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JUST RELEASED - 'A TALE OF TWO SHOPS'

Senator Joyce said today, “Where will Australia draw the line on what share of the market place the major retailers should have?”
“Not only are they the biggest sellers of cigarettes and alcohol, the biggest benefactors of gaming machine revenue, the biggest sellers of petrol, the biggest sellers of groceries; they have long wanted to get into pharmacies , so after they make you sick they want to make you better again. The latest foray is their extension into hardware and their expansion in literature.”
“Where is all this going to stop? Why don’t we let them go into hospitals, legal practices, retirement villages, kindergartens, florists, bakeries (hang on they are already in those two), newsagencies, medical centres, and accountancy practices, why stop at hardware stores?”
“Maybe after the majors have totally dominated all facets of life in Australia everything could be packaged up and sold off overseas to a state owned enterprise, after all why should we stand in the way of the total display of centralist domination, no matter how ludicrous and dangerous the outcome is for us?”
“The capacity to participate in the merchant class in Australia is being compromised, and in some cases lost, and there appears to be no political reprieve in sight and no political will to acknowledge what is spoken about in small business every day. Small business wants government to be the arbiter that allows Australian family’s access to market share on terms that are not totally dominated by the major players utilising 800-pound gorilla tactics.”
“A large player uses stand over tactics then tries to dress it up as market efficiency . The closer you look at it, it’s actually cross subsidisation from the businesses they stand over to cover the inefficiencies brought about by their size.”
“Independent retailers in Australia are being sent to the wall by the dominance of larger retailers. Finance Minister Lindsay Tanner says he believes this dominance has led to a positive impact on prices for consumers.”
“What’s great about having the highest inflation of food prices in the western world Mr. Tanner? What’s efficient about having food inflation that’s twice the rate of the Consumer Price Index? After a short term splash is this now what we can look forward to in the longer term in the hardware sector?”
“I acknowledge that we have let one major player in the hardware sector get to big but is the solution not touching it but swallowing up all the smaller players that are left?”
“In our nation we lack the capacity to say when the market share held is enough. Currently the majors are attempting to change the rules pertaining to the parallel importation of books. For some this would make perfect sense that those who control the retail commerce of the nation should control what we read as well.
“In Australia it is hugely important that we have access to a diversified literary palette which would allow us to express the images, of who and what we are as a nation. The argument that Australia is too small to be painted in more than two colours is a sad indictment of what we actually have to offer. “
“Literature is one of the last enclaves not dominated by the major retailers, but not for much longer after listening to Mr. Tanner.”
“The majors are using their political muscle to grow their market share and silence dissent. They create a culture within Canberra where it is politically incorrect to question their benevolence and as a result the majors will end up dominating the market place and extract from Australian consumers any premium they choose.”
“Choice, most would think, is a number greater than two and if we do not have the courage to talk about the obvious elephant in the room then what a sad legacy we will leave for Australia’s economy in the future.”
“You don’t need to have written a PHD on Keynes to understand that once an entity dominates the market place then it extracts a premium in price from you by using its market share, rather than its dynamism.“
“The result is the consumer ends up with a stifled, inefficient market which doesn’t allow others to participate in it, a bad price for consumers and a tepid nondescript drone that stands in place for entrepreneurial flair.”

Replies to This Discussion

Permalink Reply by Dale Stiller on August 29, 2009 at 5:52am

Barnaby, I believe you are have been quote as saying something along of the lines of " as a political conservative, I believe sometimes you need to be an economic socialist". Or have I misquoted you?
I believe all sides of politics can become trapped in their idealogy & be inflexable to set the correct regulatity settings for the nations economy & more importantly the long term benifit of all citizens. The Howard government was just as gulity of an idealogy rut as any other in the belief that the market is always right & any regulation unwanted.
I am a conservative who believes in a market economy, but not at any price. How to you move from the legacy of the Howard years & take this debate forward to the the present KRudd government?

Permalink Reply by Rob Moore on September 6, 2009 at 9:42pm

Most sane people should realise that the greatest threat to small business is BIG Business!Aust is a smorgasboard for Four Banks ,two supermarkets,two fuel co and until a market share cap is legislated at say 30%in any one local Govt area (it could all be done on sq metres of retail selling space to avoid the inevitable stonewalling ie Grocerychoice) Could be simply done from the rates notices.
Hope you don't run out of puff Barnaby as it looks like you have to instigate this on your own as well!

Permalink Reply by Ray Jamieson on September 7, 2009 at 10:38pm

You can't fine tune a structural problem, it needs structural change!

