranong

Bonython

172

Bonython Store

Woden

Chifley Local

221

Unspecified

Gungahlin

Hall Local

170

Unspecified

Woden

Isaacs Local

100

Unspecified

Tuggeranong

Tharwa Local

500

Unspecified

24,604 Industrial Areas Other Fyshwick

Fyshwick Industrial

Other Mitchell

Mitchell Industrial

55 288

Asian Groceries Friendly

343

Total Industry

Other South Canberra

Oaks Estate

North Canberra

ANU

Belconnen

University of Canberra

Total Other

TOTAL SUPERMARKET SPACE

92

460

Foodland

56

Unspecified

196

Unspecified

712 121,494

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

APPENDIX 2 ACT Grocery Choice Price Comparisons – November 2008 to June 2009 Basket

Coles/ Bi-Lo

Woolworths

Independents

ALDI

Supabarn

Meat and Seafood

28.10

27.76

30.46

30.02

Fruit and Vegetable

25.71

26.28

28.22

27.84

Dairy

16.18

16.44

17.33

16.73

Bread and Cereals

22.41

21.48

23.45

24.21

Drinks and Snacks

21.14

20.81

22.69

22.17

General Groceries

18.14

18.38

18.65

18.76

Household and Personal Care

27.35

27.09

29.91

28.89

159.03

158.24

170.77

168.62

77.30

79.24

88.30

Meat and Seafood

27.54

28.47

31.21

30.54

Fruit and Vegetable

26.32

25.37

28.07

28.85

Dairy

16.65

16.49

17.79

16.67

Bread and Cereals

21.89

21.74

22.88

23.57

Drinks and Snacks

20.89

21.61

23.22

22.42

General Groceries

17.62

18.60

19.73

19.43

Household and Personal Care

27.81

27.42

29.59

28.58

158.72

159.70

172.49

170.06

79.30

81.14

85.34

Meat and Seafood

26.80

27.81

28.99

30.33

Fruit and Vegetable

26.54

27.05

31.02

27.75

Dairy

16.59

16.60

17.71

16.66

Bread and Cereals

22.02

22.06

23.81

23.24

Drinks and Snacks

21.30

22.00

22.12

22.60

General Groceries

18.10

18.22

19.64

19.14

Household and Personal Care

27.78

27.50

29.94

28.99

159.13

161.24

173.23

168.71

78.12

78.82

91.44

November 2008

TOTAL Basic Staples

62.51

83.81

December 2008

TOTAL Basic Staples

60.05

82.65

January 2009

TOTAL Basic Staples

60.01

85.97

93

Basket

Coles/ Bi-Lo

Woolworths

Independents

ALDI

Supabarn

Meat and Seafood

26.54

28.26

29.01

29.65

Fruit and Vegetable

27.15

25.84

29.53

28.81

Dairy

16.86

16.43

18.22

16.71

Bread and Cereals

22.36

21.93

23.68

23.23

Drinks and Snacks

21.47

21.36

21.08

21.93

General Groceries

17.99

17.87

19.71

19.03

Household and Personal Care

26.95

27.30

29.75

29.14

159.32

158.99

170.98

168.50

78.37

78.48

88.25

Meat and Seafood

27.71

28.73

31.59

30.70

Fruit and Vegetable

27.90

26.78

33.01

30.04

Dairy

17.12

17.01

18.00

16.75

Bread and Cereals

22.58

21.93

23.91

23.14

Drinks and Snacks

22.19

21.94

21.29

21.73

General Groceries

18.28

18.41

20.04

19.30

Household and Personal Care

27.14

27.71

30.12

29.54

162.92

162.51

177.96

171.20

80.02

79.37

93.90

Meat and Seafood

29.29

29.47

29.48

30.46

Fruit and Vegetable

28.97

27.93

32.29

29.00

Dairy

17.19

16.84

18.24

16.95

Bread and Cereals

22.53

21.45

24.29

23.54

Drinks and Snacks

21.67

21.59

23.37

23.39

General Groceries

17.70

18.84

20.42

19.63

Household and Personal Care

27.59

27.28

30.74

29.16

164.94

163.40

178.83

172.13

81.24

80.87

92.00

February 2009

TOTAL Basic Staples

60.69

87.90

March 2009

TOTAL Basic Staples

61.14

87.22

April 2009

TOTAL Basic Staples

94

61.20

86.89

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Basket

Coles/ Bi-Lo

Woolworths

Independents

ALDI

Supabarn

Meat and Seafood

29.28

30.34

30.43

30.71

Fruit and Vegetable

29.88

28.19

34.87

32.22

Dairy

16.97

16.83

18.51

17.03

Bread and Cereals

22.72

22.77

23.92

23.37

Drinks and Snacks

22.25

22.10

23.16

23.02

General Groceries

18.70

18.55

20.27

19.58

Household and Personal Care

28.25

27.76

30.97

29.70

168.05

166.54

182.13

175.63

84.42

80.82

95.78

Meat and Seafood

28.35

28.42

29.71

32.64

Fruit and Vegetable

30.60

27.21

34.74

30.44

Dairy

16.99

16.96

18.24

17.04

Bread and Cereals

23.19

22.34

23.57

22.96

Drinks and Snacks

21.91

21.03

24.57

24.69

General Groceries

18.47

19.15

20.21

19.56

Household and Personal Care

28.46

27.02

31.61

29.68

167.97

162.13

182.65

177.01

79.72

81.89

-

May 2009

TOTAL Basic Staples

62.72

91.03

June 2009

TOTAL Basic Staples

62.63

90.99

95

APPENDIX 3 LIST OF THOSE PROVIDING SUBMISSIONS AND BACKGROUND MATERIAL ACT Greens ACT Planning and Land Authority ACT Treasury ALDI Canberra Institute of Technology Coles Giralang Residents’ Action Group Grocery Choice IGA Distribution IGA ACT Owners’ Group Jill Voss NARGA Perin Group Peter Burn Peter Le Mesurer Purdon Planning Spier Consulting Supabarn Woolworths

