SENATE
ECONOMICS REFERENCES COMMITTEE
Reference: GROCERYchoice website
FRIDAY, 18 SEPTEMBER 2009
CANBERRA
WITNESSES
BROCKLEHURST, Mr Adrian, Chief Financial Officer, Australian Competition and Consumer
Commission
CASSIDY, Mr Brian, Chief Executive Officer, Australian Competition and Consumer
Commission
CHISHOLM, Mr James, Manager, Competition Policy Framework Unit, Treasury
CUMMINGS, Mr John Watson, Chairman, National Association of Retail Grocers of Australia
HENRICK, Mr Kenneth Michael, Chief Executive Officer, National Association of Retail
Grocers of Australia
KENNEDY, Dr Steven, General Manager, Competition and Consumer Policy Division, Treasury
MARTINE, Mr David, Acting Executive Director, Markets Group, Treasury
PAINTON, Mr Geoffrey Andrew, Branch Manager, Central Agencies Branch, Budget Group,
Department of Finance and Deregulation
RENOUF, Mr Gordon, Director, Policy and Campaigns, CHOICE
STACE, Mr Nick, Chief Executive Officer, CHOICE
WING, Mr Anthony, General Manager, Transport and General Prices Oversight Branch,
Australian Competition and Consumer Commission
Committee met at 8.05 am
Senator JOYCE—Does Treasury recognise that geographic price discrimination occurs?
Dr Kennedy—Yes.
Senator JOYCE—How are consumers supposed to find the cheapest prices or the cheapest
supermarkets in the absence of full price transparency?
Dr Kennedy—There are a range of ways that consumers can find the prices that are being
advertised in different supermarkets. That has been the case for many years.
Senator JOYCE—Does the consumer have to rely on generic advertising for a certain
supermarket or on advertising across the board?
Dr Kennedy—There are a range of ways that people can find out the prices of products. They
can look on the internet. They can undertake their own investigations. I am just describing what
everyone knows to be the case.
Senator JOYCE—So they can look on the internet. Was not that the whole idea of what
CHOICE was trying to set up for them?
Dr Kennedy—One of the objectives of the GROCERYchoice website was to provide
consumers with more real-time information about how prices vary across supermarkets.
Senator JOYCE—So you are saying that consumers can do it, but CHOICE could not.
Mr Martine—I should mention that the website was in existence and did operate for the
period up until the end of June, and it was providing information to consumers. As Dr Kennedy
indicated, similar to other products and goods that consumers seek to purchase, they undertake
their own activities to work out which is the cheapest and where they can buy the cheapest.
Senator JOYCE—I am just going to drill down to what you reckon their own activities might
be because it has become apparent that CHOICE could not get the information in a timely and
transparent manner off the major supermarkets, but apparently the consumer, aimlessly
wandering around the supermarkets of the western suburbs of Sydney in their car will find it.
Mr Martine—I am not quite sure how to answer that question; my apologies, Senator.
Dr Kennedy—Perhaps I could answer this way, Senator. The average consumer is not being
asked to do the extensive exercise that CHOICE was being asked to do across all of Australia.
We might draw some distinction between what consumers are trying to do and what was being
asked of CHOICE.
Senator JOYCE—Would there be a benefit to consumers if one of the major supermarkets—
Coles or Woolworths—voluntarily decided to establish their own website with price information
available to their customers in real time at store level?
Mr Martine—As Mr Chisholm mentioned a few minutes ago in response to a question from
Senator Xenophon, Minister Emerson in his announcement did indicate that he would be holding
discussions with supermarket chains about the possibility of an industry-wide website being
established.
Senator JOYCE—This is predominantly two chains and possibly three if you include IGA as
one, so how are you going with those? It seems apparent, from questions asked earlier by
senators, that the major supermarkets were not too keen to play ball with CHOICE; so who are
they going to play ball with?
Mr Chisholm—Senator, that is a question that is probably best directed to the supermarkets
themselves.
