KEITH—COLES, WOOLWORTHS, AND THE LOCAL

COLES, WOOLWORTHS, AND THE

LOCAL

Sarah Keith
Macquarie University

Abstract

Australia is home to one of the most concentrated supermarket sectors in the world, and the
practices of the ‘big two’ supermarkets have far-reaching consequences on food production
and retail at the local level. This article surveys key issues in Coles and Woolworths’ effect on
the food retail and production sectors, and looks at how these supermarkets have adapted in
recent years to concerns and criticisms, as well as recent moves towards addressing these
criticisms. Over the past decade, several important shifts have occurred which suggest an
evolving consumer consciousness and increasing discontent with the corporatised
supermarket sector. A primary concern is lack of competition, which reduces incentives to
keep prices low for consumers; furthermore, these supermarkets have also been charged with
wielding substantial buyer power, resulting in lower prices paid to suppliers. Quality of
produce is a further issue, while the rise of private label goods such as milk is concerning for
both suppliers and retail competitors. This discontent has led to an ideological opposition to
these supermarkets, resulting in public campaigns to prevent their entry into towns and
suburbs. Finally, new developments by Coles and Woolworths to improve their reputations,
although still at an early stage, are examined.

Keywords

retail, supermarket, local, Coles, Woolworths

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Introduction

The supermarket retail sector in Australia has the distinction of being one of the most
concentrated in the world (Wardle and Baranovic, 2009: 477). The sector is
dominated by Coles and Woolworths (owned by Wesfarmers Group and
Woolworths Limited respectively), following a string of acquisitions and expansions
by the ‘big two’ parent companies over the past twenty years. Woolworths currently
owns 840 supermarkets in Australia as of 2011 (Woolworths Limited, 2011: 86), up 17
from 823 in 2010 (ibid) while Coles owns 741 (Wesfarmers Limited, 2011: 20), down 1
from 742 in 2010 (Wesfarmers Limited, 2010: 20). Substantial media commentary has
occurred concerning these companies’ anti-competitive and duopolistic practices,
and there is growing concern that the market may now be so concentrated that
competitive pressure is decreasing (Mills, 2003: 148). In such an environment,
decisions made by these national retailers have the power to shape practices in food
production and retail across the board, as well as to affect communities and
consumers at the local level.

Meanwhile, recent years have seen the spread of concepts such as ‘locavore’ (Blue,
2009) and ‘food miles’ (Stringer and Umberger, 2009) drawing attention to the
environmental effects of food transportation. Social and health effects of the
corporatisation of food retail have also come to the fore, through films such as Food,
Inc (Kenner, 2008), Fast Food Nation (Schlosser and Linklater, 2006), and The Future of
Food (Garcia, 2004). Similarly, the negative consequences of large corporations within
communities have been covered in features like Wal-Mart: The High Cost of Low Price
(Greenwald, 2005) and Capitalism: A Love Story (Moore, 2009). As consumer
awareness of such issues grows, major Australian supermarket retailers are seeking
to redress perceived shortcomings in their corporate practices by rebranding and
repositioning their businesses, as well as introducing new locally-based food supply
initiatives.

Locale-specific food cultures in contemporary Australia, whether in retail, culture, or

community, are profoundly affected by the dominant retail model. Smaller,
regionally—or locally-based food networks and communities have been compelled

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to adapt to the increasing consolidation and power of the supermarket sector. At the
same time, major supermarkets have begun to explore ways to ‘localise’ their
operations, both superficially and more materially. This investigation aims to
provide an overview of the frictions and interactions between the ‘big two’
supermarkets at the national level and smaller players at the local level. It aims to
bring together disparate factors to give an overall picture of the interplay between
the national and the local in food production, retail, and consumption. Several case
studies are raised, which illustrate the larger-scale concerns underpinning the
conflict between the dominant supermarket retail model and local retailers,
communities, producers, and consumers.

Supermarket effects on producers and communities

Before embarking on a more detailed discussion of the major supermarkets’ structure

and practices, some examples of how these retailers affect regional and smaller-scale
producers and communities will be discussed. Several distinct objections have been
raised regarding the practices of Coles and Woolworths. These include their
handling of fresh produce, sale of private label goods (goods manufactured under
the specific retailer‘s brand, often designed to compete against branded products,
and offering customers a cheaper alternative), and entry into communities.

Fresh produce

Coles and Woolworths have significant buyer power in the fresh produce market,
which affects both the supplier and the quality of the end product. These
supermarkets have habitually approached grocery retailing from a demand-oriented
(rather than produce-oriented) standpoint, which means that seasonal produce (such
as apples, pears, and grapes) is kept at controlled atmospheres year-round and
artificially ripened to satisfy continuous demand (Johnson, 2003). Perceptions of
lower quality may also be due to Coles’ and Woolworths’ distribution structure:
according to Wardle and Baranovic, the longer travel times and long-storage systems
required by such distribution diminish the available range of fresh produce in these
supermarkets, and furthermore mean that the food may be “nutritionally

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compromised by the time it reaches the consumer” (2009: 479). This minimisation of
seasonal variation and a reliance on statewide (or nationwide) distribution of a
uniform range of fresh produce may hinder distinct food cultures at the local level.

