Should we split up our major supermarkets? That is just one of the many solutions proposed in order to relieve the cost of living pressures on Aussie families. Right now, Woolworths and Coles makeup over sixty five percent of market share. If you include Aldi, only three supermarkets make up seventy five percent of the industry as a whole. Over three quarters of the market encaptured by only three companies. To put it plainly, they capture over eleven billion dollars each year.
Just to get everyone up to speed, a duopoly is when two companies dominate most of an industry. An Oligopoly is where a small handful of companies dominate the industry. When duopolies or oligopolies occur, they hurt competition. At the end of the day, the less competition there is, the more expensive it will be for consumers. In an ideal world, we want lots of competition to make things cheaper.
Truth be told, Australia is obsessed with stifling competition. Our supermarkets are undeniably a duopoly however it doesn’t end there. We have only two major telcos, four major options for insurance and two alcohol retailers. Major retailers are not exempt either. Big W competes against Kmart and Target, except Kmart and Target are owned by the same company. Again, yet another Duopoly. When you fuel up your vehicle, you have at best four options. Powering your home leaves you with only three major options.
It’s no secret that consumers are starved of competitive options when spending. The excuse? It helps your super balance. The retirement of millions of Australians is pegged to the success of these handful of companies.
When situations like this arise, there are always concerns about price gouging. After all, the consumer doesn’t have much choice. If they want the product, there aren’t many places they can go so prices rise. That can go to extremes if left unchecked. What is more likely to happen is that quality and service drops. Consumers are worse off because businesses don’t have to worry about providing proper customer service. They don’t have to worry about quality. Where is the consumer going to go? There aren’t many competitors. As this happens, quality standards dip across the industry where the oligopoly has taken hold.
Think about it for a minute. Do the two largest telcos in Australia provide good customer service? Exactly. Have petrol prices crept higher in the past decade? Exactly. Ever tried to make an insurance claim and been treated like a criminal? I could go on and on, though every industry that is dominated by a handful of players in Australia but i think you get the point.
The worst part of this all is that the longer it goes on, the harder it is to fix. Unfortunately it’s been going on since at least the early 2000s. Some experts believe that this is a problem across capitalism as a whole. That if left to run long enough, oligopolies and then duopolies are inevitable. In a completely unregulated market this might be true. Lucky for us, our society isn’t an unstoppable boulder rolling down a hill.
As obsessed as Australia is with duopolies, the government has options. The most extreme is to force these duopolies to break apart. Most recently, this was suggested as a solution by the Greens party as a result of high grocery prices. This solution is extreme, it entails quiet literally breaking the business apart into smaller businesses. It would force the major grocery stores to sell off each part of their business. The fruit department would become its own business, the deli would split away and become a separate business and so on. The idea is that with so many smaller businesses in the market, the only way they would be able to compete is by lowering prices.
On the surface it sounds like a great way to lower prices for consumers. Underneath however it presents a few problems. The most obvious is that it would be a long legal process. None of the Australian duopolies would quietly agree to be split up. They would draw it out in court, fighting it every step of the way. This would obviously be expensive for the taxpayer. That isn’t the main reason that the government is unlikely to take this route. Let’s be honest, the government overspends all the time.
So why is there such a resistance to this idea? The answer is your superannuation balance.Considering the immense scale of these duopolies in Australia, you will be hard pressed to find a company large enough to possess them. Unlike America, Australia’s large retailers are not owned by rich families. Instead the vast majority of all duopolies in Australia are either owned by foreign entities, or more frequently Superannuation forms.
That is where the issue is. If the government came in to break apart these large Australian brands, their stock price would be obliterated. Even a legitimate threat of a breakup could send the value of these brands plummeting. Investors just don’t want the risk so they flee the stock. The vast majority of super funds hold a huge quantity of stock in these large duopolies. If there was a breakup, it would most certainly halt retirement plans for millions of Australians.
You can’t break the stranglehold these companies have on Australia without screwing Australians in the process. There is another path Australia can take. It involves a combination of protecting small businesses and encouraging new ventures.
One of the ugliest elements of Duopolies is where the largest entities wield so much power, they can bully small time suppliers on price. Whilst they bully down suppliers for a lower wholesale price, they fail to pass that onto the consumer. There are many, many farms that regularly have to sell their produce below their cost to our larger supermarkets because the farmers have no one else to sell to. They essentially have no choice. Neither do consumers. Small suppliers that work with these Duopolies need better protection. This would ironically allow more competition in the market.
This problem has been growing for decades. It’s going to be very difficult for the country to overcome. Four decades ago, it wouldn’t have been a wild idea that someone could start a supermarket business and grow it. Now, coming up against the two giants that own the supermarket industry seems like complete madness. It’s just not possible for someone to start a small local supermarket and survive.
There needs to be policy to help incubate and foster new brands and new companies, particularly in the industries with low competition. These policies should come together to promote competition, bringing prices down for consumers. The weekly grocery shop shouldn’t take up more than half a week’s wage. It would also ensure that the superannuation firms aren’t hit with any major shocks. The millions of Australians that have put their retirement in the hands of those companies will be fine.
The simple fact is, there shouldn’t be two companies dominating each industry in a country of over twenty six million people. We deserve better.
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Special thanks Statista for providing their data on supermarkets and marketshare, Finder for their raw data on supermarket revenue.
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