Supermarkets conundrum

WITH the Harper review of competition policy calling for full deregulation of retail trading hours, the question is whether the removal of restrictions is likely to play into the hands of the major supermarket operators.

Not so say investors, with both Woolworths and Wesfarmers (Coles) taking a fall in line with other industrials yesterday — down 0.8 per cent and 0.7 per cent respectively. Others at the more discretionary end of the market that compete with online operators, including Myer, could struggle with longer hours, given the substantial bills — particularly around wages — they face keeping stores open.

One senior retail executive has previously admitted to DataRoom he could ease the negative impact on earnings by closing stores on public holidays.

Meanwhile, brokerage Deutsche Bank suggests the threat of offshore supermarket operators such as Aldi and Costco could be overplayed. Deutsche analyst Michael Simotas notes both Woolies and Coles have actually increased market share over the past five years, despite Aldi’s rapid expansion and the beginning of the Costco rollout.

Indeed, much of the gains have come at the expense of the independents, including Metcash, which is behind the IGA network, Simotas notes. He believes this trend will continue with the incumbents likely to gain or at least maintain market share for another decade.