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Duoploy – Abusing Power

In Australia, our politicians have allowed a unique duopoly – Coles and Woolworths – to develop. The situation is found only in Australia as other ‘western’ countries do not allow this abuse of marketing power to develop.

This situation of the duopoly causes huge problems for all their rural and other suppliers, with market pricing control exerted through ‘buying power’.

The Woolworths advertising campaign with renowned chef Jamie Oliver is a great example.

Woolworths’ contracted growers are obliged to contribute 40cents for each box of vegetables they supply and 80c on a crate of apples, simply to ensure their product is included in the campaign. This may not seem to be much money; however when we look at the margins that are already being profited by ‘the big two’, then this is quite a slug.

When authorities questioned Woolworths, they were told that this was a voluntary levy. ‘Voluntary’ is an interesting word. Most producers are not in a position to refuse to pay this voluntary levy. If the producer actually refuses, orders for their product could dry up. Very simple action, and hard to prove if a producer has his order slashed.

The facts of their market control are simply staggering. Woolworths holds 41.4% of the Australian grocery market.

Coles holds 32.5% , while IGA holds a 19% share, and Aldi has less than 5%.

It appears that for every $100.00 we Australians spend on groceries, $74 of that will end up in the cash register of either a Coles or a Woolworth’s store.

The grocery market in Australia is valued at $86 billion per annum. Coles and Woolworths earns 73.9% of that – or about $63.5 billion annually.

The payment system that supermarkets use is also very interesting! The producer is usually paid within a pre-arranged time. However, if a producer requires early payment, this can be arranged but requires the producer to receive a deduction on proceeds on produce supplied.

The tentacles spread by the Coles’ or Woolworths’ parent companies are simply staggering.

Wesfarmers Coles owns: 756 supermarkets 810 bottle shops 150 Officeworks stores 636 petrol stations/convenience stores 313 Bunnings stores 92 hotels 198 Kmart stores 308 target stores 263 tyre and car service centres.

Woolworths Ltd owns: 897 supermarkets 181 Big W stores 1355 bottle shops 323 hotels 31 hardware stores 613 petrol stations 50 optometry outlets

Added to this, both companies are now getting into Insurance.

A recent study estimated that $1 in every $4 earned by their own suppliers is then being handed back to pay for promotions, discounts, and rebates!

These rebates have been extremely successful and both retailers are making huge profits, whilst at the same time creating another class of poor – the rural producer.

The supermarkets are also very conspicuous in Canberra and major cities, with their representatives walking the corridors of power protecting their interests; whilst the Peak Councils for most rural producers are conspicuous by their infrequent visits or their absence altogether. It is interesting to read where NFF our supposed peak farming organisation is happy to accept sponsorship from both Coles and Woolworths.

Surely the time has come to actually do a study on the problems on this unique arrangement which causes problems for not only rural producers but other suppliers and manufacturing as well.

Allowing a duopoly, such as Coles and Woolworths, to develop causes huge problems for all sorts of rural producers from meat right through to vegetables. The payment system that supermarkets use is also very interesting as the producer is paid some amount of time after purchase. If a producer requires early payment this can be arranged by allowing a deduction on proceeds on produce supplied.

Surely the time has come to actually do a study on the problems on this unique arrangement which causes problems for not only rural producers but manufacturing as well.

It is interesting to watch the ACCC to actually awake from its slumber and develop some spine and actually take the supermarkets to task over some of their actions. However, the supermarkets have immense power and they are not frightened to flex their muscles when they feel threatened.

Last rural parliamentary inquiry, Coles submitted that the producer gets between half and two-thirds of the retail dollar on rural produce.  Do they expect us to also believe in the tooth fairy?

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