Fred Harrison, CEO of Ritchies, the country’s largest network of independent supermarkets, is grappling with two significant challenges that are severely impacting his business: the surge in illegal tobacco sales and the growing dominance of major players like Woolworths and Coles.
The first issue, which Mr Harrison describes as a “major headache,” is the increasing number of smokers turning to cheap, illicit tobacco from underground suppliers. This trade, he says, is costing Ritchies around $50 million a year in lost sales. The second concern is the monopolistic tactics employed by Woolworths and Coles, which he claims are using their vast financial muscle to secure prime retail sites, often through a practice known as “land banking.” By purchasing land and leaving it undeveloped, these giants make it near impossible for smaller independents like Ritchies to compete in key suburban locations.
For Mr Harrison, the solution to these twin threats lies in stronger regulatory action. On the issue of illegal tobacco, he calls for stricter enforcement of existing laws and greater action by police to shut down stores that openly trade in illicit cigarettes. Regarding the growing market power of Woolworths and Coles, he advocates for the outlawing of land banking and a mandatory competition test before either chain is allowed to open new stores in a given area.
In addition to these challenges, Ritchies is also feeling the strain of rising costs, with inflation pushing up expenses by more than $15 million in 2024. Higher wages, electricity bills, utility costs, rents, and taxes are all squeezing profits, further compounding the pressure on the supermarket chain.
But for now, Mr Harrison’s primary focus is tackling the issue of illegal tobacco and reigning in the market power of the supermarket giants.
The impact of illicit tobacco has been particularly damaging to Ritchies. Over the past three years, the company has seen a significant decline in revenue, with sales dropping by more than $150 million, which Mr Harrison attributes directly to the illegal trade. But it’s not just tobacco sales that are suffering. The broader effect on consumer behaviour means Ritchies has also lost out on sales of other products. Smokers who once purchased tobacco in-store would typically add other items to their baskets—about $24.90 worth of groceries or liquor per shopper. This additional spending has now evaporated, as many customers opt for cheaper, illegal tobacco instead.
“Illicit tobacco has had a devastating impact on our sales and foot traffic,” Mr Harrison explained. “It’s not just the tobacco we’re losing, but the whole shopping basket that used to come with it.”
Ritchies currently operates 78 stores across Victoria, New South Wales, and Queensland. Despite the challenges, the company managed a slight increase in sales in 2024, rising from $1.33 billion to $1.36 billion. However, the outlook remains uncertain as the pressure from illegal tobacco and aggressive tactics by the major supermarket chains continues to grow.
While Mr Harrison stresses that he is not advocating smoking, he insists that as long as tobacco is a legal product, Ritchies will continue to sell it. However, he is frustrated by the lack of action from authorities in curbing the rise of illicit tobacco. He’s scheduled to meet with the Australian government’s illicit tobacco commissioner to push for more effective enforcement and harsher penalties for those involved in the illegal tobacco trade.
“Selling illicit tobacco has become a low-risk, high-reward operation for organised crime groups,” he noted. “If you get caught selling drugs, you face a long prison sentence, but if you get caught selling illicit tobacco, the consequences are minimal—just a fine and a slap on the wrist. It’s no wonder that criminal groups are moving in.”
At the same time, Mr Harrison is also calling for greater protections for independent retailers in the face of the growing power of Woolworths and Coles. He believes the two supermarket giants are monopolising the retail landscape through land banking—buying up land and sitting on it to prevent smaller retailers from establishing stores. This practice, he argues, limits competition and harms both consumers and independent businesses.
“I would like to see land banking banned outright,” he said. “It’s incredibly frustrating to see these big chains hoarding prime retail sites and making it almost impossible for independents like us to access them.”
Moreover, he proposes that before Woolworths or Coles can acquire or develop new retail sites, a competition test should be conducted by the Australian Competition & Consumer Commission (ACCC) to assess whether the area could support another major supermarket. If the test fails, landlords should be required to consider offering the space to other competitors, such as Aldi, IGA, or an independent supermarket.
This issue has already been raised in a Senate inquiry into the supermarket sector, with both Woolworths and Coles denying that land banking is a deliberate strategy. However, they maintain that securing land and developing new stores takes time, and there are logistical challenges involved.
Meanwhile, the ACCC has launched an inquiry into the major supermarket chains, which will include a focus on pricing strategies and the alleged use of misleading discounts. Mr Harrison is hopeful that this inquiry could help level the playing field for smaller retailers and curb some of the anti-competitive practices that are harming businesses like Ritchies.
In the face of these mounting challenges, Mr Harrison remains determined to fight for the survival and success of independent supermarkets. For him, the key to this battle lies in stronger government action, fairer competition, and a commitment to protecting the interests of small retailers and their customers.
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