Mr Martine—What Minister Emerson refers to in his press release is not a governmentoperated
or government-funded website.
Senator JOYCE—So this would just be the supermarkets running their own website?
Mr Martine—I understand that a number of supermarkets already do have websites and
provide information to consumers on those websites.
Senator JOYCE—This is giving information per supermarket or across a range of
supermarkets?
Mr Martine—As I think Mr Chisholm indicated earlier, this is not a government-run website.
The minister has indicated that he would be holding discussions with the supermarket chains
about the possibility of them establishing some sort of website.
Senator JOYCE—The supermarkets have pretty awesome powers. They have managed to
blow GROCERYchoice out of the water. What makes you think that they would relinquish any
of that power that they have ably demonstrated lately, in pulling apart GROCERYchoice, to
construct their own website to do the same job?
Mr Chisholm—As Mr Martine indicated, the minister indicated that he would hold
discussions with the supermarkets about the possibility of a website, but the intention there is for
as an industry based website, not a government-run website, those discussions are something
that would happen between the minister and the supermarkets. Beyond that it is difficult for us to
speculate about people’s views on those things.
Senator JOYCE—What I am trying to work out is: if the government format that was
proposed through GROCERYchoice and the efforts of CHOICE itself to try to bring about an
outcome were able to be disassembled by the major supermarkets, what on earth are we going to
achieve by having one-on-one negotiations with the people who actually achieved their outcome
of disassembling it, and how much reliance can be put on them constructing their own website
Dr Kennedy—We never said in our evidence that the supermarket chains blew apart the
GROCERYchoice exercise. As we indicated, there were two parties involved who were not able
to deliver, and CHOICE was not able in the end to deliver on that product. I just want to be clear
about that. As Mr Chisholm and Mr Martine have indicated, there is information out there now
and the minister has indicated that he is interested in working with industry to continue to
enhance that information. I think he noted that there was the possibility that information could be
audited by a government-appointed auditor, as well, to give consumers some comfort as to the
quality of the information.
Senator JOYCE—What is the time frame and format of this new proposal?
Mr Martine—At this stage, there are no further details that we could add other than what is in
the minister’s press release of 26 June.
Senator JOYCE—And that says what?
Mr Martine—That says—and I will read out the quote—
Senator JOYCE—Check your email before you read it out.
Mr Martine—I will read out the last sentence. It says:
I will hold discussions with supermarket chains about the possibility of an industry website capable of providing
convenient grocery price data that could be audited by a government-appointed auditor.
This is Minister Emerson’s press release of 26 June.
Senator JOYCE—Does that give any time frame whatsoever of when that might happen?
Mr Martine—No, it does not.
Senator JOHNSTON—So it is just off in the never-never. It might not happen at all.
Mr Martine—I would need to check this, but the minister may have already had some
discussions with the supermarket chains on this point. I am not too sure.
Senator JOYCE—Can you tell us the Treasury’s state of play on the creeping acquisitions
proposal?
CHAIR—It is probably not related to this inquiry.
Senator JOYCE—It will be if they own all the supermarkets.
CHAIR—That is a hypothetical possibility. Are there any other questions?
Senator JOYCE—Do you honestly believe that there is going to be any real hope of getting a
transparent pricing guide to the consumer out there unless we have a legislative requirement for
the supermarkets to provide it? Is it really in their interests, and in their shareholders’ interests,
for them to provide you with transparent, real-time information per store?
Dr Kennedy—I would say this, Senator: in a competitive market I would have thought that it
is always in the interests of the suppliers to provide that sort of information to consumers to win
business.
Senator JOYCE—Thank you very much.
………………………………………………………………………………………………..
Senator JOYCE—Thank you very much. How much did we pay Retail Facts?
Mr Cassidy—When you say ‘we’, the ACCC paid them $1.46 million.
Senator JOYCE—You have a copy of the contract that you wrote up with them, haven’t you?
Mr Cassidy—Do we have it with us, Senator?
