From little things big things grow

From little things big things grow

The history of Coles and Woolworths in Australia has been an impressive one. Both being around with us since our nation’s infancy, they still remain with us today as the two major supermarkets in modern Australia. In many ways, they are a part of our national identity.

Yet their success has not been without controversy. Many have accused the two supermarket giants of exploiting their market dominance. Nonetheless, it is remarkable that two, small variety stores have grown into the two supermarket giants in Australia.

Coles and Woolworths both started off as small, independent variety stores in Melbourne and Sydney respectively.

The first Coles Variety store was opened in 1914 on Smith Street, Collingwood, Melbourne. From its early years, basically since the word go, Coles has promoted itself as providing great value for shoppers. From their famous “Nothing over 2/6” to their now infamous “Down, Down, Prices are Down”, whatever their catchphrase, it’s all got to do with how neat a deal can be scored when one shops at Coles. By 1960, Coles opened its first proper supermarket in Melbourne, and in 1973 it had supermarkets in all capital cities. Today, it employs more than 100 000 people, and service over 18 million customer transactions every week. Only this week was it announced that Coles and its parent company, Wesfarmers, has applied for a banking license. Amazing!

In December 1924, Woolworths Stupendous Bargain Basement opened in Sydney (it’s a shame Woolies didn’t keep this original name!) By 1927, it had already become a Chain, opening another store in Brisbane. The Woolworths brand had extended across New South Wales, Queensland, Western Australia and even to New Zealand by 1930. It wasn’t until the late fifties that Woolworths actually started out in the real food store business. From that variety basement store in Sydney’s Imperial Arcade in 1924, to 872 stores across the nation, Woolworths, like Coles, has had a remarkable history.

What on the face of things seems like an impressive and admirable business history, from small, humble variety stores to multimillion dollar supermarket chains which employ tens of thousands of people, Coles and Woolworths are today subject to intense criticism from consumers and regulators.

Figures have floated around that their collective market share is something close to 80%. This is an enormous number, and it is no wonder that consumers and regulators are a wee bit spooked. This figure has been rigorously questioned though. But regardless of whether it is exactly 80 per cent of not, Blind Freddy could tell you that Coles and Woolworths are the two dominant supermarket chains in Australia today (some estimate that the figure is more like 55-60 per cent[1].)

Yet the Coles and Woolworths duopoly has not always been so. It is worth keeping in mind that the history of both Coles and Woolworths has been a long and tumultuous journey. In 1975, Coles and Woolworths collectively had only about 34 per cent of the market share. Compare this to the 80 or so percent today, it is clear that both have been incredibly successful players in the grocery sector. What’s more is that their activities are now expanding to things such as insurance, and even possibly banking.

The ACCC has been on the two supermarkets’ cases over the past few years, and surely getting under the skin of both Coles CEO Ian Mcleod and his Woolworths counterpart, Grant O’Brien. Whether it be suspicions pertaining to petrol discounts or super cheap milk, the ACCC has aggressively been pursuing the market tactics employed Coles and Woolworths, trying to uncover any anti-competitive behaviour. Of course, as Australia’s “Competition regulator and national consumer law champion”[2], it is expected that the ACCC holds Coles and Woolworths to account when they see fit to do so.

Yet, I sometimes wonder whether all this bagging of Coles and Woolworths from consumers as well as regulators is merely temperamental. Much of the public opinion has probably been shaped by the media coverage of the duopoly, feeding people’s suspicions that they’re being ripped off.

Much to the contrary, however, the Coles and Woolworths price wars and aggressive business stand-offs might actually be good for consumers. A paper released by Deloitte last October suggested that across the entire Coles range (except cigarettes), prices had fallen 7.9 per cent, a benefit to consumers of roughly $1.1 billion in light of the supermarket’s “down, down, prices are down” campaign[3]. Coles is determined to gain market share by harking back to its lower prices mantra of the pre-war years all the while benefitting us, consumers with lower prices.

Despite our paranoia about market share and price wars, Coles and Woolworths might well be helping keeping the inflation genie in the bottle – at least it is certainly keeping prices down, down, down in the groceries sector.