On the side of producers, growers have in the past criticised Woolworths’ quality
specifications, saying that appearance and shelf life are held to be more desirable
than taste (Wade and Bradley, 2002) and that standards accreditation is prohibitively
expensive for smaller growers (ibid). An investigation by Friends of the Earth
Australia reports that farmers experience difficulty in covering the costs of
accreditation necessary to supply Woolworths, often have products returned due to
cosmetic faults, and that meeting these cosmetic standards requires use of pesticides,
fertilisers, and intensive farming methods (Walker, 2007). These specifications have
also been linked with increased use of fungicides and herbicides, as well as
increasing exports because “Woolies are too hard to deal with” (Wade and Bradley,
2002). More broadly, Campbell et al. link the heavy use of fertilisers and insecticides
with overall ecological unsustainability (2006: 85). Coles’ and Woolworths’ impact
within the domestic fresh produce market was most recently highlighted by the 2010
Queensland (QLD) floods, with their policy decisions over whether to import food or
allow the sale of blemished “ugly fruit” substantially impacting QLD’S economic
recovery effort (Needham, 2011).

Lastly, Coles and Woolworths have been criticised for their aggressive pricing and
market control over fresh produce. This negative coverage has prompted some
reaction, including a defensive 2008 statement titled “The Facts About Grocery
Retailing” in which Woolworths emphasised their low profit margin and small share
of the fresh food market (Woolworths Limited, 2008). Surprisingly, this statement
also suggests customer dissatisfaction with Woolworths’ produce: this fact sheet
states that 71% of their customers’ fruit and vegetable expenditure is spent outside of
Woolworths (ibid: 5).

The high market share and corporate structure of Coles and Woolworths have
problematised several aspects for smaller produce growers in particular, who have

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had to conform to a demand-oriented system with an established range of goods,

assertive pricing, as well as accreditation guidelines, in order to supply these
retailers. In recent years, however, it appears that the supermarkets’ reputation is
changing: for instance, rising Woolworths consumer satisfaction levels have been
directly attributed to changing practices in fresh produce retail (Palmer, 2009).
Although scant data is available on the reasons for this positive change, possible
causes include re-modelled supermarket interiors, a focus on selling and promoting
Australian-grown produce, and a more flexible supply chain incorporating local
produce. These are discussed further later in this article.

Private label groceries

The rise of private label (also known as ‘own-brand’ or ‘generic’) groceries produced
by Coles and Woolworths presents another cause for concern for smaller producers
and local food networks. Private label goods are customarily cheaper than branded
goods and are increasing in popularity; for instance, private label milk currently
represents 71% of the market (Commonwealth of Australia, 2011b: 34). This
negatively affects the competitiveness of smaller brands. Secondly, private label
goods are presented identically in stores nation-wide. According to Mills, private
label products “enhance the market power of the chain, rather than that of the
supplier who makes the ‘own-label’ product, and whose identity is not known to the
consumers” (2003: 146). With this in mind, the rise of private label products directly
hinders the development of producer and regional identity.

These factors are illustrated in the “milk wars” of early 2011, which generated
significant media attention. Milk, as a private label product with significantly more
market share than its branded equivalent, has typically been a focal point in
Australian supermarket competition. In 2010, the Senate Economics References
Committee produced a 92-page report titled “Milking it for all it’s worth—
competition and pricing in the Australian dairy industry”, outlining concerns over
pricing and competition (Commonwealth of Australia, 2010). Tensions intensified
when, on Australia Day 2011, Coles cut the price of milk to $1 per litre. The move
was referred to by the Sydney Morning Herald as “the first salvo in a $60 million milk

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war […] timed to cause the maximum discomfort for Woolworths” (Greenblat and
Hawthorne, 2011). The figure of $60 million refers to an insider estimate of the cost of
this price reduction (ibid), however Coles itself denies that the product is loss-
leading (Malden, 2011). The Australian Dairy Farmers Association urged an
investigation into the implications of this move, and a Senate Economics Committee
inquiry into the sustainability of this price cut was launched in March 2011 (AAP,
2011). To date, 160 submissions have been made regarding this enquiry, from dairy
farmers, regional co-operatives1, food manufacturers, and related industries
(Commonwealth of Australia, 2011a); the latter includes the Australian Egg Industry
Association, which expressed concern that eggs are being similarly treated (Ironside,
2011).

This event firstly shows the buyer power of large retailers, demonstrated by the
decade-long rise of private label (generic) milk, which overtook branded milk sales
in 2000 (Hogan et al., 2004: 35) following the deregulation of the dairy industry.
Lower prices are cited as a major factor in this shift, and these lowered prices are
brought about by aggressive tendering by milk processors for private label milk
contracts with supermarkets (ibid). The tendering process has been explicitly linked
with “crippling” the dairy industry, favouring shareholders’ and customers’ interests
at the expense of dairy processors and farmers (Stone, 2003: 1). Farmers are reported
to take 4% of profits from dairy sales, in comparison with 80% for retailers, and 16%
for processors (NARGA, 2010: 6). Coles has rebuffed these claims by suggesting that
rather than exploiting their buying power, there is in fact a concentrated supply base
in the Australian milk market. Managing director Ian McLeod stated, “In some states
you’re effectively faced with a monopoly in terms of your milk supply […]
depending on whether markets are moving positively or negatively, then they can
either choose to expand or contract supply by freeze-drying milk and sending it
overseas” (ABC Radio National, 2010). It is however more commonly argued that the
private label sector is a major component of the dairy industry, and therefore that
tendering for private label contracts is indeed highly competitive (Issar, 2004: 9).