Senator JOYCE—No. You have a copy of it back in the office. You could easily put your
hands on that contract, couldn’t you?
Mr Cassidy—I missed that question.
CHAIR—He says that you can easily access the contract.
Mr Cassidy—Yes. In fact, I thought the contract had been made available in the Senate, in the
last few days, as to late answers from Treasury.
Senator BARNETT—Have we got that contract? I do not think I have seen it. If we have not
got it, we would certainly appreciate a copy.
Mr Cassidy—My understanding is that it has been tabled.
Senator BARNETT—Take it on notice.
Mr Cassidy—Yes.
Senator JOYCE—Did you know that, whilst drawing up that contract, they were also
delivering information to Woolworths?
Mr Wing—We did. For that matter, Informed Sources was delivering information to
Franklins.
Senator JOYCE—We are not paying twice for the information, are we? We are not paying
for them, in the same job, to draw up a contract with Woolworths, which they get paid for, and in
the same breath, also send you a bill for finding the same information which Woolworths has just
paid them to find?
Mr Wing—No, Senator. We had a specific and very extensive list of products and stores. So it
was quite specific to us.
Senator JOYCE—So how do we know, since there were no teams going out with them for
the assessment, that they were not actually doing the two jobs at the one time?
Mr Wing—The average time required to collect the products we had asked for was four or
five hours in a store. They would have been there an awfully long time if they were collecting
twice.
Senator JOYCE—Why could they not just do the Woolworths information and say, ‘That’s
the stuff the ACCC want anyhow. Here we have two bills and we’ve doubled our money and
done only half the work’?
Mr Cassidy—That assumes that Woolworths or, for that matter, Franklins—let us generalise
this—or any retailer in question wanted exactly the same information that we wanted.
Senator JOYCE—I hope the taxpayer was not subsidising Woolworths in the collection of
information.
Mr Cassidy—We have no knowledge of Woolworths’s contractual information or retail facts.
We had specific data which we wanted from specific stores and that is what they collected for us.
Senator JOYCE—How do we know that this was not the case? What sort of due diligence
did the ACCC delve into to make sure that the Australian taxpayer was not subsidising
Woolworths for the collection of information by Retail Facts basically saying, ‘These two
characters want the same information. They don’t know that we are collecting for both of them,
so we’ll send them both a bill’?
Mr Cassidy—In any data collection exercise, I suppose that is a risk. We take the tender bid
on its face value. You could pose the same set of questions in relation to Informed Sources, I
suppose. Are we subsidising the oil majors for the petrol price information they get from
Informed Sources? As I say, we had specific data requirements from specific stores and that is
what we were paying for.
Senator JOYCE—Was Retail Facts the cheapest quote?
Mr Cassidy—No. We had an earlier questioning about that.
CHAIR—We have covered a lot of this ground, Senator Joyce.
Senator JOYCE—Just for the record, was Retail Facts the cheapest quote?
Mr Cassidy—It was the second cheapest.
Senator BARNETT—There was $2.7 million difference.
Mr Cassidy—There were four dearer ones.
Senator JOYCE—Since they were a dearer quote, was the cheaper quote also working for
one of the other major supermarkets, collecting information for them as well, or was it collecting
for just one of the majors?
Mr Cassidy—Senator, I think all of about four minutes ago it was mentioned that Informed
Sources, the cheapest quote, was collecting for Franklins.
Senator JOYCE—CHOICE had to approach the Australian National Retail Association
rather than Woolworths themselves. Are you aware of that?
Mr Cassidy—I think I am going to end up saying this several times: we know virtually
nothing of what transpired with CHOICE. We had one meeting with CHOICE where we made
quite clear that any decision on the future of the GROCERYchoice website was a matter for the
government and not us. At government request, we explained to CHOICE how the website
worked. We would have explained that to anyone else, had the government asked us to. Beyond
that, we know nothing of what transpired between CHOICE and the government or between
CHOICE and any of the retailers.
