Government attacks Woolworths and Coles over market dominance, says evidence has been referred to ACCC

Industry Minister Kim Carr has launched an extraordinary attack on supermarket giants Coles and Woolworths, claiming their push to expand sales of private label products threatened to “cripple innovation, destroy jobs and erode our capabilities as a food producing nation”.

Carr’s attack came as Woolworths confirmed doubling sales of its private-label products will play a role in rebuilding momentum in its grocery business.

Woolworths, which wants to increase its grocery market share to 36% from 28%, says it was improving buying terms, conducting a review of its supplier arrangements, increasing parallel imports and global direct sourcing and utilising vertical integration to improve its buying.

But Carr says he has heard complaints that the supermarkets are exploiting their position by auctioning off shelf-space with a view to excluding competitors, extracting concessions in contract negotiations by denying access to shelves, arbitrarily deducing costs for stock-handling services, forcing manufacturers to pay freight charges between warehouses and stores and arbitrarily rescinding contracts with suppliers mid-term.

“For most food manufacturers, their main access to customers is through the supermarket chains. They control up to 80% of retail food and grocery sales in this country. In practical terms, you deal with Coles and Woolworths, or you go out of business,” Carr says.

“Some suppliers claim they must divulge their product plans 12 months in advance and supermarkets use this information to further weaken the competitiveness of brand name products.”

“Individual suppliers should not have to bear the pressure by themselves. Such a practice has the potential to cripple innovation, destroy jobs, and erode our capabilities as a food producing nation.”

Carr says this information from “reputable firms” gives cause for concern about the supermarkets’ dealings with food manufacturers and has been referred to the competition regulator, whose chairman Rod Sims recently warned that the vertical integration of supermarkets “needs close scrutiny to ensure the supermarkets do not misuse their market power”.

Sims this morning told ABC Radio that the misuse of market power was “probably the hardest part” of the Act to enforce.

Independent Senator Nick Xenophon has weighed in on the debate, telling reporters today that “too many people who provide produce to Coles and Woolworths are fearful of their market power”.

In an investor briefing yesterday, Woolworths said it wanted to double the market penetration of its own brands over the next five years, making private-label sales more in line with levels seen in Europe and North America.

Woolworths does not disclose the size of private-label sales, but a spokeswoman earlier this week said IBISWorld’s estimate of 23% of the market sounded high. The Australian Food and Grocery Council this week tipped it would soar to 50% by 2020.

Woolworths yesterday reported 180% growth in its home-brand sales from 2010 to 2011, and said a strategic review was underway to increase growth in its other brands Macro and Select, which have 350 and 1,300 products respectively.

Woolworths says its high-end Macro brand grew eight times faster than the market last year, and Select reported sales growth in the last quarter on the back of new product launches and rebranding.

The CFMEU, meanwhile, has called for an investigation into the market power of Woolworths and Coles, claiming manufacturing jobs have been lost due to the “predatory practices of the supermarket duopoly”, the Sydney Morning Herald reports.