Supermarket Chains Could Be Broken Up For Price-gouging

Peter Dutton’s approach to business, whether in energy or retail, demonstrates his Liberal instincts for market intervention.

Influenced by the Nationals, the latest policy from the Coalition aims to break up large retailers like Bunnings, Coles, and Woolworths. Dutton’s rhetoric emphasises taking a tough stance against big retail, but these Australian companies are minor players compared to the $3 trillion behemoth Amazon.

Like taxpayer-funded nuclear power, breaking up supermarkets is a misguided policy that will likely increase consumer operating costs and deter long-term investments. This idea mirrors previous demands from the Greens, which were dismissed by analysts, including some city-based Liberals. Yet, Dutton has kept the door open for such a move, pushed by Nationals leader David Littleproud.

This policy is an economically populist gesture from the Coalition. Instead of promoting economic confidence and growth, it threatens to destabilise the business environment, making it harder for companies to invest, grow, and hire more Australians during tough economic times.

As the divestment threat became public, shares in Coles, Woolworths, and Bunnings’ owner Wesfarmers fell, closing down for the day. This reaction highlights the dangerous precedent such policies set, even from the opposition.

The Greens’ quick support for the federal Opposition’s policy prompted Dutton and finance spokesman Angus Taylor to backtrack swiftly after the joint party room vote. Taylor promised safeguards, including tying misuse to breaches of section 46 of the Competition Act and implementing a public interest test. This test would require that divestment substantially improve competition for consumers, suppliers, and jobs. However, balancing these diverse interests is nearly impossible.

Taylor admitted that forced divestment could result in job losses or a significant decline in shareholder value. He assured that the public interest test would prevent this, but the policy seems more about appeasing the Nationals than fostering business confidence. This is ironic, considering the Coalition once prided itself on reducing red tape.

This proposal surfaced during a two-year review of competition policy led by the Treasury and an advisory panel that included Kerry Schott, David Gonski, and former ACCC boss Rod Sims. The first reform recommendations included a shake-up of merger rules and tools to fast-track low-impact mergers. The next review will examine how anti-competitive behaviour affects employment and new technological issues.

Economist and former Labor MP Craig Emerson, who recently reviewed the supermarket code of conduct, stated that forced divestment is not the solution to control supermarkets. He argued it could lead to more concentration and job losses if buyers aren’t found and stores close. Instead, Emerson suggested imposing harsher financial penalties for code breaches in the billions of dollars.

Despite a recent Greens-led Senate inquiry into supermarket power being more performative than substantive, Coles CEO Leah Weckert highlighted that forced breakups would increase prices. Economies of scale, which help maintain consistent national pricing, would be undermined, hurting consumers. New entrants would face enormous start-up costs, as seen with German major Kaufland’s withdrawal due to these costs.

Under pressure to deliver shareholder returns, smaller supermarkets might close less profitable regional stores or cut spending on technology, Weckert warned. Preventing market power misuse is crucial for competition law, and the regulator already has the authority to impose hefty fines.

The Coalition needs a better strategy to ensure that intervention benefits consumers. Dutton should abandon the big stick approach and focus on reducing business costs, not increasing them.

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