Private label goods are therefore firstly concerned with achieving lower prices and a
consistent supply, which requires the use of processors big enough to supply large-

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scale contracts. This aggregated supply system minimises the local and regional
origins of produce, but also may threaten independent producers in competition
with private label goods. Although the effect of supermarkets’ private label products
on smaller and local producers is difficult to determine, limited evidence suggests
that it is possible for smaller producers that are closely affiliated with a region to
maintain consumer support (Jopson, 2011). The eight-farm Berry Rural Co-operative,
producers of South Coast dairy products (on the south coast of New South Wales
[NSW]), reports that overall sales have not dropped significantly since Coles’
introduction of $1-per-litre milk (ibid). Terry Toohey, chairman of the NSW Dairy
Board, proposes that regional residents are aware of the economic effects that would
occur if local milk processors suffered a fall in business because of cheap
supermarket products (ibid). A protest by a Tasmanian milk co-operative over failed
collective bargaining with milk processor National Foods similarly resulted in a
community boycott of National Foods products, successfully leading to an eventual
settlement (Commonwealth of Australia, 2010: 69). Accusations that the industrial
processing of cheaper milk involves adding inexpensive permeate, a milk byproduct
from cheese production, have also been raised (Frith, 2008).

The “milk war” draws attention to the shift towards large-scale supplier contracts,
which favours the growth of large processors to meet demand (Commonwealth of
Australia, 2010: 53). Another less-obvious effect is that the wholesale of milk via
centralised processors, and its branding as a private label product, has particular
impact on the ability of regional producers to define and promote a unique food
identity. The role of local food in promoting regional communities is discussed by
Brunori (2006), who theorises that terroir is a form of territorial capital embedded in a
product (ibid: 128). Milk producers, such as Jersey Fresh from the Barossa Valley in
South Australia, (one of the organisations that lodged a submission to the Senate
Enquiry on milk price cuts [Commonwealth of Australia, 2011a]), are part of a
network of producers that contributes to the region’s reputation as a food tourism
destination. Their “defiantly unhomogenised milk and thick, glorious cream are a
highly valued part of Barossa food culture”, as one newspaper puts it (The Australian,
2009: online). Through the increased sales of private label milk, Coles and
Woolworths reduce the market share of branded products and consumer awareness

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of the provenance of produce; as Burch and Lawrence (2005) write: the rise of
supermarket private labels “challenge the remaining vestiges of manufacturer power
as exemplified in the power of the brand”. Feagan (2007) writes that the fixation of
food products to place furthermore aids consumers in making decisions regarding
consumption choices, “in broader spheres of the sociocultural and environmental”
(ibid: 26); removing traces of origin therefore limits informed consumption. Limited
evidence suggests, however, that established smaller, regionally-based producers
(such as the Berry Rural Co-operative) may be able to leverage their connection with
a community to survive in a price war, whereby the very act of not supporting large
retailers has positive consequences for the community. This quality-versus-price
aspect relies on the appeal that long-term benefits can be gained through supporting
a ‘local’ product.

Erosion of local autonomy

Throughout Australia, towns and suburbs have also contested the incursion of Coles
and Woolworths into local communities. These have been prefigured by similar
disputes over national chain stores and town planning in the UK throughout the
1980s and 1990s (Seth and Randall, 2001: 285). The greater market power of large
grocery chains is widely perceived to cripple the viability of smaller businesses,
although proving a direct causal link is difficult (ibid: 286). Economies of scale make
it possible for goods to be sold cheaply, while the practice of predatory pricing—
selling key items at a lower rate than a nearby competitor—can entice consumers
away from established local businesses. Legislation to prevent misuse of market
power through predatory pricing has proven problematic (Boswell, 2002) despite
intervention by the Australian Competition and Consumer Commission (ACCC).

Large companies such as Coles and Woolworths are often perceived as ‘intruders’ to
communities where small, family-owned businesses are the norm. The viability of
small businesses, including food retail and primary producers, is key for regional
and rural Australian communities (ibid). In a Trade Practices Act review, Senator
Ron Boswell writes that the loss of smaller independent businesses in country towns
has a snowballing effect, removing other businesses and employment from the area;

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likewise, the use of local suppliers, service people, and locally sourced produce are
likely to decrease (ibid). Although job creation is often cited as a benefit of a large
supermarket moving into an area, this is counter-indicated by research of the UK
supermarket sector showing that the opening of a large supermarket costs, on
average, 276 jobs (Corporate Watch, 2004: 18).

Much of the opposition to large supermarkets entering communities focuses on

legislation relating to zoning and development. In 2009, the residents of Newport, in
NSW, launched a campaign against council rezoning to allow the construction of a
local 3/4 acre Woolworths supermarket, citing concerns over diminished green
space and public land, as well as village character (NewportVersusWoolies.org, nd).
Similar reasons, including increased and unsafe traffic, were given for the
unsuccessful opposition to a Coles supermarket in Oatley (NSW), while residents of
Mount Evelyn (Victoria) successfully opposed the development of a Woolworths
supermarket on the grounds that it breached the community’s zoning and
development regulations. Organisations such as Love Your Locals
(www.loveyourlocals.com.au) have arisen to lobby against proposed legislation that
may harm smaller businesses, such as the 2009 Draft Centres policy that addresses
metropolitan planning. Started by the Independent Retailers of NSW and ACT Inc.
(IGA), Love Your Locals claims that this legislation will deregulate the commercial
zoning system to the detriment of local operators, giving “big developers and the
large retail chains the ability to drive rezonings through the planning system without
proper regard for communities” (Love Your Locals, 2011).

