Wednesday, August 6, 2008

No Obvious Villain

EDITORIAL WEDNESDAY 06.08.08. While the report by the A.C.C.C. into grocery prices has disappointed many, it has been warmly welcomed by the retailers who see it as a vindication. They are responding to the news that the Commission “has not identified anything that is fundamentally wrong with the grocery supply chain.” It is recognized that grocery price increases have outstripped inflation for the past decade, but the big Coles–Woolworths duopoly has been absolved of any blame.

Instead, the primary factors driving grocery prices up have been the drought and rising fuel costs, along with other input costs, as well as an increase in global demand for staple foods. All this is true, but it remains hard to believe that when Cole-Worths controls 70% of the packaged goods market and 50% of fresh foods there isn’t some temptation to flex market muscle.

At the same time, the Commissioner Graeme Samuel has found that market concentration is “not optimal” and that there are significant barriers to entry for new competitors. Where genuine competitors such as Aldi have entered the market it has been demonstrated that prices are actually lower. While the big two exert such dominance Mr. Samuel could well use his own description of the oil market, “a comfortable oligopoly”, to describe the grocery market.

The A.C.C.C. report introduces two important measures which may help. One is Grocery Choice, which has been described as “Fuelwatch for shops”, and which will give consumers online access to price comparisons. While helpful, it remains to be seen just how much practical benefit might be delivered by the scheme.

The second measure is the introduction of unit pricing, which will require stores to display a price per gram or price per unit so that an easy comparison of value can be made between different sized packages of similar goods. Again it will help, but there’s no guarantee that it will actually bring about lower prices.

It’s always nice to identify a convenient villain to blame when things are not to our liking, but unfortunately the A.C.C.C. report does not provide us with one.

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