Monday, April 22, 2024

Supermarkets, shopping centres and the weaponisation of planning

 



The current Federal inquiry into anti-competitive practices of our large supermarket chains in Australia could do well to ask how planning schemes have been mercilessly weaponised to minimise competition. The allegations are not new. Remember Kaufland? Back in 2018 it was talking up its impact on the Australian grocery sector, which was (and remains) essentially a duopoly. Plenty of opportunity to challenge market power and establish a third major presence in the grocery sector. Or so they thought.

There were no doubt a number of factors that led Kaufland to sensationally pull out of Australia in 2020, but finding suitable sites was certainly one of them.

According to this analysis by KHQ Lawyers: “Finding appropriate sites has been a challenge for Kaufland.  Although Kaufland has secured a variety of development locations, the fact that it announced its first store would be in South Australia (no offence, Prospect) indicates it was not an easy task.  The eastern states, with higher populations and greater spending power would likely have been preferable.

With a store footprint anywhere from 4000m2 (i.e. larger than a standard Woolworths) to 20,000m2, the number of appropriate sites is probably limited – and will generally be in the outskirts of town and often separate from existing retail developments rather than in areas with a more concentrated population and accordingly greater customer catchment. Australia’s highly restrictive planning laws and lack of development opportunities due to sub-optimal land use zoning (I’m looking at you, NSW) would have impacted any projected growth of the Kaufland network.  Accordingly, the benefits of economies of scale will take longer to achieve.”

There was also the problem that major suppliers to Woolworths and Coles felt intimidated that by supplying Kaufland, their existing contracts to Woolies and Coles would be jeopardised. The issue was investigated by the ACCC but nothing came of it. Kaufland left Australia, scalded by the encounter with our anti-competitive competition for the consumer dollar. The duopoly survived, and arguably grew stronger. The two now account for two out of three of all dollars spent in the sector.

The issue stretches back deep into planning law and the notion of a “retail hierarchy.” What this means, in simple terms, is that the established pattern of retail stores – from city centre, to regional, district, neighbourhood etc – should be maintained, and that “allowing” planning permission for rival centres to be developed within the same arbitrarily defined catchment should be refused. To protect competition, we need to prevent competition.

This double-speak is now daily bread and butter for an entire industry of highly paid lawyers, planners, economists and others – including someone called “Brad” - who will argue that black is white if it suits their cause.

A senior Westfield executive once said to me: “Ross, we would object to a competitor moving a plant pot if we thought it was in our interests to do so.” That was back in the late 1990s, during some heated debates about shopping centre trading hours. The arguments were put in favour of deregulation but in the end we did not end up with more competition.

Fast forward to today and the same allegations are resurfacing.

“There is a long-time pattern and behaviour, which is anti-competitive, which seeks to close out markets and remove competitors from the markets, and we’ve seen that happen over a long period of time,” said Grant Ramage, Australian head of IGA, giving evidence to the federal inquiry.

“Their sheer scale gives them the financial capability to do that. It gives them greater sway with developers, landlords and other parties, like state governments,” he said.

He was arguing that the duopoly were buying up new sites - not with a view to developing them, but to prevent competitors from buying the sites, or even prevent them buying another site within that arbitrarily defined future trade area. Hard to prove, and people like “Brad” will swear under oath it isn’t true. But the suspicion lingers.

Locally, our IGA Milton store was a recent victim of these aggressive tactics. A very well supported store, with local owners (who owned and ran a total of three IGAs including this one) and friendly staff, it was open 365 days a year. But some years ago, then centre owners Vicinity sold the small shopping centre to Coles Property. Not so that Coles could own an IGA of course. Coles just waited for the IGA lease to run up for renewal, refused to renew, and so the IGA was forced to close. Coles are now in the process of building a larger store, presumably with computers rather than checkout staff and certainly with no local owners anywhere to be seen. And if someone wanted to open a new independent grocery store nearby, you can bet that Coles will take them to court if they have to, arguing that to protect competition, we need to prevent competition, giving due respect to prevailing planning law and practice – and the retail hierarchy.

Good luck to the Federal inquiry but I fear it will go nowhere. There’s a conga line of self-interests masquerading as the consumers’ champions who will ensure it doesn’t.

8 comments:

  1. Ross, it is well nigh impossible to establish a new centre in the suburbs - even when they are growing fast and absolutely need it. In Queensland it is a particular joke. You apply for the centre and a major one nearby with a Coles and/or Woolies appeals. You finally get to Court, pay your half million plus for planning, engineering and "need" experts and the case will hinge on the unwritten golden rule that if you effect trade in an existing centre (aka 10% of the supermarket trade), you will be refused (after a year of Court deliberation). This happened to a district centre I was involved in at Thornlands which took 5 years to be approved and two Court Appeals. This was despite the fact both sides and Council agreed that the centre was needed and in the right place. The centre was initially refused (by a judge with no apparent knowledge of planning) on the grounds that the centre was not proposed in the Redland Planning Scheme latest draft. This was not of course a reason for refusal so that's how the appeals started. And I might add, no Council can really propose new centres in planning schemes anyway 'cos this will delay their scheme approval in the face of major centre objectors and a major retail study etc.etc. So the answer is to allow any amount of "chic" retailing along street frontages in the inner city but don't dare propose a new centre of substance in the growing outer suburbs where it is needed. I need a gin and tonic!

    ReplyDelete
  2. Dear Ross. I have written 100s of articles on retail property retail businesses published in: The Retailer; QRTSA and several others (1994 - 2014) covering these topics.

    At one point, from my research, Woolworths and Coles had circa 78.0% market share from memory before Aldi came in. So believe it or not it is better.

    But that does NOT address:

    A. Their massive combined Market Share of hardware; office supplies; liquour; fuel; pubs and clubs; discount department stores; profit gain thru No Name Brands; price gouging suppliers etc. etc. and
    B. The same by Retail Landlords using power imbalance to use leverage on Business Assets and "Price Gouge" Business Return by way of excessive Rent and Outgoings charges.

    I believe that there are so-called Lease Negotiators / Consultants out their who are part of the Landlord's Networks.

    Getting truly Independent Advice and or equity is neigh impossible.

    Don Gilbert

    ReplyDelete
  3. 'Brad' may well argue that black is white, but here in Queensland, economic, community and planning need is a thing; happily existing in the grey.

    ReplyDelete
  4. Same story with Pick 'n Pay trying to establish in the mid '80s.

    ReplyDelete
  5. Discover Vi-John Kart's premium skincare products for men. From moisturizers to cleansers, we've got your grooming needs covered.

    ReplyDelete
  6. Buy the best skincare products for men in India at the best price.

    ReplyDelete