THE competition watchdog is considering laws to limit the steady increase in market power of the leading supermarket chains.
In his strongest comments since taking over as the chairman of the Australian Competition and Consumer Commission nearly a year ago, Rod Sims has signalled concern at creeping takeovers by Coles and Woolworths that may be leading to reduced consumer choice and competition.
Existing competition legislation does not put a cap on market share or allow the ACCC to assess the cumulative impact of previous acquisitions when studying new acquisition proposals.
His disquiet comes at a time when the big chains are boosting their position in liquor, grocery and home improvement, ”which raises competition concerns”, he said.
”Barriers to entry for other chains or buying groups to replicate the strong market position of Wesfarmers [Coles] and Woolworths are becoming increasingly high,” Mr Sims said yesterday.
”Added to this often are local barriers associated with, for example, access to sites.”
The ACCC is concerned to ensure further acquisitions do not lead to retail or wholesale industry structures that reduce market competition or choice for consumers.
”Because of these concerns the ACCC has been paying increased attention to incremental acquisitions to identify which acquisitions require review and, of those, which raise competition concerns,” he said.
”I don’t think any other country in the world has an effective law here, which just shows it is difficult,” Mr Sims told journalists yesterday of any legislative response to creeping takeovers.
”It is not an easy area of law, to actually construct a law that works effectively in the marketplace in all circumstances, because if you had a creeping acquisition law it would apply to all sectors. So, doing something that does more good than harm is difficult to construct.
”We’re going to be thinking about it. I do acknowledge the difficulties.”
The ACCC would be in a better position in the next six months to judge the problem of creeping takeovers and rising market power, Mr Sims said.
As an interim step the ACCC is to speed up its review of acquisition proposals in the retail sector by seeking earlier disclosure of plans by retailers, which will then be reviewed by a special team to provide a quicker decision.
”Our processes can be streamlined,” Mr Sims said. ”This can, however, only occur with appropriate notification, co-operation and upfront information.”
The acquisition of smaller retailers was giving the major chains ”substantial economies of scale and scope in, for example, distribution logistics centres and advertising, as well as brand promotion”, Mr Sims said.
This was making it more difficult for competitor groups to emerge, which, together with the difficulty of gaining access to sites, was entrenching the market power of Coles and Woolworths.
”When the major supermarket chains acquire an independent player they remove an alternative from the market, with potentially a different product range and service offering. That competition is unlikely to be replicated by either a chain or new independent given local and/or national entry barriers.”
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