Permalink Reply by Ray Jamieson on September 7, 2009 at 10:55pm

Rob, are you suggesting a system similar to how the media is regulated, by how much of the specific media segments they control - X% of radio, Y% of print and Z% of TV?

There is merit in that concept, as it has partly stemmed the tide of the media until recently, but as those controls relax more and more, media now does say whatever it wants, and promotes whatever and whoever it wants expressed and dresses it up as public opinion - as we have found!

However, in a free market society as we have within Australia, can we really limit a business's growth? If someone, through his own enterprise, is so very successful that he outperforms his competitors and outgrows them to become dominant in the market, at what point do we say enough is enough?

The only way to limit it is probably through town planning and limiting the number of the mega-shopping centres and supermarkets per capita and/or per centre of population/town, which by default then enables the small players to again run the corner store or whatever, which are now not competitive.

The ultimate ownership of these stores could also be a factor. Aldi has been the only new genuine competitor for the big two for a while, although IGA has a market share also. However, now there is a big new USA giant coming into Sydney (I forget the name at the moment - is it Cosco?), but it is along the lines of the Franklins "bulk buy and pack it yourself" budget store. Yes, it will be cheaper, but it is not the direct competitor to Coles and Woollies because of that. Same with Aldi, only 800 product lines, and probably only half of them regular competitors for what the other two run, and half oddball specials stuff they put on there, such as a chainsaw (Yes, I saw a chainsaw in Aldi today, next to the fruit and vegies, near the rack of outdoor all-weather clothing and the TVs... HUH? This is a grocery supermarket?)...

So despite all the perceived competition, for quite some time, Mum will still have to go to Coles and Woollies for most of the regular grocery lines, while the other players enable the politicians to spruke that we have market competition!

If we had to have a new competitor in the marketplace, I wonder if we could have an Australian produce supermarket! Australian owned, selling australian made and grown!

Again, it needs a structural change in the system, not some fiddling at the edges!

Ray Jamieson

Permalink Reply by Rowell Walton on September 8, 2009 at 8:19am

Normally the Merchant class are the traders...yep those who want to dergulate all and sundry so they can trade them freely and make a profit...normally the domain of the Libs...barney my mob grow things and service our industries...like to think you understood that....the domain of the old Country party.

The alternative in retail is to introduce a policeman with sufficient muscle to administer the monster, to oversee the arangements so that there is no evedence of excessive use of market power. A regulated body.

Permalink Reply by Rob Moore on September 8, 2009 at 10:59am

Ray my wife swears by ALDI for all our groceries (Toowoomba is the closest) and she is related to William Wallace the scotsman. Yes the cross media laws would be the only precedent so far.Yes it would involve structural Political change and will-probably mainly from the libs. Yes under normal conditions the free market economy is best and SHOULD work best.
Aust with its big landmass small population has arrived at the present and it is a waste of time looking back for blame.The fact is that the present model is taking us all down the toilet and unless something radical happens quickly -like Don says we will be eating Chinese.
Rowell mentions a policeman to administer the monster. The monster would own the policeman in no time aka The ACCC. My Hypothetical Market Share cap-

The whole country is covered by shire or City councils and rates are paid by owners based on numerous factors but the area of land and sq metres are all listed for valuation purposes.

Pick a percentage that would be a reasonable maximum (me 30%) this could apply to any business enterprise, not just the two supermarts

The trick to any Legislation would be to have it so simple that it could not be confused or corrupted by lobbiing. As i stated above -every council has the Owners and their block size so it is simple maths to determine who might be over the 30% of selling space irrespective of what they are selling.

Those that are over would be obilged to sell down to the cap. This would create an opportunity for a competitor to enter which is severely limited under the current arrangement.

End result- competition working again, consumers winning and suppliers with more bargaining power.

The simplicity of this would negate any need for confidential info such as profits stock inventories- the only detail would be eg CRONULLA shire Woollies collectively owns x servos,y liquor outlets,z hotels,q bigW, m Targets,r Dick Smiths and so on. Total that up as a percentage of the total Retail selling space. This would address the practise of running on business at a loss to break the competition while subsidising it out of another eg the40c litre fuel discount funded by over priced groceries.

Obviously car yards and any thing they aren't involved in wouldn't be in the percentage. Enough from me you can see I have been running sheep for too long!

Permalink Reply by Jim Fryar on September 11, 2009 at 9:51pm

Barnaby, Barnaby, Barnaby, what are we going to do with you?