Two notable campaigns against the opening of Woolworths supermarkets have

occurred in the towns of Maleny (QLD) and Mullumbimby (NSW). Both of these
campaigns, although hinged on planning and regulatory issues, were organised
protests against the perceived threat to community character and autonomy. The
campaign to stop a Woolworths development in Maleny started in 2003, and relates
firstly to the destruction of a platypus habitat near the construction site (Maleny
Voice, 2008a). Larger concerns over corporate responsibility and the power of large
corporations in small communities are also explicitly mentioned (ibid, 2008b).
Though this started as a planning and development campaign, the evolving conflict

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drew attention to the threatened autonomy of local communities and businesses, and
the loss of retail diversity following a large entrant to local food economy. A 2005
investigation into the receptivity of the Maleny community to a Woolworths
development found that as many of 79% of Maleny residents opposed Woolworths’
construction at the Obi Obi Creek site (Market Facts, 2005: 4). When questioned
whether they would support Woolworths’ construction at another site in Maleny,
53% remained opposed (ibid). 38% of respondents stated that they opposed
Woolworths because Maleny is “not a place for national corporate retailers”,
suggesting a social and ideological—as well as practical—opposition to Woolworths’
presence (ibid: 9). Anderson and Cook describe how local food systems “enable
community residents to bring their aspirations and values to bear on the larger
global food production system” (2005: 245). Dixon (2007: 33) similarly discusses such
cultural resistances as opposition to the ‘Wal-Mart effect’, arising from “shared
perceptions that one institution should not be able to dictate consumer choices, the
working lives of suppliers and employees, and those of competitor businesses”
(ibid).

Likewise, the town of Mullumbimby opposed the development of a Woolworths

supermarket on the grounds that it would compromise the town’s character as a self-
sufficient community with no chain stores (ABC, 2010b). Concerns included the loss
of control over local retail, the outflow of capital, and the loss of local food variation.
One resident stated, “Everyone here is behind, say, the newsagents or the butcher.
They actually own the shop and when you buy from them, they actually live there
and they sell to you and it is local produce” (ibid).2 Permission for the supermarket’s
development on state-owned land was made at NSW state-level, overriding the local
council’s opposition (Mobbs, 2010), due to Mullumbimby’s identification as a town
with urban growth potential (Hamilton, 2008). A summary of a meeting of the
Mullumbimby Community Action Network writes that the tension is the result of a
culture clash, concluding, “It’s all about sustainable futures and local living
economies versus corporate globalisation, mass starvation, the collapse of civilisation
and destruction of the eco-systems that support life” (Maslow, 2008). This ‘culture
clash’, situated in the arena of food retail, represents a larger ideological conflict

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between self-determination in preserving and maintaining local autonomy, versus

corporate and national economic interests.

Supermarket effects on producers and communities

These three examples—quality of produce, the ‘milk war’, and erosion of local
autonomy—show how Australia’s concentrated supermarket sector has had wide-
ranging economic and social effects on communities. The sale of fresh produce is
subject to corporate-level decisions over appearance and perceived quality, while
expanding vertical integration and mandatory accreditation systems may make
supplying to Coles or Woolworths problematic for smaller producers. Meanwhile,
the increasing market share of private label goods such as milk encourages a move
towards larger-scale, industrialised processing corporations to ensure a consistent
level of supply for these supermarkets. This in turn raises concerns over
transparency and fair pricing policies (CHOICE, 2011). These matters firstly affect
the ability for smaller producers to have their products stocked in-store, as private
label goods command a rising share of the market, and therefore shelf space.
Secondly, it hinders the development of new, smaller-scale products with unique or
identifiably regional origins.

The dominance and far-reaching consequences of these supermarkets has also

generated ill-will in small communities such as Maleny and Mullumbimby, who are
ideologically opposed to the entry of large supermarkets into their territory. These
supermarkets are perceived to have negative social impacts, including job loss,
erosion of ‘character’ and local businesses, and too much control over local council
decisions. These case-studies show how the nature of food production in Australia is
closely linked with the structure, decisions, and policies of Australia’s ‘big two’
supermarkets, and how consumer choices and communities have likewise been
shaped by these companies.

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Coles and Woolworths: history and criticisms

Since the 1960s, the food supply chain in Western nations has been increasingly
controlled by retailers, following post-war economic changes and the deregulation of
manufacturing and processing industries (Burch and Lawrence, 2005: 1). The control
that retailers exert over the food supply chain in Australia is particularly
pronounced. In Australia, Wesfarmers Group and Woolworths Limited are the two
largest retail corporations, collecting an estimated 23 cents of each dollar spent in the
country (ABC, 2010a). Aside from the major supermarket chains of Coles and
Woolworths, the interests of these corporations include liquor retailing, home
improvement and office supplies, general merchandise, mining, insurance, chemicals
and fertilisers, energy, hotels, and consumer electronics.3 The following will explore
how these supermarkets affect local and regional producers and communities, and
describe attempts by the government and other lobbyists to curtail their influence.

Coles and Woolworths dominate the food retail market in Australia due firstly to the
sparse and highly urbanised population that fosters the development of large,
metropolitan food retailers rather than smaller, locally based retailers. Secondly, the
widely dispersed centres of habitation and key food producing areas require
effective transportation networks, a difficult feat for smaller producers. Thirdly, as
Wade and Bradley (2002) identify, the sparseness of the Australian population
favours substantial economies of scale in order to keep costs low. Given these factors,
the Australian food retail market has been shown to be the most concentrated in the
world (Jacenko and Gunasekera, 2005: 3), with Coles and Woolworths responsible
for the sale of up to 80% of all packaged groceries (NARGA, 2010: 5). Store numbers
have increased appreciably in the last decade; for example, Coles built 229 new
stores between 1998 and 2008, to a total of 750 (Coles Supermarkets, 2008: 19). It has
also been estimated that Coles and Woolworths have more than 90% of the ‘one-stop’
shopping market (Mills, 2003: 146). Since 2000, Coles and Woolworths have also
aggressively pursued a larger share of the liquor retail market; their current share is
around 45% (CHOICE, 2010), and industry research suggests that by 2015 the liquor
industry may be totally subsumed by the supermarket industry (ibid).