Senator JOYCE—If one of the majors, for example Woolworths, said, ‘Don’t talk to us; talk
to the Australian National Retail Association,’ and that body also represented Coles, would you
see that as two major organisations working very closely together for a common purpose?
Mr Cassidy—I do not know. Maybe it is two major organisations using their representative
body. I think the Business Council of Australia has 20-odd members who use it. That is the way
representative bodies work.
Senator JOYCE—It is a very particular sort of interest though, isn’t it? They are 70 or 80 per
cent of the retail market and they are working together in a coordinated form to basically sink
the GROCERYchoice website.
Mr Cassidy—I cannot comment on that. You are speculating on things that I do not know
about.
Senator JOYCE—If that were the case, would you be concerned about it?
Mr Cassidy—Again, I am afraid you are asking me to comment on things that I do not know
about. I do not know whether that happened. Would I be concerned? Unless it was somehow a
breach of the law, it would not be a matter for us; it would be a matter for CHOICE and the
government.
Senator JOYCE—I am going back to Retail Facts. In your recollection of the contract, what
non-disclosure clauses did you have between you and Woolworths? What confidentiality clauses
were there and what were the provisions that you put in place to make sure that outcome came
about?
Mr Cassidy—I do not have the contract in front of me. I am absolutely certain it was tabled in
the last couple of days in the Senate. It is a matter of looking at the contract, which is now,
incidentally, under the control of Treasury. I do not know quite how free we are to be discussing
the details of the contract.
Senator JOYCE—If you believe you have tabled the contract, you should be as free as you
like.
Mr Cassidy—That is correct, but I do not have it in front of me. I thought that, as it has been
tabled, you would have it to be honest.
Senator JOYCE—In St George?
Mr Cassidy—Modern communications are a wonderful thing.
Senator JOYCE—Did you have any clauses in there that dealt with breaches of
confidentiality?
Mr Cassidy—We certainly did but, as I said, I do not have the contract in front of me so I
cannot read them out to you.
Senator JOYCE—Have you had any desire, reason or impetus to query, check or follow
through any of these issues or to suspect that something might not necessarily be so and to go
and check it out?
Mr Cassidy—I explained earlier the sort of thing that we would have been looking for in
terms of prices moving out of line. But in the six months that we were collecting the data, we did
not see any evidence of that.
Senator JOYCE—That was just a desktop analysis, wasn’t it?
Mr Cassidy—We were analysing the data as it came in and looking for various things. But we
did not see any evidence of that.
Senator JOYCE—Who was analysing the data?
Mr Wing—We had a team that looked at the data and did crosschecks on it. We used tools
that we had built internally, which were audited by Frontier Economics. We basically had a team
that looked at those things.
Senator JOYCE—What did your crosschecks involve? Did they involve someone going out
to the store and checking what they were doing?
Mr Wing—No. It involved looking at all the data and running through more than a couple of
hundred thousand items of data per month looking for outliers, variants and so on.
Senator JOYCE—If you thought there was a problem, did someone ever go out to the
supermarkets and check?
Mr Cassidy—We did not get to that point because we did not think there was a problem.
Senator JOYCE—There was never a problem?
Mr Cassidy—No.
Senator JOYCE—How would you ever test the veracity of the data that you were collecting
if you never went out and did an empirical check of the data?
Mr Cassidy—As I said, we never got to that point because we did not see any evidence of
anything being wrong with the data.
Senator JOYCE—How would you know if there was something wrong with the data if you
never checked?
Mr Cassidy—We seem to be going round in circles. We did check but we did not find any
evidence of anything being wrong with the data.
Senator JOYCE—All contracts are now concluded, aren’t they?
Mr Cassidy—All contracts are now under the control of Treasury. I am not sure what the
situation is between them and CHOICE and Treasury and Retail Facts. Whether they are
completely concluded or whether there are any outstanding liabilities under those contracts is
really something that you would have to put to Treasury.