I can remember a time when the National Party regarded itself as representing a "free enterprise" philosophy, although in reality under closer scrutiny it tended to be agrarian socialist in nature with its emphasis on marketing boards and highly regulated selling. Your call to ration retailers on what market share they will be allowed to attain makes me think that very little has changed over the years.

Around thirty years ago Charles Connoly who was head of the Small Business Association was invited to address a rural group here and as a courtesy a lunch address was arranged with the Chamber of Commerce. One member asked him what they could do to block a proposed Coles supermarket being built. In his reply he absolutely blasted them for not making any effort to improve the CBD and provide better conditions for shoppers to allow them to compete more effectively with a company which would provide heaps of parking and facilities to encourage consumers to go there. Essentially he told them to get off their bums and compete and stop expecting the government to do it for them.

The deregulation of shopping over the years has been a boon to consumers and it would be unconscionable for you to take us back to the rather ridiculous situation we had in the past where there were limits on the width of paint brush a store could sell on weekends. Some of your assertions are simply not true:

There is no evidence that supermarkets make you sick, and:

Walmart in the US offers generic medications at $4.00 each benefiting consumers, and:

Is beginning to offer its "Virtual Care" physicians at significantly lower prices than normal doctors ditto, and:

The dominance that the majors have achieved is not the result of "a stifled, inefficient market," rather the opposite.

Rather than calling for more regulation I suggest that you concentrate on opening up the market to all who wish to compete freely, remove regulations that create the situation where those who can afford the best legal and accountancy advice are at a significant advantage, and get the government out of the way so there is no ability to use the political pull that you allude to, to advantage. Markets will evolve in better and more efficient ways in the absence of the dead hand of the state, your ideas of social engineering to maintain the status-quo will only hold us back.

If you wish to represent our side of politics you should consider forgetting the idea of a PHD in Keynesean economics and look more to free market economics such as those of Adam Smith, Ludwig von Mises, and Hayek, perhaps starting with a good read of "Understanding Personal and Economic Liberty."

It is perhaps a little ironic that the leftie green senator Christine Milne has come up with the idea of a consumer boycott of National Foods in order to get the producers a better deal. This is in some ways a free enterprise solution as it allows the consumer to freely vote with their dollars, to push for real change in the market place, whereas you are talking regulation, the solution of the left.

Permalink Reply by Rob Moore on September 21, 2009 at 7:07pm

Jim, it looks like you believe in "the level playing field", "free trade agreements " etc.A few of your comments I disagree with-
"The deregulation of shopping over the years has been a boon to consumers and it would be unconscionable for you to take us back to the rather ridiculous situation we had in the past "
Shopping, consuming,credit has fuelled incredible growth- all day everyday and predatory market strategies in aust (see Four Corners and Woolworth boss). IT is almost a social status and has replaced sport and simple forms of recreation. The credit too easy and a lot of Aussies living beyond their means to keep up with the Jones's.
"Walmart in the US offers "
I think Walmart is the market share leader in U.S. at 28% of the worlds most affluent society and a huge population.Here we have the two majors at well over 40% each and rising in a tiny distorted charade of being competitive- more like locked in step with each other.
" suggest that you concentrate on opening up the market to all who wish to compete freely,"
The market is a free for all now- as free as setting up new casino in Las Vegas if you are from the wrong group of investors.Huge profits are being made and the company power I believe is stronger than any political will in this country at present.
"The dominance that the majors have achieved is not the result of "a stifled, inefficient market," rather the opposite."
It has been very efficient for the consumers on the way to the top but now the management is drunk on power and success and they know that public perception of them screwing suppliers is not a good thing hence the puke filled TV ads saying we love our produce and our farmers.
The reality is that they would import any thing from any where and repack under their own brands and labels if they can get it for one cent under the Aust product.
"Markets will evolve in better and more efficient ways in the absence of the dead hand of the state, your ideas of social engineering to maintain the status-quo will only hold us back.
Hold us back from what I ask? The duopoly makes me sick and don't give up on it please Barnaby andFiona and Christine.

Permalink Reply by Rowell Walton on September 23, 2009 at 9:09pm

Jim, your views are as near as I can tell at the extreme end of the spectrum and you certainly have been caught up in the free market view of the world. Sadly we have followed your path for much too long and the world is now reconsidering its axioms as a result of excessive freedoms given to huge banks based on your very ideas.

However I too can not see a sell down gaining political weight, and given the problem apears to be the excessive use of market power then the answer is to counter with a balancing mechanism, do not have the detail, but I can see no other achievable way around the problem, especially when the desire of the new community is to shop in shopping centers rather that little corner shops and they do that as you say by making the choice.

