CHAIR —Welcome. For the first time in three days I can with some confidence say that one of our witnesses has heard the opening statement. I think, Mrs Osmond, you might have been here as well.

Mrs Osmond —I was indeed.

CHAIR —I will dispense with those formalities, which I am very grateful for, and just ask whether you would like to make an opening statement.

Mrs Osmond —I would. Thank you very much for the opportunity to appear before you today on these very important matters. ANRA is a relatively new organisation. It was set up some 12 months or so ago to represent the large retailers here in Australia, which includes the large supermarkets but a very significant number of non-supermarket members as well. We think retail success depends upon providing what consumers want at a price they are prepared to pay, and that is best achieved through a truly competitive market. Consequently, ANRA supports the objective of the Trade Practices Act and looks to it to provide a clear framework that protects competition and consumers but not individual competitors. ANRA is concerned that the amendments suggested by Senator Fielding may dampen competition and in fact lead to increased prices.

The supermarket model in Australia has proven very popular and has been very successful since it was introduced, because of its ability to offer a very wide range of products in one place at low prices when people want them. As the chains have grown a little larger, it has enabled them to develop greater efficiencies and, through those economies of scale and investment, to continue to offer those lower prices. We have seen that with the two majors, and we are now seeing it with Metcash as well, a dominant wholesaler that is becoming an even larger player in the supermarket business. In Australia, as in other countries, the critical mass to deliver significant efficiencies is usually around 6 million people for each major chain. So the model has proven a popular segment of the retail mix, with millions of transactions every day. It has grown because it is popular with customers.

The size of the supermarket chains means they have also got a very wide family of small business suppliers and are major employers, with something over 300,000 Australians and their families being part of that family. The amendments proposed to the Trade Practices Act by the government and Senator Fielding are largely aimed at the fresh fruit and grocery marketplace, so I would like to clarify a couple of issues specifically in relation to that market. The first of those is the myth about market share. People like to use the figure for a combined market share between Coles and Woolworths as being something between 78 and 80 per cent. This figure is actually wrong. It has been variously calculated quite recently on the basis of company turnover, in a report recently commissioned by NARGA. The other figures that are quite often used are the AC Nielsen figures for scanned goods that go through a supermarket.

The first is an inappropriate calculation. Turnover is not an indicator of market share as far as we are concerned. The second only relates to those scanned products that go through supermarkets, so effectively it does not include in many instances fresh food lines and it does not include those stores that do not scan. Effectively the AC Nielsen data represents only about 50 per cent of food retail sales in Australia. When you examine them a little more accurately, those market share figures come down to Woolies, at about 29 per cent, and Coles, at about 23 per cent.

The second myth is the one that small business is suffering because large supermarkets offer low prices to and convenience for their shoppers. Where is the proof behind the emotional rhetoric? The food retail sector is an incredibly diverse one with something like 50 million transactions every week and something like 30,000 retail outlets. Approximately 97 per cent of the food retailers in Australia are in fact small businesses. There is also the same number of small food retailers per head of population here in Australia as there were 30 years ago. A recently released piece of research from—

CHAIR —Sorry, but what was that figure?

Mrs Osmond —Approximately 97 per cent of the food retailers in Australia are in fact small businesses. The number of food retailers per head of population is the same as it was 30 years ago.

CHAIR —Thank you.

Mrs Osmond —Recent research that came from NARGA, which represents those small and independent operators, says—in a report prepared by PricewaterhouseCoopers—that they are booming in the current climate economically and legislatively. We recently did a national survey asking shoppers whether they were happy with the mix of big and small. Seventy-three per cent of them said to us that, yes, they were very happy. Having said that, 50 per cent of them still buy their meat at the local butcher shop and something between 40 and 50 per cent of them are buying at their local greengrocer. So the bottom line is there is diversity and also there is opportunity—and people are using it.

Pricing at discounted levels is not predatory pricing, regardless of the size of the retailer or the level of the discounts. It is a very common practice across all retailing sectors. It benefits consumers and keeps their businesses competitive. If it were otherwise, all retail prices would eventually be set at the level of the least efficient operator in the market. If the amendments proposed were to be passed, discounting would virtually be abolished. There would be no more selling of cooked chooks last thing in the afternoon at a supermarket to clear them out. There would be no capacity to clear out perishables close to their use-by dates at lower prices for consumers.

