Communist Party of Australia

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Issue #1609      September 4, 2013

Threat from giant grocery and petrol corporations

This week the O’Farrell government announced that it will now require NSW petrol stations to display the standard prices of their fuel, not the price available to consumers who have discount dockets from Australia’s two major supermarket chains.

That’s a welcome move, but it doesn’t go anywhere near enough to tackle the potential menace posed by the close associations between Woolworths and Caltex, on the one hand, and Coles and Shell on the other. Those alliances could lead to the elimination of their competitors around the nation, enabling these two power blocs of capital to carve up the market between them and squeeze the maximum profits from Australian consumers for both groceries and fuel.

Under the current docket arrangements shoppers at the two supermarket chains are offered a 4c per litre discount on fuel purchased from their petrol stations, for every $30 spent on groceries. It rose to 8c per litre last year. Last month shoppers who used a supermarket loyalty card and spent $200 or more on groceries in one purchase were able to obtain a discount of 45c per litre.

Consumer advocates argue that shoppers are paying for the discounts by paying more at the supermarket checkout, and that shoppers on low incomes are disadvantaged because they cannot spend enough at the checkout to gain the dockets.

With their entry into the fuel business, Woolworths and Coles now sell about 80 percent of the groceries sold in Australia and 50 percent of the fuel and liquor.

The Australian Competition and Consumer Commission (ACCC) is virtually at war with the supermarkets over their marketing practices, which have involved price cutting and the impoverishment or bankruptcy of some dairy farmers and other suppliers.

In June the ACCC took Coles to court, arguing successfully that its so-called freshly baked bread was actually imported, and was days or even weeks old when sold, and later Coles was penalised for claiming that imported fruit and vegetables it sold was Australian-grown. The ACCC has also blocked Woolworths from developing a controversial new supermarket in western Sydney.

The prospect of lower prices for milk, fuel and other products is an irresistible temptation for many, but it’s a honey trap for consumers. The history of capitalism is littered with cases of firms that bump off their competitors in price wars, and then use their monopoly position to jack up prices and keep them there. The losers don’t just include the consumers, they include the smaller firms forced out of business and the employees of these firms.

In June last year Coles had 627 service stations. It sold $7.5 billion of groceries and fuel from its Coles Express stores, with a pre-tax profit of $124 million from fuel sales.

In the 2011-2012 financial year Woolworths sold $6.7 billion of petroleum, with pre-tax earnings of $127.1 from its 600 service stations.

The effect on independent service stations is starkly evident. Since 2009 a thousand service stations have closed.

The counter-attacks

Last week Rod Sims, chairman of the ACCC, told a meeting of the Australian Institute of Company Directors, “If these shopper dockets continue at these levels it’s going to be very hard for other players to compete, and we may just end up with two players in the country selling petrol, which is not going to be in your interest.

“If Coles and Woolworths wish to offer their customers a discount it should be off supermarket products, not petrol. The ACCC believes this activity is likely to have a negative effect on competition in the petrol industry. Over time, higher petrol prices could be the result”.

The Independent Retailers of Australia, an umbrella group that includes Australian Retailers, Master Grocers Australia, Australian Newsagents and Small Business Australia, has stated that the two million firms they represent employ five million staff, all of whom are under threat from the grocery-fuel alliance. They point out:

“At any discount above 6 or 7 cents per litre, it is hard to see how unsubsidised fuel retailers could compete on a sustainable basis. And if forced to discount more, then this would require sustained below cost selling.

“If the chains truly want to give a discount, they should reduce their grocery prices. We are hopeful the ACCC’s year-long investigation into the fuel dockets will reveal the damage the chains have caused to competitors in this market.”

Independent federal MP Bob Katter is seeking the support of other independents and opposition parties for a bill aimed at reducing the amount of shelf space given to the supermarkets’ own products, and for the divestment of companies involved in the fuel-grocery docket schemes.

The Greens have declared that they would campaign for a moratorium on expansion by Coles and Woolworths, and for the ACCC to have sufficient power to enforce the divestment of the companies.

Negotiations on the establishment of a voluntary code of conduct have continued for nine months between the retailers, Woolworths and Coles, and the suppliers represented by the Australian Food and Grocery Council. The National Farmers Federation represented dairy farmers until March, but withdrew in March because of the obstinate behaviour of the retailers.

For their part, Woolworths and Coles have argued that their activities should be governed by a voluntary code of conduct. That would undoubtedly suit them very nicely. The voluntary broadcast code has been an appalling failure at reigning in the excesses of the broadcast media empires, particularly with regard to their employees, the shock jock radio commentators.

The role of the ACCC and others in opposing the big retailers and publicising their reasons for doing so is admirable. But in the long run it’s up to the ordinary consumers to back them, in order to achieve these objectives.

Next article – Special economic zones – Abbott and Rudd in race to the bottom

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