Coles and Woolies could go the way of Qantas if greed continues

Coles and Woolies have been caught out and now, quite rightly, the Albanese Government looks set to fight them.

ANALYSIS

Supermarket greedflation is real in Australia. The Albanese government is right to fight it. But the long-term solutions are difficult.

The evidence for gouging is clear. UN’s global food price index has been crashing for two years:

Yet Australian food prices continue to skyrocket:

The disparity is money taken by middlemen, including supermarkets such as Coles and Woolworths, for whom margins have jumped, with more expected:

A range of inquiries are underway by the Albanese government, senate, unions and, possibly, the ACCC to pressure management into ending the gouge.

Such moral suasion and brand risk can work at the margin, as Qantas has ultimately discovered, but for a long-term solution, more competition is needed.

This is where it gets tricky. The supermarket business is a microcosm of everything wrong with the anti-competitive Aussie political economy.

In 2019, a German supermarket chain, Kaufland, blew half a billion dollars attempting to follow Aldi into Australia.

It withdrew before the losses mounted into the billions. The reasons were well understood.

Kaufland faced a triptych of challenges, sometimes called the Game of Mates, in high property prices, dodgy deals and weak wages.

In 2019, Kaufland tried to get into Australia and failed. Picture: Supplied

First, securing commercial sites for large floor space for supermarkets was very difficult. Commercial property prices are as ludicrous as residential.

In the post-Covid world, retail floor space is cheaper, but land availability should be liberalised to drop prices further and enable building.

Second, the supermarket duopoly has watertight contract agreements with suppliers. These are anti-competitive and should be broken.

Third, the income crush faced by Australian households for the past decade has rendered retail a low volume growth business.

Turning this around will take a whole raft of policies to lift productivity, including much lower immigration and much higher investment, none of which is anywhere in sight.

In short, the corrupt Australian political economy makes it almost impossible to break the supermarket duopoly.

Meaning we are left bashing them into line with harsh language.

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geopolitics and economics portal. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.