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APPENDIX 4 REPORTS ON COMMUNITY CONSULTATION Public consultation sessions provided an opportunity for community discussion on current and future policy were held at the following five venues: Tuggeranong When: 13 July 2009 (12.30 pm – 2.30 pm) Where: The Vikings Town Centre, Cnr Athlon Drive & Rowland Rees Cres, Greenway ACT. Woden When: 13 July 2009 (6.30 pm – 8.30 pm) Where: Canberra Southern Cross Club, 92 – 96 Corinna Street, Woden ACT Gungahlin When: 14 July 2009 (12.30 pm– 2.30 pm) Where: Gungahlin Lakes Golf Club, Cnr Gungahlin Dr & Gundaroo Rd, Nicholls ACT. Belconnen When: 14 July 2009 (6.30 pm – 8.30 pm) Where: West Belconnen Leagues Club, Hardwick Cres, Kippax ACT. Civic When: 16 July 2009 (5 pm – 7 pm) Where: The ACT Legislative Assembly Building, London Cct, Canberra. Each of the consultations were facilitated by David Pembroke of Content Group, with a presentation by John Martin, followed by questions and comments by participants. John Martin’s presentation at the Gungahlin consultation was filmed and placed on the YouTube and other social networking websites. The length of the consultations varied but were generally between one and two hours in duration. Reports on issues raised at each of the consultations are set out below. Tuggeranong Consultations •

Are suppliers stakeholders?

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Reporting timeline on the Review?

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Woden consultations •

Welcomed the Supermarket Policy Review and a comment it was timely.

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Compared to places as New Zealand and Europe, Australian supermarket scene has become stagnant. Woolworths has too much of the monopoly. More competition is needed.

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Criticism by one attendee, that the consultations had not been publicised enough was rejected by other attendees who noted that it was well advertised in various media plus Community Noticeboard in Canberra Times.

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European supermarkets have newsagencies, all sorts of things that bring people in. This type of supermarket is needed here in ACT.

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Woolworths and Coles are only located in group centres. Independents provide great service.

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Chifley supermarket IGA does a wonderful job.

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Fyshwick Market quality is not what it used to be, and the prices are exactly the same as supermarket prices.

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Should there be more markets, especially in Woden?

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A response from another attendee, that Woden seems to be well catered for, noting Woden region has a farmers market on Sundays.

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Where is the product coming from? Victoria and Sydney.

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Independents in Canberra provide local product.

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Woden has Coles have bigger selection than Woolies.

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Without competition from family supermarkets in Woden, Woolies will have a monopoly.

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Woolies and Coles have their own brands.

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Newcomer to the market Asian Hub – in Tuggeranong and City, this chain offers Asian foods.

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Some of the good IGA operators could do better if they had more floor space. What is the issue, Why can’t independent operators get the space?

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Advantages of both ALDI and Coles in Jamison, Woolies and ALDI in Weston.

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Big chains feed off the others.

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If we had more independents, the money stays in the community, they give a lot to charities and community.

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The centres and planning hierarchy need to be more flexible.

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Giralang, looks like a wasteland. Giralang residents are desperate. They don’t want something that looks like ghetto. What is the right mix?

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Giralang land was allocated to be a supermarket.

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Can we expect this issue in every suburb?

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Local shops are parallel to schools, hard to fix. Hopefully in the future the same mistakes are not going to be made.

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Gungahlin Consultations •

Critical of paid parking in group centres.

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In a major shopping centres have two hour free of charge parking, but was viewed by some still not preferred option.

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Kaleen and Jamison Shopping centres provide more pleasant shopping experience compared to Dickson, parking is much easier.