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Concerns have been raised over both the sustainability and anti-competitive effects
of the increasing concentration of the retail sector, in particular its effect on smaller
producers and retailers. These concerns fall into three main areas; selling power
(where reduced competition results in reduced incentives to lower prices for
consumers), buying power (where a concentrated buyers’ market limits
competitiveness of prices offered to producers and suppliers, and limits the range of
products available to consumers with preference given to larger, cost-effective
brands over smaller players), and retail (where the presence of a large, ‘one-stop’
shop in an area may hinder smaller independent competitors and local
development). The current state of the sector regarding these three areas is discussed
below.

Selling power (Duopoly) and buying power (Duopsony)

The national supermarkets’ growing ability to dictate the price of goods sold affects
consumers and food market pricing within communities. Concerns over the
competitiveness of grocery prices in the concentrated supermarket sector were
formally outlined in a 2008 public inquiry by the ACCC, which proposed that
“Australian consumers would significantly benefit if Coles and Woolworths faced
more competitive threats that encouraged more aggressive pricing strategies”
(ACCC, 2008a: xvi). Mills (2003: 148) argues that although competition between
Coles and Woolworths may once have served to keep prices low for the consumer,
the food retail market is now so concentrated that the competitive pressures to keep
prices lower is diminishing.4 A 2010 survey by independent consumer watchdog
CHOICE determined that prices had in fact risen over a one-year period, despite
claims to the contrary by these supermarkets (CHOICE, 2010b).

Following the 2008 ACCC inquiry, in 2010 the Federal Government amended the
Trade Practices Act 1974 (now the Competition and Consumer Act 2010) to guard
against ‘creeping acquisitions’—substantial mergers that have a negative effect on
market competition (Palmer, 2010). This amendment has however been criticised by
both large retailers (Mara, 2008) and legislators (Xenophon, 2010) for failing to define
terms such as ‘unconscionable conduct’ and ‘substantial market power’. Woolworths

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has also been criticised for apparently pricing fresh produce at significantly more
(e.g. 250%) than wholesale cost (Passmore, 2008), although Woolworths contends
that cost of goods make up 77% of the final retail price (Woolworths Limited, 2008:
12). CHOICE maintains that lack of competition, rather than rising wholesale costs, is
likely to be the cause of higher retail prices (CHOICE, 2009). The duopolistic nature
of Australian food retail market is a result of diminishing food retail options, and
therefore a loss of local variety.

Coles and Woolworths have also been defined as a duopsony, a ‘buyer’s duopoly’,
meaning that their buying power is capable of shaping the price and conditions of
sale of producers. Wardle and Baranovic write that both wholesale purchases and
retail sales of groceries in Australia are “dominated by few players—effectively
creating a combined duopsony and duopoly”, which may result in “lower prices
paid to producers and higher prices for consumers” (2009: 478–479). Practices in this
area directly affect suppliers, including farmers, processors, manufacturers and
wholesalers.

In the wholesale market, the ‘big two’ have been reputed to artificially lower the
price of produce by withholding purchasing for one or two days, creating an
oversupply and therefore a decline in price, although this practice is formally denied
by Woolworths’ CEO (Bradley, 2002a; Bradley, 2002b). The price concessions asked
by these major retailers has been colourfully likened to “beating up” suppliers
(Gottliebsen, 2008) and “ripping off Australian farmers” (Truman, 2008). Industries
as a whole can be affected, such as the Australian meat and livestock industry;
because Coles and Woolworths purchase over 50% of the total young cattle market,
their influence is able to keep prices low (Carter, 2008a).5

Additionally, the supermarkets’ move to a ‘vertically integrated’ structure, including

both wholesale and retail (ACCC, 2008a: xv), has diminished the role of third-party
wholesalers, and allows Coles and Woolworths to deal directly with producers.
Woolworths is increasingly using the direct supply model and in 2002 reduced
wholesale purchases of fresh fruit and vegetables to less than 50%, while over 95% of

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Coles’ beef is sourced directly from producers (Condon, 2011). This bypassing of
wholesalers to deal directly with growers achieves lower costs, however smaller
competing retailers using produce wholesalers are unable to achieve similar low
costs (Bradley, 2002b). Growers may find avoiding wholesalers advantageous, as
agents’ commissions (Bradley, 2002c) and an opaque chain of supply can be avoided
(Bradley, 2002d), however higher prices are not guaranteed (Bradley, 2002e).