Senator JOYCE—Did you ever consider having a team that would go out and check the data
of Retail Facts? Did you ever consider that you might need to send someone out into the field to
see how it was actually going? The taxation department sends people out into the field.
Everybody else sends people out into the field to check the veracity of data. Did you ever
consider doing it?
Mr Cassidy—We certainly had that as a possibility but, as I said, we were not going to do it
unless we saw something in the data which made us suspicious—and we did not.
Senator JOYCE—As part of an audit process, a random audit is always an intrinsic part of
keeping the validity of data and dispelling assertions that things might have gone awry. In any
audit process, it is a basic fundamental that you check data not because it is wrong but to give
yourself a comfort zone that you have checked the data in an empirical form—that is, sighted the
document, seen the process and gone out and checked in the field. When I was doing audits, I
used to count the number of houses of a certain housing corporation not because I thought they
had stolen one but just because I wanted to make sure that the houses were there. Didn’t you
ever consider doing that?
Mr Cassidy—I think it is a horses-for-courses approach. Given the use of this data, it was not
financial information on which decisions were being based. It was not information that we were
proposing to adduce as evidence in court. It was information going up on a public website. As I
say, with your audit-cum-validity checks, you scale them according to what use and reliance is
being placed on the data.
Senator JOYCE—Did you disclose on your website that Retail Facts was also collecting data
for Woolworths?
Mr Cassidy—I am not aware that that was on our website. It was probably commonly known
in the industry, but I do not think we had it up on our website.
Senator JOYCE—Do you think that the consumer who was using your website realised that
or had knowledge of that information?
Mr Cassidy—I suspect probably not.
Senator JOYCE—Do you think that you had a duty to disclose that information to them?
Mr Cassidy—I would not, Senator, but I would suspect that you and I are going to disagree
on that.
Senator JOYCE—Do you know of any other instances where a person who is working for
both parties has disclosed that information in an up-front manner?
Mr Cassidy—Not that I can readily think of. It probably does happen. Again, I go back to my
earlier comment that these sorts of things are scaled according to what reliance is being place on
the information.
Senator JOYCE—So you do not think there was a strong reliance being placed on the
information on the website?
Mr Cassidy—I do not think it was of the same calibre as, say, when you talk of auditors of
financial information in company accounts and so forth. It is certainly not of the same calibre as
information which we would be thinking of going to court with.
Senator JOYCE—It was not information of as high a calibre as that which could otherwise
have been declared. Is that what you are saying?
Mr Cassidy—No. That is twisting my words. All I am saying is that it was not of the same
importance and significance as other types of data you could think of.
Senator JOYCE—So the data that you had on the GROCERYchoice website was not of the
same importance or significance as other data?
Mr Cassidy—That is right. As I said, it was not being used for any legal or financial
accounting type of purpose.
Senator JOYCE—It is a secondary issue—a bit of a waste of money.
Mr Cassidy—No. I did not say that. I just said that, in terms of the reliance and the use being
made of the data, I would not rank it as highly as some other sorts of data you could think of.
Senator JOYCE—Now that we have put it to you, are you going to go back and check to see
whether there was any apparent cross-subsidisation by Retail Facts that they were collecting
information for one entity when they were actually collecting it for two? In your contractual
process, did you believe that it was the exclusive collection of material on your behalf? Did you
ask them the question: ‘Are you collecting this material on other people’s behalf and, if so, what
can we rule out in our contract in terms of the money we are about to pay you, because you’ve
already been paid for it?’
Mr Cassidy—I think the answer to both of those questions is no.
Senator JOYCE—‘No, you can’t do it,’ ‘No, you won’t do it,’ or, ‘No, you haven’t done it’?
Mr Cassidy—Your first question was ‘Are we going to?’ to which I am saying no. The second
question was ‘Did we ask Retail Facts if they were collecting the same data for someone else?’ I
think the answer to that is probably no as well.
Senator BARNETT—Senator Joyce, can I jump in there because I have discovered the
contract to which you are referring, and I think I have got a question that is directly relevant to
it?
