Independent grocery suppliers face supermarkets probe

Independent grocery stores outnumber all others in Australia but attract a fraction of the major supermarkets’ sales, a fact that will be put under the spotlight at a probe into the increasingly scrutinised sector.

Metcash representatives are due to appear before the Australian Competition and Consumer Commission’s inquiry into supermarkets on Thursday.

The company said the independent grocers it supplied occupied an important competitive position in the market.

“In addition to providing a pricing constraint to the large dominant vertically integrated retailers, they provide real differences in product offerings and opportunities for local suppliers,” Metcash submitted to the inquiry.

The consumer watchdog’s interim report found sales have been shrinking at Metcash-supplied independent grocers, such as IGA-branded stores, while Aldi, Coles and Woolworths all increased their footprints.

IGA stores across the nation outnumber all others, but they are typically smaller.

Woolworths, Coles and Aldi have introduced smaller-format stores in recent years and the commission is investigating whether that creates barriers to entry for independent competitors.

The more than 1600 retailers Metcash supplies account for about seven per cent of supermarket sales, compared with Coles and Woolworths’ combined two-thirds market share.

The commission is also considering the role of Metcash as a major supplier to independent supermarkets and whether this could limit price competition as many had no cost-effective alternative supplier.

The company told the inquiry it did not set retail prices, which a recent Choice analysis found were significantly higher at IGA stores than at the major chains.

Another likely focus for the inquiry will be loyalty programs.

Metcash said schemes run by Coles and Woolworths provided rich data that reinforced their market positions, informing supplier agreements and allowing for targeted promotional activity.

The company’s own IGA Rewards program is offered on an opt-in basis by individual store owners, while some choose to offer their own loyalty schemes.

Aldi representatives faced public hearings earlier in the week, while representatives from Woolworths and Coles will appear before the inquiry from Monday.

The ACCC’s final report is due in February.

The federal government has proposed changes to merger laws and a mandatory food and grocery code of conduct, carrying multimillion dollar penalties for serious breaches.