Bigger producers are favoured by these retailers, as large volumes are required over
long periods, and economies of scale can be leveraged (Wade, 2002). These practices
have been blamed for reducing the viability of small fruit and vegetable growers,
forcing farmers to “get bigger or get out” (Wade, 2002), as complex accreditation,
quality assurance schemes, and contracts can make providing directly to
supermarkets unfeasible for smaller producers (Bradley, 2002c). A 2010 study
specifically lists “duopoly of supermarkets—farmers getting low prices” as a
motivation for farm diversification (Rural Industries Research and Development
Corporation, 2010: 38). Issues of unsustainability and unfairness are repeatedly
raised in submissions to the 2008 ACCC inquiry into grocery prices lodged by many
producers’ associations, including Bundaberg Fruit and Vegetable Growers, Western
Australian Fruit Growers’ Association, the Northern Territory Horticultural
Association, AUSVEG, Growcom (QLD) as well as individual producers (ACCC,
2008b). These expressed concern about the lack of pricing transparency and the
tendency towards “retailers using their market power to push costs, risks and
responsibilities back down the supply chain” (Growcom, 2008: 4). This structure
furthermore implies that producers will often deal with only one supermarket buyer,
meaning that the ‘de-listing’ of products (i.e. ceasing selling them) can be
catastrophic for suppliers (Mills, 2003: 146). Evidence of corruption in dealing with
suppliers is also apparent; in 2009, Woolworths terminated three executive fresh
food purchasers over “irregular” dealings with suppliers, in breach of Woolworths’
policy (Speedy and Durie, 2009).

In 2010, a report by the National Association of Retail Grocers of Australia (NARGA)

raised concerns over “the unparalleled hyper-concentration of the grocery retailing
sector” leading to more imported food products, at the expense of Australian farmers

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(NARGA, 2010: 5). NARGA cites decreasing food production and simultaneous
increase in food values (ibid: 16) as evidence of an unsustainable retail sector (ibid:
17). These combined factors have linked the concentrated grocery retail market with
lowered profitability for farmers (ibid: 44). The report also outlines trends in
increased food consumption, declining domestic food production, and a rise in
imported food, concluding that “the way forward, if the current patterns hold true,
indicates further dilution of local capacity at both primary and secondary level”
(ibid: 9). Marsden et al. (1999: 299) identify that strengthening local and regional
capacity in food production is both an economic concern and necessary for
sustainable economic growth and employment.

Retail competition

Of significant concern to both consumers and producers is the diminution of

consumer choice that accompanies a concentrated market. Wardle and Baranovic
(2009: 479) suggest that, although consumer opinion is that there is not enough
competition in the retail grocery sector, over 78% of respondents in a CHOICE
survey shop at Coles or Woolworths because “they felt they had few other options
available to them”, and suggest that what may be interpreted as consumer loyalty is,
in fact, lack of choice. Wardle and Baranovic go so far as to interpret this market
concentration, in particular the trend of increasing fresh produce prices within
supermarkets, as a public health issue (ibid: 478).

The buying, retail, and management practices of Coles and Woolworths have been
explicitly credited with halving the number of independent fruit and vegetable
retailers between 1992 and 1999 (Wade, 2002). NARGA has raised concerns over the
growth of large supermarket chains and their effect in rural and regional Australia in
a 1999 government enquiry into the fairness of the retail sector (Commonwealth of
Australia, 1999). A subsequent government review of Australia’s retailing sector
concluded that “statistics conclusively reveal that the major chains have increased
their market share at the expense of the independents” (ibid: 46). This review also
notes the ill feeling towards the retailing sector, due to their displacement of smaller
stores and well-known local identities by ‘outsiders’ (ibid: 1).6 Where Woolworths or

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Coles supermarkets are already established, their alleged business practices have
affected local retailers’ competitiveness. Woolworths is believed to engage in
predatory pricing, where produce is deliberately sold at a price below that of a
nearby competitor, and sometimes at below cost price (Lohse, 2009) in order to entice
customers to shop at Woolworths. Woolworths, however, refutes claims that they
engage in this practice (ibid). NARGA meanwhile have maintained that Coles and
Woolworths strategically target small, independent retailers (Wade, 2002), effectively
pricing so low that small retailers are unable to remain competitive. Several retailers
have explicitly linked their failure to this practice (Lohse, 2009).

In September 2009, the ACCC ruled that the exclusive leasing agreements used by
Coles and Woolworths, which barred shopping centres from leasing space to
competitors, were to be overturned (Tadros, 2009). The ACCC has also intervened in
the case of business acquisitions by Woolworths, where such acquisitions would be
likely to lessen competition and cause higher retail prices (AAP, 2007). The amended
2010 Trade Practices Act goes further, allowing the ACCC to review “greenfields
developments”, where property acquisitions may jeopardise the future presence of
competitors in the area (Clayton Utz, 2010). This legislation aims to counter issues
raised in the 2008 ACCC inquiry into the competitiveness of grocery retailing, which
notes that although grocery retailing is “workably competitive”, high barriers to
entry and expansion prohibit competitiveness (ACCC, 2008a: xiv). Town planning
has also been a central issue, with critics alleging that such ‘big-box’ developments
re-route traffic and pedestrians away from existing town centres (Needham, 2003)

The ‘local’ in supermarket food retailing: Definitions and

connotations of ‘local’

In light of negative press coverage, Coles and Woolworths have taken several steps
towards improving their reputation. One frequent criticism of Coles and Woolworths
relates to their perceived reliance on imported, rather than Australian goods. Coles’
and Woolworths’ subsequent retailing of Australian-made produce (Foodweek,
2011), branded with the “Australian Made” or “Australian Grown” kangaroo logo,
leverages consumer preference for Australian products in an environment where

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90% of consumers prefer to buy products that are made in Australia (ibid). This is a
sensitive issue: as recently as May 2011, two Coles and Woolworths stores were
publicly reprimanded in the media for displaying inaccurate country-of-origin
labelling on imported produce (Hodgkinson, 2011), labelling imported fruit as
Australian-grown. However, these supermarkets have defended the origins of their
fresh produce: Woolworths, for instance, claims that 95% of its fresh produce is
Australian-grown (Woolworths Limited, 2008: 1).7

This consumer preference for ‘local’ (at the national level) foods is partially
attributable to a raised consciousness about sustainable and ethical food production;
however it has also been shown that ethnocentric beliefs influence this preference
(Chryssochoidis et al., 2006). Coles’ and Woolworths’ attempts to address local food
sourcing may therefore not be a response to concerns over the social, economic, and
environmental impacts of large-scale food retailing, but a response to ethnocentric
views held by consumers. In this case, preference for buying domestic food products
is associated with patriotic values (Juric and Worsley, 1998: 432) and benefit to the
national economy (ibid: 431).

