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Australia's grocery landscape is facing intensified scrutiny as the Australian Competition and Consumer Commission (ACCC) investigates whether the country's dominant supermarket chains are engaging in "land banking" practices that may stifle competition. The ACCC's interim report reveals that Woolworths (ASX:WOW) and Coles (ASX:COL), which collectively account for two-thirds of the nation's grocery sales, are linked to over 150 unrealised development sites.
The regulator's findings suggest that these grocery giants may be purchasing land not only for future expansion but also to prevent rivals from accessing valuable real estate. This practice, referred to as land banking, could create significant barriers for smaller competitors looking to establish or expand their presence in the market.
The ACCC has received submissions from various market participants expressing concern over the potential monopolistic behavior of Woolworths and Coles. They argue that the acquisition of land by these two companies is hindering competition by making it increasingly difficult for smaller players to enter or grow within the market. The final report on the investigation is expected to be released in February 2025.
The land banking inquiry comes amid broader pressures facing Woolworths and Coles, which have been under public and regulatory scrutiny in light of soaring energy, mortgage, and food costs. The Australian federal government plans to introduce a mandatory code of conduct aimed at regulating how major grocery retailers interact with suppliers, further tightening the reins on these market leaders.
In addition to the land banking investigation, the ACCC recently sued both Woolworths and Coles for allegedly inflating prices to mislead consumers with fake discounts. The ongoing scrutiny reflects growing concerns about fair pricing practices in the grocery sector.
Woolworths and Coles have defended their land acquisition strategies, citing challenges such as lengthy planning approval processes, construction delays, and slower-than-expected population growth as reasons for holding onto parcels of land for extended periods. In a statement, Woolworths acknowledged the ACCC’s report and indicated that it would carefully review the findings and provide feedback in the coming months.
The ACCC has not yet reached a conclusion about the prevalence of land banking practices in the grocery sector but has committed to further examination of the issue. According to the report, land banking occurs when a supermarket acquires land without the intention to develop it immediately, or does so prematurely, potentially obstructing competitors from entering these locations.
Currently, Woolworths holds interests in 110 sites earmarked for future supermarket use, while Coles has a stake in 42 sites. Notably, ALDI, Australia’s third-largest grocery chain, has only 13 prospective sites despite having captured 9% of the grocery market over the past two decades.
The ACCC's preliminary assessment suggests that both Woolworths and Coles enjoy competitive advantages in acquiring new sites due to their appeal as tenants and financial capacity to outbid other prospective buyers. This could have significant implications for competition and market dynamics, particularly for smaller, independent supermarkets.
As this investigation unfolds, the future of grocery retail in Australia hangs in the balance, with potential ramifications for consumers, competitors, and the broader market landscape. The ongoing developments warrant close attention as regulators seek to ensure a fair and competitive environment for all players in the sector.
