Coles And Woolworths Power In The Supermarket Industry In Australia

The Australian Food Market

Discuss about the Supermarket Industry for Coles and Woolworths Power.

This is a critical analysis which analyzes whether Cole and Woolworths enjoy extreme  market power in the supermarket industry in Australia. Woolworths and Coles are extremely dominant in the supermarket industry, as revealed by the national survey. The Master Grocers Australia or Liquor Retailers Australia discovered that seventy-two percent of Australians hold a belief that the two supermarkets giants are extremely dominant. Solely twenty-two of the people interviewed believed there was a healthy competition, whereas seventy-five percent believed the two supermarkets need the competition laws to be strengthened.

The two supermarkets; Coles and Woolworths have precisely extreme market power in Australian Supermarket Industry. This can clearly be demonstrated through private labels groceries they both own. These private label goods remain habitually inexpensive compared to branded commodities (Parker 2003). They are rising in attractiveness for example, in the eye to the Commonwealth of Australia, the private label milk presently accounts for over seventy-one percent of the market. The competitiors appeal to various customer segments, escalating prices as well as profits whereas escaping the head-to-out fight. In comparison, Coles and Woolworths have played a 100-year long game of copycat. The two supermarkets stores possess a range of stores like Target, Dan Murphy’s, Big W, Dick Smith, BWS, and Bunnings besides other hardware chains as well as electronic outlets.

Twenty-three cents of every dollar spent by the Australian consumers drive to Coles and Woolworths. Both Woolworths and Coles have created over 6500 operating stores throughout Australia. They both involved in the fuel market via Caltex as well as Shell. Coles and Woolworths share over seventy percent of the Australian market and control over eighty percent of the grocery market in Australia. Both Coles and Woolworths benefit the customers, community, economy, retail industry, wholesalers and other supermarkets. Nevertheless, there is a belief that the dominance of Coles and Woolworths will continue over a prolonged period of time as they rivals have not yet accomplished their level of market growth. The two supermarkets are dominating the supermarket industry even though the markets shares between them are narrow since Aldi is gradually narrowing the margin with substantial gains.

The duopoly’s market concentration has already undergone too far and hence people do not hold a belief that there is a healthy competition. People are becoming more concerned that they are the people being harmed by the prices due to lack of variety and choice. People are further concerned about the broader impact on the Australian society. It is perceived that there is a partial influence on Australia farmers as well as suppliers that have been compelled to heed to the market power of both Coles and Woolworths (Smith 2001).

Concentrated Power in Food System in Australia

The Coles and Woolworths are the Australia’s two enormous supermarket stores and they control the local food system. There is a need for a greater diversity in food system of Australia to permit justifiable co-existence between trivial as well as indigenous agricultural suppliers besides venders, alongside the supermarket goliaths. An enhanced equilibrium between “buyer power” as well as “seller power” has to be supported as well as narrowly supervised, to make sure the avoidance of unfair influence.  The government policies has to put in place to safeguard as well as offer incentives for the domestic farmers as well as suppliers inside the competitive food system.

Supermarkets enjoy a snowballing roles in the Australian agricultural industry development. An increasing share of the market for both Coles and Woolworths has established a stimulating surroundings for a great number of Australian farmers as well as suppliers. It has resulted in apprehensions which the present inequity in the market power, favoring the main supermarkets, remains damaging to the agricultural sector in Australia. The primary encounter is to make sure that a suitable level of safeguard occurs to permit the sustained running of small as well as medium-sized agribusiness as well as retailers thereby promoting the competition in the agricultural industry. Unless restrained, this power play might jeopardize the Australia’s food system stability besides having a broader food security insinuations. 

The supermarket sector in Australia is conquered by a hand-picked cohort of trade units, of whom Coles and Woolworths remain the economy’s giants. Both Coles and Woolworths have knowledgeable noteworthy development over the previous four decades; over doubling up their merged share of market to more than seventy percent of the supermarket or grocery industry of Australia. The viability of these two giants has augmented meaningfully; by forty percent as well as twenty-four percent respectively with a real possibility for further growth.

Coles and Woolworths’ substantial market power warrants the multinationals the capability of determining the prices, affecting entrance barricades as well as establishing a level of anticipation in the industry. This ability exerts heaviness on the entire food stores in Australia. Various domestic agriculturalists are positioned in a compromising or susceptible situation by the decision reached by Coles and Woolworths, if they relate to valuing, the transaction volume as well as other profitable methods.

