Australia's Grocery Giants Under Scrutiny for Land Hoarding: ACCC Investigates Woolworths and Coles' Real Estate Tactics
SYDNEY (Multibagger) - Australia’s top two grocery behemoths, Woolworths and Coles, are under the microscope for holding interests in over 150 undeveloped land sites, a practice known as "land banking." The Australian Competition and Consumer Commission (ACCC) is investigating whether this strategy is stifling competition within the grocery sector.
The Power Play: Woolworths and Coles’ Real Estate Dominance
Together, Woolworths and Coles command two-thirds of Australia's grocery market, forming an effective oligopoly. The ACCC is probing how their dominance extends into supermarket real estate, potentially creating barriers for new entrants and smaller competitors.
Market participants have raised concerns that these giants are purchasing land to prevent rivals from acquiring it, thereby increasing obstacles to entry or expansion. This practice is outlined in the ACCC's interim report on supermarket pricing, released on Thursday, with a final report expected by February 2025.
Land Banking: More Than Just a Real Estate Strategy
The inquiry into land banking adds another layer of scrutiny to Woolworths and Coles, who have been under public, governmental, and regulatory pressure amidst two years of rising energy, mortgage, and food costs.
The federal government is set to introduce a mandatory code of conduct regulating how large grocery retailers treat their suppliers. Simultaneously, the ACCC has taken legal action against both companies for allegedly inflating prices to attract shoppers with deceptive discounts.
Both Woolworths and Coles have claimed that delays in planning permission, construction hold-ups, and slower population growth sometimes necessitate holding land parcels for extended periods. However, the ACCC has yet to determine if land banking is a deliberate competitive strategy within the sector.
The Numbers Game: Who Holds What?
According to the ACCC, Woolworths, the leading grocer, has interests in 110 future supermarket sites, whereas Coles holds interests in 42 sites. The report does not specify the development stages of these sites.
In contrast, Germany’s ALDI, Australia’s third-largest grocery chain with a 9% market share after two decades, only has 13 prospective sites.
Competitive Advantages and Market Implications
The interim report suggests that Woolworths and Coles have competitive advantages in acquiring new sites due to their attractiveness as tenants and their financial muscle, which allows them to outbid potential competitors. The ACCC is evaluating whether this leads to significant barriers for smaller, independent supermarkets looking to enter or expand in the market.
Breaking It Down for the Everyday Investor
What is this about?
The ACCC is investigating whether Woolworths and Coles are hoarding land (a practice known as land banking) to prevent other grocery chains from expanding. This could be limiting competition and maintaining high prices for consumers.
Why should you care?
If Woolworths and Coles are found guilty of anti-competitive practices, it could lead to regulatory changes, potentially opening the market to more competition. This might result in better prices and more choices for consumers. For investors, a shift in market dynamics could impact the stock prices of these grocery giants and create opportunities in smaller, emerging grocery chains.
How might this affect your finances?
Increased competition could lead to lower grocery prices, saving you money on your daily shopping. From an investment perspective, diversification into smaller grocery chains or international entrants like ALDI might offer new growth opportunities.
Stay tuned as the ACCC continues its investigation and prepares its final report by February 2025. This could be a pivotal moment for Australia's grocery market and your investment strategy.