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Negative about shopping is supermarket trolleys, messy and dangerous. ALDI has solved the issue by using tokens/coins forcing consumers to return the trolleys for the refund. The system is used extensively overseas. ACT Government should put their own pricing system in place. Coles is trialling pay as you go, seems to be backing off.

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Some supermarkets provide slots for the return trolleys. Generally trolleys are a nuisance.

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Noted that fresh food markets, e.g. Belconnen Fruit Market, are providing other supermarket items. This is providing more competition.

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People prefer one-stop-shop at Jamison (Jamison has a fresh food outlet, Coles and ALDI) proving competition. Jamison has a lot going for it.

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When the Jamison redevelopment happened, Coles should not have expanded. Some offer should have been given to the independents. Where there is a private owner of the space, the incumbent seems to be in the good place to expand. Planning issue.

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Canberra City has small IGAs, lack of major supermarkets especially on the West side.

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Independents are quite competitive with their fresh foods, less competitive with other products.



Belconnen consultations •

What initiatives are in the pipeline from a consumer point of view?

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ALDI prices are cheaper. Majors’ prices are good when other competitors. If no competitors in area prices not as good.

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ALDI’s products are generic compared to Coles and Woolworths, this was seen not real competition.

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ALDI provides a limited range of choices. Consumers get the staples from ALDI, then go to other supermarkets. In Coleman Court, comment made that stapes bought from ALDI, local IGAs had experienced consumers picking up other items more. Kippax – ALDI, quality of food and fresh produce, far better than Woolworths.

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Coles trolleys being used at ALDI store in Kippax. Supabarn at Civic has a pay-as-you-go trolley system.

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If group centre floor space was to be enlarged, would Woolworths and Coles move in? Are IGA and Supabarn interested in larger space?

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New and larger spaces are currently auctioned off and restricting smaller players (cost too high for independent supermarkets).

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What is the definition of the Trade Practices Act and criteria used to allow new supermarkets in the area, e.g. if Woolworths and Coles were in the same centre.

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Distance is going to be a driving factor for some people.

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Other supermarkets are far more competitive now that ALDI is at Kippax and Belconnen. Woolworths have many different categories, ALDI a lot less.

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System is wrong, not geared to the consumer needs.

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Is there a restriction on how many large supermarkets are allowed?

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Are major supermarkets moving towards national pricing? The supermarket pricing varies from store to store. ALDI is advertising, all stores have same prices. This will add pressure on majors.

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Is survey material available on shopping habits? Sydney has been surveyed and data available. In the ACT survey material is being sought.

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ACT consumers want more choice, but happy with smaller IGAs as a backup service.

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If one of the independents were able to get to major centres, how would the supply chain affect their chances?

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Independents will always struggle as major supermarkets Woolworths and Coles are trying to be more innovative.

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How would you go in a new town centre Molonglo? Would it be through an auction system or would the Government give a preference to an independent? New areas, perhaps two independents.

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Currently it has been very controversial when ALDI is in a group centres. Two supermarkets in group – one major and one independent.

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Proposal if already a major supermarket could recommend to restrict other major, this would cause real competition. As an example, supermarkets in the following group centres; Kippax, Jamison and Weston.

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Limited opening hours at ALDI, as they close at 6pm and causes problems for people who work full-time and breadwinners for the family.

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It may come a time to say no more Woolworths. Would this be considered?

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What about consumer democracy, decreasing the use of cars, and disadvantaged people in Dunlop who do not have competition. Is there room for Government intervention for consumer democracy?

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People with affordable housing are doubly disadvantaged. Example used was Dunlop, as there is only local IGA, no competition and differential prices.

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What has changed the pricing structure?

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Canberra requires more full line competitors in the major centres.

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Giralang proposal? Has John Martin been lobbied? Have you noticed growing resentment about lack of a local centre?

Review of ACT Supermarket Competition Policy | Prepared by John Martin | Martin Stone Pty Ltd | September 2009

Civic Consultations •

There is no genuine competition. Between ALDI vs Woolworths vs Coles, no direct competition. ALDI has 800 lines compared with 2500 with other competitors.

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Why don’t major supermarkets have national pricing?

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ALDI has national pricing already. Woolworths have stated they are heading that way.

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NSW has more choices i.e. Franklins. Woolworths are cutting back brands they used to provide (no longer available)

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Group centres need more competition. ALDI takes it so far, putting pressure, but not enough. People shop at ALDI for staples and then go to mid-range local centres like Dickson.

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If independents stock more products they will be more competitive.

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Giralang is a waste land.

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Belconnen Westfield leads to other centres and making them viable.

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Kingston – has rigid planning – move to more flexible plan needed.

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Group centres should get more competitors.

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Franklins in NSW is competitive. Coles and Woolworths have premium home brands. Choices are seriously diminished.

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Re-development in Jamison has worked quite well, good example. Jamison seen as a success story.

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