Drakes boss says divestiture key to reining in Coles and Woolies

Australia’s largest independent grocer says preventing further expansion of Coles and Woolies is the only way to rein in their excessive market power.

Drakes Supermarkets director John-Paul Drake. Picture: Dean Martin

The boss of the nation’s largest chain of independent supermarkets has lashed out at regulators for failing to rein in the excessive market power of Coles and Woolworths, arguing forced divestiture and moves to prevent further expansion of the duopoly are the only way to stamp out their anti-competitive behaviour.

Drakes Supermarkets director John-Paul Drake says that while most scrutiny has been on the pricing tactics of the two major supermarket chains, the real problem is how they use their market power to prevent other players from entering the market or expanding their networks.

“Do I think something’s going to happen with the price gouging (ACCC inquiry)? No I don’t, because it’s (pricing) so confusing. If people understood how we do pricing I’d hire them to come and do the job,” he said.

“I think it’s a very dangerous area when you’re trying to tell people how to price their products. If you don’t like that price shop elsewhere.

“But I think everyone knows they (Coles and Woolworths) are so powerful, and they need to be pegged back. If you really want to peg them back don’t let them open up new sites – make sure those sites go to independents. Divestiture – yep, do it – rip some of the stores off them and give them to the independent retailers.

“And then get to a more fair market like in Ireland where all four of the biggest players have 25 per cent each of the market. That is a fair playing field.”

Drakes operates 68 supermarkets across South Australia and Queensland, and Mr Drake said the company was now exploring opportunities to expand the network into other states.

But surging rents and anti-competitive practices employed by the major supermarkets posed as the biggest barriers to growing the brand.

“They (Coles and Woolworths) buy blocks of land and shopping centres that they don’t need so another player can’t go into it. They control what happens with the leasing. They’re that dominant where they’re on every corner block,” he said.

“They can open a supermarket and lose millions of dollars. An independent operator can’t do that.

“The rents that are being seen around the place are skyrocketing because everything’s gone up, and now Coles and Woolworths are less likely to build new sites because they’ll just go and pay more to kick an independent retailer out of an existing site.”

Drakes reported a 9.5 per cent increase in its total sales in the 12 months to June, to $1.29bn, but Mr Drake said the cost of major promotional activities and discounting was largely behind a 29.6 per cent fall in net profit to $26m.

Cigarette and tobacco sales were also down 25 per cent due to the rise of Australia’s booming black market tobacco trade.

Mr Drake said the cost of living crisis was playing out at the till, with shoppers chasing discounts, and value brand sales on the up.

“We’ve seen an increase in value brand by about 16 per cent. I think people are being a little bit more cautious with what goes into their trolleys,” he said.

“They’re trying to extend the life of what they can get out of the weekly shop, they are taking advantage of specials, and we’re seeing the value brand products increase as well, because it is tough out there.”

Drakes opened its 68th store this week with the acquisition of IGA Mount Compass in the Adelaide Hills.

Last month the company took over full ownership of its 21 supermarkets in Queensland and a further eight stores in South Australia, which were previously held in a joint venture with Metcash.

As part of the $18m deal to acquire the wholesaler’s 26 per cent interest, Drakes extended its supply agreement with Metcash in Queensland for a further five years to June 2034.

Mr Drake said he was now exploring opportunities to expand the brand into other states.

“I’m forever getting calls from people in Perth to go over there, NSW, Victoria,” he said.

“It would be foolish not to look at other states.”