Australian supermarkets need more competition, but would government stores actually work? | Allan Fels

The Green Institute, the research arm of the Greens party, has proposed establishing a nationwide chain of government supermarkets. The proposal arises from a genuine problem, but whether it offers a feasible solution is doubtful.

The retail groceries market is less than fully competitive. Coles and Woolworths account for about two-thirds of national supermarket grocery sales, while Aldi accounts for about 9%, and other supermarkets even less.

In this concentrated environment, consumers struggle with high grocery prices, and farmers and other suppliers complain that a lack of bargaining power leaves them short-changed. There are also formidable barriers to establishing a new supermarket chain on anything approaching a national scale.

Max Chandler-Mather, the executive director of the Green Institute and a former MP, said it was “common sense” that affordable prices on essentials require public ownership, comparing the publicly owned supermarkets to Medicare and public schools.

The Green Institute claims establishing 624 supermarkets and 13 distribution centres through new construction and acquisition of existing stores would cost $25.1bn over five years, after which revenue would make them cost-neutral. The new chain would have about 20% of market share; still below that of Woolworths and Coles, but significantly more than other competitors.

The large initial investment will presumably be added to Australia’s national debt and hopefully paid off over time.

The strongest case for publicly owned supermarkets is not that governments are naturally better retailers, but that food is an essential good and some communities may be poorly served by ordinary commercial incentives.

But inadequate competition does not mean the government should become a supermarket proprietor.

A government supermarket would have to compete not merely on price, but on quality, convenience, range and reliability. Most Australians are accustomed to large stores carrying tens of thousands of products, fresh food year-round, home delivery and sophisticated online services. Replicating that is no small undertaking.

Above all, scale is critical. Coles and Woolworths possess enormous purchasing and distribution networks developed over decades. Even Aldi, one of the world’s largest supermarket businesses, took years to establish a substantial Australian presence.

Could a new government enterprise do better?

Government ownership could also disguise the true economics. A public supermarket might charge lower prices because taxpayers provided its capital, subsidised its premises or covered operating losses. Consumers might save $5 at the checkout while paying more indirectly through taxation.

There may be a stronger case for public intervention in remote communities where normal commercial supermarket provision is inadequate. But even there, a national government supermarket chain seems disproportionate. Targeted freight assistance and support for existing local stores or particular communities would probably be cheaper and more flexible.

Public ownership would create another problem: government would acquire more direct responsibility for supermarket prices. It is inconceivable that political decision-making would be left out of the equation.

The Greens would do better to strongly advocate for one of their established policies – introducing a divestiture power into competition law, enabling courts to break up large businesses that seriously breach the law. Even if such a power could not readily be used against supermarkets, its existence could provide a powerful deterrent against anti-competitive conduct by large businesses generally.

Unfortunately, there is no simple answer to Australia’s supermarket competition problem.

Useful things can be done at the margin. Governments can make suitable sites more readily available to newcomers, merger law can prevent competition worsening, price transparency can be improved and independent supermarkets can be given every reasonable opportunity to expand.

But the only development that could realistically affect Australian supermarket competition would be entry of another large international group with the capital, technology, buying power and management expertise to compete seriously with Coles, Woolworths and Aldi.

Australia has already seen how difficult that is. The German supermarket giant Kaufland made extensive preparations to enter Australia, acquiring sites and committing substantial resources before abandoning the project in 2020 without opening a single store.

That experience is sobering. If one of Europe’s biggest and most experienced retail groups decided that Australian entry was unattractive, there is reason to doubt that a government retailer would find the task easier.

Australia may have to live with a supermarket industry that is less competitive than ideal for the foreseeable future. Governments should continue looking for practical ways of lowering barriers to competition to protect consumers and suppliers.

Establishing a taxpayer-funded national supermarket chain is unlikely to solve the underlying problem. Instead, it risks replacing concerns about supermarket profits with something just as troublesome: a large, never-ending bill for taxpayers.