Senator JOYCE—Sure.
Senator BARNETT—The contract that I have just discovered is about 10 pages long. It has
three clauses in it regarding conflict of interest, and it has a schedule in it referring to
confidentiality and management of conflict of interest. In that schedule, it does not convince me
in any way, shape or form that the management of this conflict of interest is comprehensive or
full and proper, but there is a clause which I will read it to you. It states: ‘All internal control
procedures, processes and practices would be open to case manager or a nominated
representative of the ACCC to an agreed audit test.’ So the question is: was there ever an audit
test?
Mr Cassidy—Again, my understanding is no, because we never had any trigger or reason to
undertake one. We never saw anything in the data which made us suspicious.
Senator JOYCE—That is interesting. Can you explain to me what you think an appropriate
audit test is, or maybe you would like to refer to audit standards of what an audit test is?
Mr Wing—There might well have been audits from time to time or at an annual time and so
on in the normal manner, but we did not actually have it for that length of time.
Senator JOYCE—Can I put it to you that the basic premise of an audit standard is the
empirical checking of data not so much because you suspect something is wrong but because
you want to prove that it is beyond suspicion that it is wrong.
Mr Wing—Again, it would be the same thing. We were looking at it on a monthly basis both
to do our own internal checks and to see whether there was anything which required us to take a
further look at it. Also, there was the provision that Senator Barnett has just read out that also
allowed us to do, for example, an annual audit or something on our own—
Senator BARNETT—But why didn’t you do it? Why didn’t you undertake an audit check?
You have specifically put it in the contract. It is in the schedule and it refers to the opportunity
for an ACCC representative to do an agreed audit check.
Mr Cassidy—We had no reason to do so. We saw nothing in the data in the space of six
months that gave us any reason to suspect that there was anything wrong with the data.
Senator JOYCE—Mr Cassidy, the point is that, unless you check, you will have no reason to
know that there is something to check. The whole point of checking is like saying, ‘I have no
reason to check the fishing line.’ But you will not know that until you actually pull the thing in.
Mr Cassidy—If you have 50 fishing lines, you might only check the ones where you get a bit
of a tug.
Senator JOYCE—You told us that you did not check any of them.
Mr Cassidy—That is right. But I am saying that, if you have a great number of them, you
might only check the ones where you have some suspicion.
Senator JOYCE—You have no way of finding out any suspicions because you never check
them.
Mr Cassidy—No. That is not right, Senator, and I am starting to get a bit irritated with you—
let me be generous—misunderstanding what we are saying. We were doing a lot of checking of
the data as it was collected, looking for any discrepancies. If we had found any and had
suspicions then we would have gone to the next level, which would involve some sort of audit or
us collecting the data ourselves to crosscheck. But we did not find anything in the data which
triggered that sort of action on our part. But please do not say that we did not check the data at
all, because that is just not right.
Senator JOYCE—You just did a desktop check, Mr Cassidy. You never did an empirical
check. You never went into the field.
Senator PRATT—I think we have been over this.
Senator JOYCE—One could ascertain that your process is—
Mr Cassidy—We will go over it again and again and again.
CHAIR—Senator Joyce, we have to go to Senator Pratt now.
…………………………………………………………………………………………….
Senator JOYCE—I am very interested in the approach that ANRA had in working together to
stymie your process. Do you think this flies in the face when they say: ‘There is strong
competition between entities’? Until a mechanism brings about transparency, the major players
work together hand in glove’ The ACCC say, ‘This is just an extension of a membership body
working together.’
Mr Stace—The short answer is, yes, I do think that. On really important issues of competition
such as GROCERYchoice, it was wrong for the big two to work together in the way they did
because basically they were preventing something that would have been in the consumer’s
interest from happening. I do think it is anti-competitive and wrong. There is a separate question
about whether that contravenes the Trade Practices Act. I am not a lawyer so I cannot tell you
whether I think it is not. But for an explanation as to why we were not able to get local price
data, also as a salutary lesson for future discussions about reform in the grocery sector, it is
important to acknowledge the role that ANRA plays in preventing reform from happening.