The market power describes the uneven inspiration beyond the trade terms. As venders slowly augment their respective share of market, they can amalgamate their respective position inside the food chains supply. This entails the enlargement into the processing, production as well as distribution zones. The consumers of Woolworths and Coles have knowledgeable remarkable gains from their growth, especially via enhanced accessibility to increased sensible commodities. Such gains, and their respective present merits for the food security of Australia must not be inconspicuous. Despite the existence of some issues, nevertheless, these procedures eventually risk the financial feasibility of several farmers of Australia.

Identified Issues

Woolworths and Coles account for a substantial degree of Australian economic wealth. These 2 chains merged together recruit merely below three-hundred thousand Australians. Moreover, such employment chances, the enormousness of the two chains’ maneuvers offers the markets (primary) for domestic agriculturalists thereby warranting them wider accessibility to the end-customers beyond the possible with the minor retailers. Such chains can meet consumer preferences with a variety of the commodities are affordable prices.

The purchasing operations’ size of Coles and Woolworths permits these chains to control negotiation terms to acquire suitable harvest at the least cost. The above mentioned gains are of special significance to the populace as they culminate into short-term affordability of food. Over the previous 3 years, Coles and Woolworths have declined their prices averagely by eleven percent alongside 6 percent in that order. Strategies of discounting employed by the two chains enhance the variety of food alternatives existing to the consumers at reduced charges for goods.

The overstretched power of market of Woolworths alongside Coles, nevertheless, is further answerable for substantial subjects touching local suppliers in food system of Australia. The lessening market share of the self-reliance sellers leaves the great percentage of contractors with restrained choice but to bargain with Coles and Woolworths. This duopolistic market surroundings makes sure that the supermarket hulks brandish substantial influence over the price negotiation as well as standardization demands.

The power of market in the Australian system of food is a primary a matter in the country. The Coles alongside Woolworths’ powerful duopoly precisely brings problems to SMEs as well as domestic farmers, who are battling to co-exist with these giant supermarkets. Presently, this makes the condition gains customers which will persist in short-run. The pressure (financial) on SMEs food dealers like such pressures as deflationary price as well as anxieties for augmented production, nevertheless, are unmaintainable in the long run and hence have the potential of threatening the domestic food security. Partnership, accountability alongside transparency between dealers and supermarkets has to be enhanced, to make sure the mechanisms engaged advocate for competitive system of food.

This part examines whether the competition between Coles besides Woolworths is essential for the economy of Australia presently and unto the upcoming years. Coles and Woolworths are enormous, differentiated supermarkets.

The Woolworths possesses a  collection of brands for retail crossways over-all markdown retail, electronics, hardware, liquor, hospitality, grocery whereas Coles overstretches and beyond; besides brands for retail in groceries, hardware, alcohol as well as office suppliers to insurance products, industrial safety, fertilizer operations as well as coal mining.

The grocery processes of both Coles and Woolworths have augmented steadily in value in the latest decades. This has been assisted partially by “price wars” among the rivals that have assisted in bringing up the consumers.  The divergence of Coles as well as Woolworths unto additional retail services alongside sectors makes sure that they remain protected, in contrast to self-governing grocers, arising from trivial pressures on food price. Accordingly, it has established a jagged playing ground in the grocery industry of Australia. Rebelliously, both corporations may as well as escalate prices of grocery to speak to shortages in other sectors.

The outlets of Woolworths and Coles are presently multiplying crossways the regional and metropolitan centers of Australia. The extension of duopoly is making the minor firms to exit, especially in local areas that can never compete with giant supermarkets. Thus associates to occupation losses as well as income for the ventures owned by families. The restrained amount of players in the retail sector has augmented the dependence of suppliers on this sector as a conduit to hit final consumers. However, it is negative for the economy as it deprives farmers as well as food manufacturers of the flexibility as well as power to negotiate their contract footings.

The competition of these two giants leads to marketing levies. This is because in their respective marketing messages, they frequently display as “fresh” as well as “local” produce sellers at affordable or reduced charges. Coles and Woolworths are currently utilizing celeb chiefs, Jamie Oliver alongside Curtis Stone for Coles and Woolworths respectively for broadcasting such buzzwords for marketing to potential consumers. These strategies are currently hitting new as well as expensive heights. The latest reports indicate shifting the costs of Woolworths’ “Jamie’s Garden” marketing campaigns especially on the stores’ suppliers of vegetable; charging farmers who are already being levied by the chain in terms of a marketing charge of 2.5-5% for marketing their respective commodities. The spokes persons of Woolworths make argument that is wholly voluntary whether growers make a decision to opt-in as well as make payment for the novice tax.