Myth No. 3 is that consumers are being ripped off by the major supermarkets and that food prices have increased radically compared with those of OECD countries. As part of a survey we did not so very long ago, we looked at how much it actually cost you as a percentage of your weekly pay packet to buy a standard ABS basket of groceries. On the basis of that research we know it is in fact cheaper now to buy the same basket of groceries that your mother or your grandmother bought 10, 20 or 30 years ago in terms of that slice of the weekly pay packet. Additionally, the margins for the major chains are between 3c and 5c in the dollar. That information is published in their annual reports. Those are not huge particularly when you consider the banking sector here in Australia. When comparing the price levels of consumer goods and services with those of other OECD countries, you note Australia ranks somewhere in the middle.

Finally, in our view section 46 of the TPA is not about protecting small businesses; it is about protecting vigorous competition. That should be a boon for all consumers. The act already contains a range of unconscionable conduct provisions that provide important protection for small business operators. ANRA and its members are concerned that the amendments proposed by Senator Fielding will detrimentally affect the entire retail sector, generating a high level of confusion and uncertainty that will reduce discounting and will ultimately push up prices. The most important person here is the shopper—the consumer, the ordinary citizen who has got to put food on the table. That is the person that we must be thinking about. The large retailers make no apology for their desire to offer lower prices. In a climate in which the latest CPI figures have shown the impact of increased food prices and the subsequent impact on interest rates, lower prices have to be a desirable outcome. That outcome is only certain with a strong competitive market and appropriate protection for the consumer and all businesses—in short, a maintenance of the status quo.

CHAIR —Thank you, Mrs Osmond. Ms Edghill, do you have anything to add?

Ms Edghill —No, I do not have anything further to add.

Senator STEPHENS —Thank you for that comprehensive opening statement, which adds to your submission, which in fact did not go quite as specifically to the amendments that we are considering today. I need a bit of help to understand those figures that you were quoting, please. First of all, you are critical of the PricewaterhouseCoopers report about the sector. I just need to understand what your figures consider and what their figures consider. You said to us that 96 per cent of food retailers in Australia are small businesses. Does that figure include individual stores—

Mrs Osmond —Yes.

Senator STEPHENS —like the hamburger joint down the road?

Mrs Osmond —It would include all food retailers. I think the interesting thing about the PricewaterhouseCoopers report is that—and I am not discrediting the PricewaterhouseCoopers report by any means—it makes quite clear that the small sector is thriving. There is an enormous amount of growth in the independent supermarkets and others. Metcash and IGA are doing extraordinarily well, as is Aldi. I suppose the question is: if they are doing well in that climate, why do we need to make amendments and changes?

Senator STEPHENS —You made the point that turnover is not an indicative measure. What do you consider to be the most indicative measure of market share?

Mrs Osmond —The ABS figures, which are what the 29 and 23 per cent figures are based on. I think probably the most commonly quoted is not in fact the turnover figure; it is the AC Nielsen ones that I mentioned in terms of scanned goods. We feel they are not a good judgement of what market share is because they do not include, in many cases, fresh fruit and vegetables, meat and so forth; it is usually, in many cases, just dry product scanning, and many stores do not have scanning.

Senator STEPHENS —One of the submissions talks about your calculations as being a ‘whole-of-stomach approach’, which includes, as we have just established, takeaway food, other food retailing, liquor products, fuel and everything else that consumers eat across the economy to calculate the market share, rather than on the basis of supermarket consumption. If we were to include those activities that Coles and Woolies have, particularly outside the grocery retail sector to include the sales in petrol stations’ convenience stores, which are growing, are you able to provide some information about what the share of the market would then go to?

Mrs Osmond —I am sorry, I cannot in relation to those, but I would be very happy to supply something to the committee in writing.

Senator STEPHENS —That would be useful. Going to the substance of the bill—

CHAIR —I am sorry to interrupt. In what sort of time frame would you be able to get that to us?

Mrs Osmond —The beginning of next week—Monday on Tuesday.

Senator STEPHENS —Great. Thank you.

CHAIR —Monday would be terrific.

Mrs Osmond —Monday it will be then.

Senator STEPHENS —Going to the substance of the bill, I understand that you are saying that there really should not be any amendments, in your view.

Mrs Osmond —I beg your pardon—I am sorry?

Senator STEPHENS —Are you saying that the Trade Practices Act does not need to be amended in your view?

Mrs Osmond —Our preferred option would be to see no amendments to the bill. We think it offers adequate protections. We think—

Senator CHAPMAN —To the bill or to the legislation?

Mrs Osmond —I beg your pardon. To the legislation.

Senator CHAPMAN —So you are opposing this bill?

