The Australian Competition and Consumer Commission has raised concerns over supermarket giant Coles’ proposed bid to buy four Progressive Supa IGA stores in Western Australia.
While Coles has recently been under scrutiny over allegations it has used its market power to bully suppliers, the company is looking to further expand its market share in the west with the acquisition.
The stores, which are located in the Perth suburb of Dianella and the regional towns of Busselton, Halls Head and Bunbury, are not located close to any other Supa IGA stores in at least three of the four local markets.
While the supermarket duopoly is widely recognised across Australia, the Western Australian market also has to deal with the absence of players such as Aldi, Foodworks and 7-Eleven.
The ACCC said in a statement its preliminary view is that the proposed acquisition may result in a substantial lessening of competition.
ACCC Commissioner Dr Jill Walker said market participants had expressed concerns about losing the differentiated offering of their local Progressive Supa IGA stores.
“The ACCC considers that the differentiated offer of the Supa IGA stores reflects a competitive response to rival supermarkets and provides additional choice to consumers,” said Walker.
“The ACCC is also concerned that the proposed acquisition would remove access to Supa IGA promotions for shoppers in these areas.”
According to the ACCC’s issues paper, the newly acquired stores would be within a few hundred meters of existing Coles stores.
A Coles spokesperson told SmartCompany the supermarket major is considering the issues raised by the ACCC.
John Cummings, president of the WA Independent Grocers Association, told SmartCompany that while the grocery market in WA is still one third Coles, one third Woolworths and one third independents, 30 years ago independent grocers enjoyed a 54% market share.
“What’s happened is over a period of time Coles and Woolworths have acquired independent stores and increased their market share,” says Cummings.
“I think only two stores have gone broke, the rest were bought by Coles and Woolworths.”
Cummings says the WA Independent Grocers Association has long been opposed to these “creeping acquisitions” which eliminate competitive power from the independents left standing.
According to Cummings, if the Busselton acquisition goes ahead, there will be two Coles stores within about 200m of each other, while there would be a difference of about 500m between the two Coles stores in Bunbury.
In Dianella, Cummings says there will be around 15 Coles and Woolworths supermarkets within a 3-5km radius.
“I mean, there’s got to be huge competition issues,” says Cummings.
Cummings also says small WA suppliers will be affected by the acquisition, as their deals with IGA stores are terminated.
“A lot of local suppliers will be put off the shelf. You have to be a national supplier to be stocked at Woolworths or Coles,” he says.
Cummings says while Coles will likely pay more than the going market rate to secure the IGAs, due to its market power, it is in a position to potentially lose money on the stores – a luxury which an independent grocer doesn’t have.
“That’s why we have the ACCC to maintain competition laws,” says Cummings. “The ACCC are saying [to Coles], this isn’t going to be as easy as you thought it was.”