Figure 1—Australian Grown (South Australia) labelling,

shown in a South Australian Coles catalogue (source: Coles, 2011)

To date, the meaning of ‘local’, as used by Coles and Woolworths, has mostly been
synonymous with ‘Australian’, rather than referring to the regional or state-level
origin of produce. In recent years, however, Coles has explored a local variant of the
‘Australian Made, Australian Grown’ green and gold triangle logo indicating the
state or regional provenance of a product (Australian Made, Australian Grown,
2009), in catalogues and in-store. This development so far seems to be limited to

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labelling produce originating within the state of the Coles supermarket in question,
e.g. a South Australian Coles catalogue will indicate South-Australian grown
produce (Figure 1), but produce from other states is labelled generically as
‘Australian Grown’. Organisations promoting specific regions have also pitched to
Coles; for instance, the ‘Made in the Whitsundays’ brand has since late 2010 been
stocked by Coles supermarkets in QLD (Enterprise Whitsundays, 2010). Similarly,
Coles’ membership of South Australian promotional body SA Great involves
stocking a range of South Australian goods (Coles, 2009b). Woolworths have started
to implement similar practices since August 2010, introducing a ‘Tassie Grown’
labelling system to indicate products grown in Tasmania (Woolworths, 2010a). A
statement reads, “Our customers have made it clear that they want more information
about what fresh food is produced right here in the Tasmanian food bowl and how
they can help the local agriculture industry when they shop” (ibid). In Tasmania
particularly, certain food-producing areas such as King Island have well-established
brand value, reinforcing the connection between the place of production and
perceptions of quality (Khamis, 2007: 22).

Recent events also show that the supply structure is adapting to allow a closer
relationship at state and regional level between these supermarkets and producers.
Whereas in 2002 contracts between growers and large retailers were made at the
executive level, and individual supermarket managers were not authorised to enter
into supply agreements with producers (Bradley, 2002c), in 2006 Coles introduced a
local suppliers program, providing regionally-sourced produce to Coles
supermarkets in key agricultural areas including Bundaberg, Toowoomba, and
Gatton—all in QLD (Coles, 2009a). Logistics have also been simplified, allowing
producers to deliver directly to local Coles stores (Coles 2009c), bypassing the
centralised distribution system.

Rebranding, restructuring, and remodeling

Another way that Coles and Woolworths have responded to concerns about
corporatisation of the food retail sector and competition issues relates to the
appearance and branding of the supermarket itself. Coles’ rebranded, re-modelled

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new-look ‘market place’ strategy, initiated in 2008, separates retail into smaller,
specialist ‘zones’ which aim to personalise and add variety to the shopping
experience. Clearly marked bakery, butcher and deli sections allow consumers to
interact with staff assigned to each zone. The new model is credited with increased
sales figures, outstripping those of Woolworths (Greenblat, 2010). A press release for
a re-modelled Coles outlet reads as follows:

Coles Broadway will boast the ambience of a market place, with fruit and
vegetables displayed on ice tables to maintain freshness, an in-store bakery
baking fresh bread throughout the day and its very own fishmonger who will
fillet customers’ fish while they finish their shopping. (Coles, 2009d)

This strategy is also a conscious attempt to entice consumers to shop for fresh
produce within Coles, and away from independent retailers. Coles’ managing
director Ian McLeod asserts that “half of Australians don't buy any fresh food from
any supermarket”, resulting in Coles’ decision to remodel with a focus on fresh
produce (McIlwraith, 2010).

The result: walk into a new store and, apart from McLeod having taken away the
security gates, the first things to get your attention are the hand-stacked rows of
fruit and vegetables on icebeds. None of them above chest-high (literally low-
hanging fruit) so customers can see butchers, fishmongers and deli-hands at
work. (ibid)

The enticement of consumers to shop for a wider range of goods at Coles, and
therefore higher quantities, allows profits to increase without having to raise prices
(ibid). It also superficially blurs the division between corporatised food retail and a
‘market place’ atmosphere with separate purveyors for different goods. Whereas
older models of large-scale food retail (still demonstrated by retailers such as ALDI)
focus primarily on cost-effectiveness for the consumer, the updated model positions
food shopping as part of a conscious lifestyle decision including increased freshness,
variety, and personal service.

