Should Woolworths and Wesfarmers worry about the ACCC?

An address by the Chairman of the Australian Competition and Consumer Commission (ACCC) Mr Rod Sims to an Australian Food and Grocery Council industry forum has just been released. The address sought to provide the ACCC’s perspective on the debate surrounding the market share held by Australia’s two major supermarket chains owned by Woolworths (ASX: WOW) and Wesfarmers (ASX: WES).

Mr Sims highlighted that the ACCC’s role is to “protect the competitive process” and that this has led to the ACCC investigating issues that fall under the Competition and Consumer Act and that exclusively go to issues of concern over the competitive process.

Currently these concerns include supplier issues and shopper dockets. On the issue of supplier dealings, Mr Sims advised that the ACCC expects to form an opinion by the end of the year on whether major supermarket chains have engaged in unconscionable conduct in their dealing with suppliers and whether they have misused their market power by discriminating in favour of their own house brand products.

On the issue of shopper dockets, Mr Sims advised that the investigation into the trend to larger and longer fuel shopper docket offers is nearing completion. As stated by the chairman, the current investigation is focused on whether Coles and/or Woolies “may be distorting price competition between fuel retailers by offering discounts on fuel purchased from their retail fuel sites in circumstances where, due to retail fuel margins, the discount may be difficult or impossible for equally efficient competing retailers to match, due to the nature of Coles’ and Woolworths’ activities in other (unrelated) markets.”

For Australia’s third largest grocer, IGA (owned by Metcash (ASX: MTS)), it is an incredibly difficult retail environment at present and it is no doubt hoping the ACCC’s investigations lead to some relief. Even market-leading Coca-Cola Amatil (ASX: CCL) has been finding the going tough for its canned fruit business, which competes with imported and house brand products; however recent supply wins have helped alleviate some of this pressure.

Foolish takeaway

Woolworths and Wesfarmers will no doubt have listened to Mr Sims address with keen interest given the potential outcomes of current investigations. While any negative findings will undoubtedly look bad for the major supermarket chains, the results are unlikely to have meaningful long-term effects on the overall profitability of these stalwart companies. Investors should also be watching the ACCC’s moves with interest given the possibility of the stock market to overreact to any negative news — which could create a buying opportunity for long-term investors.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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