Mrs Osmond —We are opposing Senator Fielding’s bill, yes.

Senator CHAPMAN —You are not opposing the government’s bill?

Senator STEPHENS —What about the trade practices amendments?

Mrs Osmond —We are saying that we do not feel there are any amendments necessary. There are aspects of the government’s bill that we can live with, but there are aspects of Senator Fielding’s bill which we think particularly will be a disadvantage for the whole retail sector, not just the companies that I represent, and that it will create a high level of confusion across the marketplace.

Senator STEPHENS —Would you have concerns that the predatory pricing amendments could lead to a reduction in specials and discounts, such as for the cooked chook and the almost-out-of date foods?

CHAIR —Is that the Fielding amendment or the government amendment?

Senator STEPHENS —I am not sure.

CHAIR —I think that might be in relation to the Fielding amendment, but I just wanted to clarify whether that is what you are referring to.

Senator STEPHENS —On page 18 of your submission you state that the government’s bill is a ‘legislative classification of existing courts’ interpretation of the law’. Do you mean ‘clarification’ instead of ‘classification’? Therefore, does that mean that you do not think the bill adds much to the law?

Mrs Osmond —It is ‘clarification’ and, yes, we do not think it adds much at this point.

Senator STEPHENS —Do you have any comment to make about the unconscionable conduct amendments other than what we have heard already?

Mrs Osmond —At this point in time, no, I have no comment on the unconscionable conduct provisions.

Senator STEPHENS —Do you have any comment to make about the impact of raising the threshold from $3 million to $10 million?

Mrs Osmond —Not at this point, no.

Senator FIELDING —I have some questions with regard to page 10. There are some figures there that I would like to go through. You claim that supermarkets operate on margins—earnings before interest and tax—of seven to eight per cent. Can you identify which supermarkets they are? My information is that the US Food Marketing Institute quotes figures of around two per cent and even Walmart, which sells a lot of non-food items, is only up around six per cent.

Mrs Osmond —Once again, I would have to come back to you with the detail on where those figures are sourced from, but they are standard figures that have been used on a number of occasions previously in terms of the USA.

Senator FIELDING —Do you know the US Food Marketing Institute figures at all or is it that you just do not have them?

Mrs Osmond —I am not familiar with the ones you are talking about. I would be very happy to have a look at them, but these are the standard figures that have been used by the industry here in Australia.

Senator FIELDING —It is pretty important, given some of the claims you are making. Again, I refer to the US Food Marketing Institute and the fact that it says that profit margins in grocery retailing in the US are around 1c in the dollar. Why are they around 5c in the dollar in Australia?

Mrs Osmond —I am not familiar with the figures you are talking about but it is quite important to remember that the American market is quite a different one. They have a large number of chains in the US. They have an extraordinarily large market and, once again, those things will reflect themselves in a whole range of price outcomes. So without having those figures in front of me and an opportunity to go through them, I could not comment any further on them.

Senator FIELDING —In another area on page 10 you refer to price changes between 2002 and 2004, which is a very narrow time frame. Aren’t these figures misleading in light of the broader trend, such as the fact that the price of bread has increased by 100 per cent, according to the ABS, since 1990 while the CPI has increased by 57 per cent? Isn’t that why page 10 also focuses on a minutes worked analysis since 1978, taking advantage of the increase in people’s income while ignoring the increase in food prices over that time?

Mrs Osmond —Effectively the 2002 and 2004 figures are merely meant to indicate that there are fluctuations in grocery prices, and there will always be fluctuations in grocery prices particularly in the fresh food line. You pick the example of bread. We have had a rather significant longstanding drought. The cost effect on grain is major and it flows through so many different prices within the supermarket environment. This is no attempt to mislead; it was simply an opportunity to give an indication of what prices may vary and how they vary. In terms of the minutes worked, that was quite specifically explained as being a proportion of the weekly pay packet. We looked at the number of minutes it took you to earn the standard ABS basket of groceries now as opposed to what it took you a number of years ago, and that is what that reflects.

Senator CHAPMAN —What is the percentage share of the grain in the cost of a loaf of bread?

Mrs Osmond —I could not answer that but, once again, it is something I would be happy to come back to you on.

Senator CHAPMAN —I do not think you can claim that the cost of grain as a result of the drought is a contributing factor in the increasing cost of bread.

Mrs Osmond —I think it is important, though, to understand that there is bread and there is bread. People like to compare the prices, but are we comparing a standard loaf with a standard loaf or are we comparing a home brand with Bornhoffen or something?