Several farmers have also registered their concerns regarding such levies, making arguments that they lack choices in this issue: either by making payment for the levy, or facing prospects of dropping their respective agreements with the enormous groceries stores of Australia. The “Jamie’s Garden” instance indicates the persistently diminishing farm gate revenues encouraged by the maneuvers of the commanding supermarket duopoly of Australia. As Woolworths and Coles endure to amalgamate their respective closed-consumer chains of supply, supplier suffer huge costs as well as flagging their financial viability in the long run.

The competition is not good for the economy of Australia due to the rock-bottom price marketing. The antagonism to the duopoly power through competition augmented in the year 2011, whereby Woolworths alongside Coles vended milk at one dollar a litre. Here, the growing matter of anti-competitive behavior by these giant supermarkets was exemplified; disapproved for utilizing their respective market power thereby disadvantaging additional vendors as well as dairy agriculturalists. The inexpensive milk advertising endangered the native farmers’ livelihoods, as decreased prices culminated in the decline in returns of farm-gate.  The one dollar a litre advertising unfocussed several customers to the home- brand milk in this duration, contributing to seventy-two percent of Coles’ total milk sales in the year twenty-eleven. During the “price war”, averagely, growers acquire amidst twenty and thirty cents per litre of supplied milk to these two giant supermarkets, far below the cost of production for several farmers of dairy. 

Such gains by farmers from augmented exposure to market, might fall short of adequacy to capture their respective expenses as well as permit possibility for re-investing in respective dealings. This result might be practicable in short-term; nevertheless, long-run campaigns can culminate in continuous squat margins of profit for the respective contractors thereby risking the SMEs endurance in agricultural industry. Illustratively, year twenty-eleven, pricing crush compelled lots of dairy farmers of Australia, thirty in Queensland solely, into ‘disposing off” their respective farms.

The competition is also bad for Australia due to anti-competitive behavior related to home-branding practices which have been witnessed via the propagation of privately-labelled commodities seeming on shelves of supermarkets.  Woolworths alongside Coles are snowballing their respective array of “Home-brand” products in collaboration with particular providers, under stringent demands for production. Such commodities make it difficult as well as expensive for small as well as self-governing brands to be exposed within key outlets as well as effectively compete the ‘home brands’. This practice has led to lack of choices for consumers while Coles hold that consumers will eventually make a decision for what commodities to buy and will simply shop somewhere else. However, such a choice remains unaffordable among all Australians, with many consumers currently do not have accessibility to affordable retailers of food except Coles alongside Woolworths. Such anti-competitive behaviors eventually decrease competitiveness as well as diversity in local food system as well as run danger of a supermarket-ushered extermination of minor, frequently family-run, enterprises as well as brands.

Competition between Coles and Woolworths has also increased vulnerabilities of resources of food to security as well as risks linked to environment. Moreover, negligible production as well as capacities for storage in remote regions, further culminate in the rise of ‘food recompenses’ that leave local, principally homegrown, populace with restrained admittance to fresh as well as nourishing food. Such a situation will culminate into an unbalanced food system locally; far much susceptible to price as well as supply shocks. Thus, there will be an undesirable insinuations for food convenience as well as security in Australia.

Conclusion

The long-term food security for the Australian economy is dependent on the maintenance of diversification of both produce and producers. The government of Australia should employ mechanisms that make sure that retailer behaviors never encroach on power balances between sellers alongside buyers of food in Australia (Keith 2012). The development of Coles and Woolworths if left unlimited, will have the potential to destabilize the food system of Australia in the long run to the disadvantage of the security of food relished by the citizens of Australia.

It is significant that the being of a varied array of food manufacturers in the country be achieved through ensuring a reinstated balance of power between seller and buyer in food system. However, it is essential that a change in the system in the direction of seller power is no much noticeable that the suppliers may determine the prices for retailing beyond the competitive degrees, deflating the present typical of food approachability in the country.

References

Keith, S., 2012. Coles, Woolworths and the local. Locale: The Australasian-Pacific Journal of Regional Food Studies, 2, pp.47-81.

Parker, A.J., 2003. Deregulating and developing dairy-food chain relationships: implications for farm business management in south east Queensland.

Smith, S., 2001. Deregulation and National Competition Policy and its effect on rural and regional areas.