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July 23rd 2014 print

David Flint and Jai Martinkovits

Mortgages Available in Aisle 4

Recent history suggests that Coles' move from groceries into petrol, liquor retailing, insurance and credit cards is by no means the high-water mark of its ambitions. Australian consumers may well regret that their elected representatives facilitated such an expansion

monopolyAre the grocery juggernauts beyond control? The Australian grocery market is among the most concentrated in the Western world, with Coles and Woolworths controlling  92% of the $111 billion retail food market. With the connivance of the politicians, the chains also are acquiring larger slices of the petrol and liquor markets.

Having made a vigorous entry into the insurance industry, Coles is now teaming up with with GE Capital Australia to offer credit cards and “personal finance products” to its 8.8 million customers. In a statement announcing the joint venture, Coles said the partnership would “deliver innovative financial services to the Australian market … with the additional value and benefits of Flybuys’ award-winning loyalty program, including money off your groceries at Coles.”

During his days at the IPA, now-Human Rights Commissioner Tim Wilson took a more sanguine view of competition in the grocery business. His paper can be read here

As yet there has been no indication that Coles will be offering mortgages, but only the naive would assume its ambitions will see no a further expansion. Wherever the grocery giants see potential in  leveraging their dominance of the grocery market to move into other areas it is a sure bet they will — unless, of course, politicians and regulators show some backbone and do their jobs.

The grocery mammoths have already used their market dominance to damage and destroy competition, and to extract near-monopoly prices from consumers and suppliers.

Let’s be very clear about what is happening. Prices paid to farmers and processors are pushed down, not to benefit consumers but to enrich the Big Two. It is elementary that, without real competition, the firms will lift consumer prices, the direct consequence being that Australian consumers pay higher prices than in most other comparable markets.

The politicians made their position very clear when, in 2006, a bill was introduced to allow  shopper-docket discounts. The politicians allowed this when a retailer provides discounts to a supermarket customer for, say, petrol or liquor purchased at an outlet owned by the retailer.

The petrol discount is a sleight of hand, a confidence trick. We pay more at the grocery outlet to get  discounts at the petrol station. Once the independent petrol retailers have been forced out of business, prices will go up sure as supermarket eggs.

Surely the politicians knew their decision would drive out of business independent petrol stations and liquor stores. Indeed, it is hard to believe it was designed to do precisely that? So why was it introduced and passed? Was it incompetence, or was it that our politicians wish to destroy small business?

The latest move is for Coles to use its market power to enter the financial market. Using the shopper-docket precedent, consumers will pay more for groceries to facilitate the illusion that credit cards are cheaper. Next, expect a move into home mortgages. And, once they have dealt with the competition, they’ll make sure you’ll pay more for your mortgages.

Will our politicians and regulators allow this? Past experience suggests they will — another reason to make politicians truly accountable.

David Flint and Jai Martinkovits are joint authors of Give Us Back Our Country, published by Connor Court