Coles and Woolworths “pick off” large independent stores in a takeover strategy that prevents the smaller grocers from growing into more formidable competitors, an inquiry heard on Thursday.
Grant Ramage, an executive at IGA and Foodland brand owner Metcash, said the amount of groceries flowing through their network, which it relies on to build competitive supply and distribution chains, was threatened by the acquisition strategy used by Australia’s major supermarkets.
“They typically aren’t interested in buying small independents, they would pick off the larger independents, the very successful stores that contribute disproportionately high volume to the total independent network’s volume,” Ramage told the Australian Competition and Consumer Commission inquiry.
“I’ve described it previously as decapitation; taking the big stores at the top away has a disproportionate effect on our network.”
The testimony is part of a government-ordered examination into grocery prices and competition in the supermarket sector, where Coles and Woolworths have a dominant two-thirds share.
The major chains have faced intense scrutiny over their pricing practices and have drawn criticism from all political parties before an election expected to be fought on cost-of-living pressures.
Guardian Australia analysis has found that profit margins at the major supermarkets are now significantly higher than pre-pandemic levels, and have jumped ahead of most of their international peers.
Coles and Woolworths have consistently defended their business practices, and have described competition in the sector as strong, citing competitive pressures from Aldi, Costco, Metcash/IGA, Amazon and other independently owned stores.
Consumer advocates and executives at Aldi have already appeared at the inquiry, while representatives of the major chains are due to do so next week.
Ramage, who is chief executive of Metcash’s food division which supplies IGA and other store networks, said the major chains also used their land holdings and shopping centre purchases to “prevent independent supermarkets from doing business”.
Metcash’s business model differs from the big supermarkets given it acts as a wholesaler that distributes groceries to its networks, some of which licence the IGA brand. Its network generally operates smaller stores than the major chains.
after newsletter promotion
Metcash-supplied stores often operate in more remote locations, contrasting with Aldi which told the inquiry this week it only sets up in areas with large population centres.
Ramage told the ACCC inquiry on Thursday that Coles and Woolworths use their financial clout and market power to secure supermarket sites, locking out smaller rivals.
“When we investigate, we find that those sites were unavailable because they’ve been land banked by one of the chains,” Ramage said.
“There are other examples where there are existing stores or opportunities that are not available to us because Coles and Woolworths have acquired the site or found another way to remove the IGA or the independent from that location.”
Coles and Woolworths deny that they land bank, arguing that most of their undeveloped sites are in new areas and growth corridors.
The ACCC is scheduled to produce a final report for the federal government in February, with potential recommendations on how to increase competition in the sector.