Senator CHAPMAN —But it is just ridiculous to attribute to the drought the increase in the cost of whatever bread you are talking about.

Mrs Osmond —I think it is quite fair to say that some increase in the price of bread must be directly attributable to weather conditions.

Senator CHAPMAN —Maybe 1c. It is just nonsense.

CHAIR —You said there are certain aspects of the government’s bill that you do not like. Could you elaborate on that for me, please.

Ms Edghill —I think ANRA’s concern, which is similar to the concern that I expressed in the evidence I have given to the committee before, is that attempting to specify what constitutes predatory pricing is probably more likely to lead to uncertainty and confusion. In that respect, as I understand it, ANRA’s concern is probably with the definition of ‘relevant cost’—leaving open what is relevant.

CHAIR —Are you able to make any comments in relation to the relative position of section 46—after these amendments, as opposed to before them?

Ms Edghill —Are you talking about the government amendments?

CHAIR —Yes.

Ms Edghill —From a legal perspective, there is very little change in the existing position other than to expressly clarify certain aspects which the courts have already held. The only major difference is the express reference to predatory pricing as a particular form of, if you like, the use or abuse of market power.

CHAIR —As a lawyer, would you view those as being substantial changes?

Ms Edghill —As a lawyer, I would not view them as being substantial; I would view them as being harmful. In some instances they do provide guidance to the courts, but I think the courts are already very mindful of and are doing their job very well in taking those factors into account. Lawyers are very good at arguing over what a particular word means. I suspect that the inclusion of the word ‘relevant’ will be the subject of a lot of judicial interpretation. My reading of the explanatory memorandum for the government’s bill is that that is exactly what the government hopes and wants to occur. It seems to be a concern that you cannot pigeonhole fixed costs, variable costs, average variable costs and avoidable costs as being the single and only criterion by which to judge whether or not somebody has misused their power.

CHAIR —That is certainly not codifying existing judicial decisions, is it?

Ms Edghill —No, it is not.

Senator CHAPMAN —In your opening statement you made a comment to the effect that—and correct if I am wrong—the cost of a basket of groceries today in real terms is about the same as it was 100 years ago.

Mrs Osmond —No, that was in relation to our moments worked survey, which looked at what proportion of an average citizen’s pay packet it would cost to buy the same basket of groceries as mum or grandma might have bought in the last 20 or 30 years. If you look at the time you have to work to earn the money to buy a standard basket of groceries, it takes less time now than it did 30 years ago.

CHAIR —If you start talking about the contents it would be—and pardon the pun—very much apples and pears, wouldn’t it?

Mrs Osmond —No, it is comparing the same contents. It is an ABS standard, because the ABS figures follow through this period.

Senator CHAPMAN —Do you know how the components of that cost have changed as well, in terms of the raw materials, the manufactured component and the retailing?

Mrs Osmond —No, I could not give you that detail.

Senator CHAPMAN —I suspect that the raw material component has fallen by substantially more in real terms than the final cost of the goods.

Mrs Osmond —This basket is a mix of manufactured and fresh food.

Senator CHAPMAN —But they all start with raw materials.

Mrs Osmond —Yes, they all start with raw materials. But, effectively, we were seeking to illuminate that, when we talk about a massive increase in the cost of the weekly budget for groceries, when you look at it as a proportion of the weekly budget in terms of the pay packet that mum or dad or both bring home, it takes less now than it did before to achieve that basket.

Senator CHAPMAN —I understand that, but that may not necessarily mean that the retail component of that basket of goods has proportionally increased as against other components that go into that basket of goods.

Mrs Osmond —I am sorry if I am misunderstanding you. Are you suggesting that the profit margin for retailers is higher now than it was previously?

Senator CHAPMAN —The share of the price. The profit may well depend on other things. I am talking about the share of revenue.

Mrs Osmond —I see what you are getting at. I suppose counter to that would be the fact that the stores you shop in now are dramatically different from the ones you would have shopped in 20 or 30 years ago and the oncosts that relate to those stores are dramatically higher. People demand certain things when they shop in a supermarket now; it has to be clean, it has to be green, it has to be cool and it has to have the latest trolleys. All those overheads did not exist 20 or 30 years ago. I think that is the answer.

CHAIR —I think it would be very difficult for this inquiry to start altering what is a fairly acceptable standard of measurement. I think that is probably way beyond what would be viewed as being reasonable for this inquiry. As there are no further questions, we thank you most sincerely.

Mrs Osmond —We thank the committee again for the opportunity to speak to the amendments.

 [2.15 pm]