Regulation and red tape threatening supermarket store development

Australia’s largest supermarket landlord has warned if the ACCC announces new regulations on store openings it could push property developers out of the sector.

Region Group chief executive Anthony Mellowes has warned of the chilling effect of threatened regulation on new property developments. Picture: Britta Campion

The nation’s largest supermarket landlord has warned that the competition regulator’s possible harsh restrictions on Woolworths and Coles entering new markets and relentless public attacks on the sector by politicians are having a chilling effect on developers building new supermarket properties.

Threatened merger reforms raised by the Australian Competition and Consumer Commission’s supermarket inquiry, which could include raising the hurdle for Woolworths or Coles to open a new store in a suburb, and red tape and rising construction costs are a major disincentive to investing in neighbourhood property developments.

Region Group chief executive Anthony Mellowes said there had been a “general slowdown” for supermarket and neighbourhood property developments, which had accelerated since 2024.

This was robbing the sector – and shoppers – of new floor space for supermarkets, and widening the gap between the number of supermarket aisles across the country and the booming population, he said. And this could significantly worsen as the ACCC prepares to release its supermarket inquiry report at the end of the month, which could introduce harsher restrictions on the supermarket giants entering new neighbourhoods. That finding could get a warm reception from politicians – both Labor and Liberal – who see votes in beating up the chains, he said.

“The biggest issue is planning delays and time to get a development up, funding costs, interest rates up and then, most importantly, the cost of construction is very high,” he said.

“It’s going to be harder for Coles and Woolworths to have new stores because of this ACCC inquiry – the attacks on Coles and Woolworths particularly, by both Labor and Liberal, about grocery prices,” Mr Mellowes told The Australian.

“They are not going to break Woolworths and Coles up. But I think politically they’re going to have to do something and the ACCC is what I think they (politicians) will look to use. The ACCC could have recommendations that the ACCC should approve each new property deal that Woolworths and Coles does.

“So if they go into a new location, the ACCC could look at that particular market.

“I think the government has made so much noise about this, they will try to stem the growth of Woolworths and Coles and will use the ACCC to do that.”

The release of the final ACCC report into the supermarkets comes at a politically sensitive time, with the federal government to be handed the report and recommendations, just before the start of a federal election campaign. It could be used by the Albanese government to attack the supermarkets to win votes.

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb. Picture: Jane Dempster

Mr Mellowes, who oversees 100 shopping centre properties, all with a Woolworths or Coles in them, said property developers could then look elsewhere to ­invest funds where the returns are less volatile and not exposed to any new merger laws or regulations brought about by the ACCC supermarkets inquiry.

“The outlook for retail floor space remains limited and the current merger reform and ACCC inquiries into supermarkets could also negatively impact the development of new space,” he said.

ACCC chair Gina Cass-Gottlieb’s supermarket inquiry is expected to issue its final report at the end of February, with Woolworths and Coles bracing for any new regulations recommended to the federal government. The practice of land banking – where Woolworths and Coles allegedly buy property for a future supermarket site but sit on it for many years to stop other rival retailers using the same property – was heavily criticised and discussed in the inquiry’s public deliberations late last year. This could see new laws to limit supermarkets taking up new tenancies in shopping centres, robbing landlords of anchor tenants that typically hold up the centre and make it financially feasible.

Both Woolworths and Coles have consistently denied the allegations they were involved in land banking, but the issue could feature in ACCC recommendations.

Mr Mellowes said that having an independent supermarket chain such as IGA as an anchor tenant in a new neighbourhood shopping centre wasn’t a simple swap for having a Woolworths or Coles.

“The valuation or yield of a property where there is a Woolworths or Coles is roughly 6 per cent,’’ he said.

“If you had a convenience shopping centre without a Woolworths or Coles, so it’s just an IGA for example, that cap rate would be 7 per cent, so a shopping centre that may produce the same amount of income – which is debatable anyway – with an IGA in there and 10 shops, versus Woolworths or Coles with 10 shops, the value of the centre will be $40m for Woolworths and it could be $30m.

“So you just don’t get the development up if you’re going to be forced to put an IGA in there, as they cost the same to build.

“There are unintended consequences. Has anyone thought through what they’re actually saying? There is uncertainty. Woolworths and Coles do a great job. It’s a very competitive market. There’s lots of players like Chemist Warehouse, Amazon, lots of different people nibbling away at all the business there.

“But if you’re a (property) developer, if you can’t have a Woolworths or Coles in a new centre, who are they going to have? The money will go somewhere else.”

Originally published as Regulation and red tape threatening supermarket store development