Friday, May 25, 2007

Competitive Strain Inquiry

The decision that the Commerce Commission are currently mulling over, to give the go-ahead for the Warehouse to be sold to either Foodstuffs or Woolworths Australia, is a very clear one.

The competitive advantage that either one of these two companies would have if they were given approval and won a bidding war would allow a larger company to dominate not only the grocery sector but the variety goods sector as well.

The removal of a third and in time, eventually larger competitor in the Warehouse, will remove the ability of the public to have a viable chance for cheaper grocery prices and leave New Zealand with the current duopoly, with high prices and poor service.

To go back to two players in the New Zealand grocery business will be a missed opportunity that will probably never come again for generations and put the sector back where the variety goods sector was before the Warehouse came along 25 years ago.

Will the two players in this drama cite the sort of nonsense that Auckland Airport and Regency Duty trot out when they tell us less competition will mean more choice and cheaper prices for consumers? Well the answer is they already have. Those are two of their arguments for both of them buying the Red Sheds. How dumb does business and the Commerce Commission think the New Zealand consumer is. Clearly terminally so.

For too long New Zealand consumers have come off second best when it comes to the competitive advantage of having manifold players operating in an industry. When we get a chance to have more competition in an area so important and so uncompetitive as the grocery sector is, then we need to grab it with both hands and our watchdogs need to do their jobs and come out on our side for once.

Airlines, retail petrol, communication and a myriad of other industry have been given the once over lightly from the Commerce Commission when it comes to mergers, anti-competitive behaviour and the like.

If Woolworths and Foodstuffs want to expand in this country then they have only got to plunk down the some of billions that they have in revenues and go head to head with the Warehouse in a truly competitive environment and let the best man win. Carnage or not that is true competition.

We have only got to look at Woolworths anti-competitive modus operandi on the North Shore of Auckland where a new Foodstuffs Supermarket has sat empty for 2 years because WW has objected to it opening on the bizarre grounds that it will create too much traffic, strange when a Mitre 10 Mega has opened just around the corner. Do we expect Woolworths to operate fairly if they are allowed to expand by buying the Warehouse?

The alternative to a buy by the aforementioned parties would be for a party with a small presence already doing business here or a completely new player from offshore, thereby making a the purchase a competitive one that keeps three players in the grocery business.

New Zealand is a small market and often, in business sectors of monopolies, duopoly's and the like market dominance is all too frequent. While I'm not against business getting bigger, areas like the grocery sector that are extremely unrepresented by multiple players must be open to such when the opportunity arises. The Commerce Commission must therefore make the decision, and soon, to keep the grocery sector open to real competition.


C Share Investor 2007