The critical question is do you believe a company or a group of companies can attain an advantage to the extent that they actually diminish competition or not. Once we make a decision here we can move on to debate the solution.

Permalink Reply by Jim Fryar on September 30, 2009 at 11:46pm

When I left for a 10-day swing at my job I thought this thread had been forgotten but it seems to have revived while I was away.

As far as the “duopoly” is concerned I find it a little difficult to understand what the issue is. In Gympie, a relatively small centre we have Woolworth’s, Coles, IGA, and Aldi, which at four, adds up to one of the biggest pairs of stores I have yet encountered.

Other than in a corrupt system or planned society the only way for a monopoly to form is for a company to provide such a great product, service, or customer convenience that consumers do not wish to go elsewhere. If these companies have done this then it is commendable and they deserve their success.

A prime example of this phenomenon is John D. Rockefeller who created Standard Oil and through introducing better R&D, efficiencies, and marketing was able to produce a better product, turn what had until then been waste products into marketable commodities, (lubricating oil, paraffin wax, Vaseline etc). The inevitable result was a lowering of the price of a gallon of refined product from 30 cents per gallon in 1869 to 8 cents in 1885. As a result of this the company achieved an 85% market share, even the poor could afford lighting, and kerosene replaced whale oil, thus saving a species from extinction.

If there were any justice in the world all Greenpeace activists would carry an image of John D. close to their hearts.

Rather than chasing more regulation of the industry we should be pushing for the removal of all restrictions on the establishing of business, cut back dramatically on town planning etc and let competitors have open slather. The more we regulate, the easier it is for those already established to use their political pull to manipulate that regulation process to their own advantage.

Jeff; I doubt that Obama would go for cheaper medicines and 'Virtual Care'. “Big Pharma” is one of the more powerful lobby groups in America with millions invested in Congressmen and are more likely to have the source of these medications shut down than expanded. Virtual care would probably be prevented in the name of ‘public safety standards’ by medical lobbyists.

Rowell, the financial crisis was not caused by as Rudd contends, unrestricted unrestrained, untrammeled, unmitigated, unregulated, Ayn Randian, free market capitalism. The basis of the crisis was moves for ‘affordable housing’ back in the Carter administration which encouraged poor lending practices by allowing those loans to be on-sold to Freddy Mac and Fannie May who had implied government guarantees. Subsequent anti-discrimination lawsuits turned this practice into a virtue. In a free society without state interference in the financial industry the directors of those companies making a virtue of giving bad loans would have been run out of town on a rail dripping tar and feathers by the shareholders years ago.

Seriously mate, I didn’t do it.

Permalink Reply by Rob Moore on October 1, 2009 at 7:34am

That's all fine by me Jim, just be prepared in a few years to be eating fully Imported Foodstuffs from all four of of your supermarts and have your personal taxs lifted to pay the welfare bill of Rural Australia.
Me-I am going to shut down production and take it easy for a change!

Permalink Reply by Jim Fryar on October 2, 2009 at 1:07am

Barnaby has pointed out to us in his article that the problem is politically based:

“The majors are using their political muscle to grow their market share and silence dissent. They create a culture within Canberra where it is politically incorrect to question their benevolence and as a result the majors will end up dominating the market place and extract from Australian consumers any premium they choose.”

This clearly indicates to me that he feels that these companies are manipulating the government in a way that allows them some form of favoritism in order to gain an advantage over competitors. Obviously this is corrupt and if this is the case he should take steps to see the situation redressed. Clearly the best way of achieving this is for the government to relinquish control of the marketplace and allow those competitors free rein. Any further regulation will only expand the scope for market distortion.

Generally consumers tend to look for local foodstuffs, they are fresher and tend to be of better quality than imported items, however low income earners probably eat better with the availability of cheaper foodstuffs. In any case it must be argued that consumers have the right to choose what product they will buy and for what reason, to argue otherwise is to suggest a form of ownership of them which is authoritarian and has no place in a free society.

If there is no restriction on providing shopping facilities then it is impossible for any supermarket to totally monopolize the market and then charge exorbitant prices or deny consumers the goods they seek, if they attempted to do this competitors would quickly arise.

Clothing imported from low labour cost countries - the 'never the same size syndrome" occurs frequently, or the dye runs, or it shrinks two sizes, or it irritates the skin. Surely you have to give the consumer credit for enough common sense to assume that they might get caught once, but make a more informed choice next time.