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Woolworths have likewise sought to ‘localise’ their perception, notably with a 2011
advertising campaign using the catchphrase ‘That’s My Woolies’ to bolster their
connection with Australian communities and consumers (AdNews, 2011). A more
far-reaching example from Woolworths, however, is its diversification by creating
the Thomas Dux chain of grocery stores. Following eight lease acquisitions from the
Macro Wholefoods chain in 2009, a total of ten Thomas Dux stores now exist (AAP,
2009). These stores emphasise local food supply, small producers, as well as organic
and preservative-free produce. According to a Woolworths spokesperson, Thomas
Dux represents a “local community concept” (Palmer, 2008); the connection with
parent company Woolworths, meanwhile, is obscured on the Thomas Dux website,
which states:

We're your local grocery store. We are the place where people who love good
food love to shop. Let us know how we can improve our range and service. It's
about great quality & local food and inspiration. It's about being 'just around
the corner'. It's the way things should be. (Thomas Dux, 2011a: online)

The Thomas Dux brand is owned and appears to be fully managed by Woolworths.
Their Yennora headquarters is located in a major Woolworths distribution centre,
and employment between Thomas Dux and Woolworths is porous; former manager
of Thomas Dux Pat McEntee is now Woolworths General Manager of Fresh Food
(Woolworths, 2010b). However, the Thomas Dux website suggests a less restrictive
approach to suppliers. Suppliers are invited, via a web form, to enquire about
supplying to Thomas Dux at the individual store level (Thomas Dux, 2011b: online),
and primarily utilises suppliers that do not currently serve Woolworths
supermarkets (Palmer, 2008).

This diversification into a separate “upmarket” brand has been met with some
skepticism; market researcher Tim Morris states, “I don’t think Thomas Dux will
work for [Woolworths]. The middle market retailers that have tried to go upmarket
didn’t succeed,” citing failed efforts by US retailer Safeway (ibid). It remains to be
seen whether the Thomas Dux model will be ‘blended’ with the Woolworths
approach: whether Thomas Dux is an insurance against or investigation into

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increasing customer preferences for local/organic gourmet produce and smaller

stores (Ferre, 2008): or whether the ‘local’ retailer model is the sole opportunity left
for expansion in the hyper-saturated retail market.

The obscuration of Thomas Dux’s ownership by Woolworths, however, indicates the

tarnished reputation of the supermarket duopoly in the public’s perception. Some
local retailers have capitalised on this, advertising their independence and lack of
affiliation with the ‘chain stores’. Rather than competing on price alone, this
marketing strategy suggests an increasing discontent with the influence and policies
of Coles and Woolworths (or parent companies Wesfarmers and Woolworths)
among the general population, and an awareness of their negative impact on local
communities. A May 2011 advertisement for Bayfields liquor superstores (Figure 2)
highlights its independence and implores the reader, “Don’t let them ruin more local
businesses like what happened to the butchers, fruit shops and petrol stations”.

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Figure 2—Advertisement for Bayfields independent liquor superstores (source: Bayfields, 2011)

Conclusion

The buying power of Coles and Woolworths has been key in reshaping how fresh
produce is sold, and they now exert significant influence over suppliers. This
situation has come under particular scrutiny with the ‘milk war’ of early 2011 and
the rise of private label goods, which reinforce the retailer’s brand rather than that of
the actual producer. Aside from these factors, the influence of Coles and Woolworths
in local decision-making and town planning has also generated acrimony in several
communities. This has been addressed partly by a superficial ‘decorporatisation’ of
the shopping experience by both Woolworths and Coles; however it should also be
noted that both Coles and Woolworths have recently made material progress toward
supplying and labelling locally-sourced produce with identifiable geographical
provenance.

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This research has attempted to survey the main effects of large-scale food retailing on
smaller food communities and producers. While ‘gastronomic’ or historical
perspectives on food reveal a great deal of regional variation, the daily experience of
food in contemporary Australia is increasingly shaped by the power and market
penetration of national retailers such as Coles and Woolworths. The powerful retail
sector thus problematises the discussion of ‘everyday’ food culture in Australia. The
issues raised here are diverse; in particular, the adaptation of national food retailers
to changing consumer awareness is a topic for future investigation. The dominance
of the ‘big two’ remains a dynamic issue with far-reaching consequences for
producers, communities, and consumers.

Endnotes

1Numerous submissions have been received from regional suppliers, co-operatives, and
producers, including: North Coast (NSW) Dairy Industry Group, Richmond Dairies, Clover
Hill Dairies, Leppington Pastoral Company, Queensland Dairy Organisation, Jersey Fresh
Milk Products, and Maleny Dairies.
2 The manager of Mullumbimby Woolworths, opened in June 2011, has stated that the store
will not stock any produce from the region as it does not meet quality control standards
(Moynihan, 2011).
3A full list of businesses owned by Wesfarmers and Woolworths limited is available on their
respective corporate websites, wesfarmers.com.au and woolworthslimited.com.au.
4Surprisingly, the current Managing Directors of Coles (Ian McLeod) and Woolworths
Limited CEO (Michael Luscombe) reportedly do not see themselves as competitors, focusing
instead on smaller retailers such as Aldi (McIlwraith, 2010).
5Similar to the milk industry, the meat and livestock industry was the subject of a 2007
government report to determine fairness of prices paid by the consumer and to the farmer
(ACCC, 2007). The outcomes of this report, favourable to the existing arrangements, were
criticised by the beef industry (Carter, 2008b). Subsequent government enquiries have
received submissions from associations such as Australian Beef, stating in part; “The
supermarket duopsony must be dismantled, at least as far as meats are concerned”
(Australian Beef Association, 2008).
6An example is Mal Meninga Fresh, a grocery in Brisbane owned by Queensland rugby
coach Mal Meninga. Meninga has alleged that a nearby Woolworths was altering its prices
specifically to undercut Meninga’s prices with the intention of driving the store out of
business (Dibben, 2009).
7 Although Woolworths claims that 95% of its fresh produce is sourced from local (i.e.
Australian) suppliers (Facts, 2008), it has been noted that fresh fruit and vegetables typically
represent less than 10% of grocery turnover (NARGA, 2010: 30).

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