Senator JOYCE—I posed the question to the ACCC prior to your evidence today and they
certainly had no problems with it. In fact, they made the assertion that it is just like another
membership body and how a representative body works. That being the case, was this
membership body working against the competitive requirements? Do you believe their actions to
stymie your process assisted them to reduce competition in the marketplace by reducing
transparency?
Mr Stace—We were making reasonably good progress with separate individual discussions
with the supermarkets on everything from resolving some of their concerns about practically
how the site would work and how information would be delivered to us. We were making some
progress on all of those issues. It was not until ANRA stepped in that progress stopped. I
certainly think they played a significant role. It is quite easy to blame ANRA of course. You also
have to look behind ANRA to see that there are members of ANRA who were probably having
discussions about the role that ANRA should play in this. What is interesting is that there has
been no written evidence yet from ANRA that any of us have received, nor from the big two
supermarkets. You have received something this morning that has not been made publicly
available. The big two supermarkets in particular rarely take to public platforms or the media on
this issue because I think they see it as damaging their brands in the eyes of the consumer. In a
sense, ANRA becomes a whipping boy, or a whipping girl, whichever way you look at it, and a
block and a protection to the two supermarkets.
Senator JOYCE—I am sure the ACCC are fully aware of the laws and they would be aware
that ANRA were not actually breaking any laws, that they were completely within their rights to
do it. Do you think it would be better in the future to have laws in place that say actions by
representative bodies to inhibit competition in the marketplace by reducing access to
transparency should be strongly looked at?
Mr Stace—I do think it should be strongly looked at, so I would support that.
Senator JOYCE—The UK has the Enterprise Act, which talks about divestiture. Do you
think Australia needs a divestiture power?
Mr Stace—I do, yes. I raised this issue with Graeme Samuel at the ACCC a few weeks ago.
He did not seem very keen to have those powers, which makes you think he probably would not
use them if he did have some. So there is an issue around the current leadership of the ACCC
and whether they are willing to take the kind of tough action required in this particular market. I
do think those powers would be very useful, of course as long as they were used.
There is one particular issue that would be worth looking at with these powers and that is the
monopoly situation of Metcash with the independents. CHOICE is a major fan of the
independents. We believe they provide a great service to consumers in localities and we would
like them to be a major competitive force, driving down prices, improving service and really
challenging the big two to do the same. The problem at the moment, when you have a monopoly
in the form of Metcash providing wholesale produce to the independents, is that they are less
able to do that. For CHOICE, that would be one of the first areas for divestiture powers at least
to be considered. I am not suggesting at this point that Metcash should be broken up, but I think
it should be considered.
Senator JOYCE—With divestiture powers, just like a cane in a school, you do not have to
use them. People just have to know they are there and they are a lot more willing to comply in a
will to government, to get transparency. What you ran into was basically the majors organising
themselves together to block you out and they successfully blocked you out and sank the project.
Mr Stace—That is right. I would like to reiterate the point that we suspected that the
supermarkets may not have been entirely happy with the prospect of the GROCERYchoice site,
one used by millions of people and one which started to drive prices down. Clearly, this site had
more benefits for the consumer than it did for the supermarkets, particularly the bigger ones. So
we had plan B, which was to do it without, and of course we implemented that. I would not want
the inquiry to go away with a sense that we could not launch. We could have launched. We were
ready to launch. We would have got ticks in three out of four boxes which we agreed with the
Treasury and we would then have applied great pressure on the supermarkets to come forward
with information. I should say what three of those four are. Firstly, it was a consumer centric
website in design and layout; secondly, there would have been around 1,500 prices, increased
every day, tailored to people’s individual needs; thirdly, it would have provided the important
opportunity for people to compare prices on a timely basis, so it would have been updated
weekly. The area where we could not do without supermarkets’ cooperation was having local
information.
Senator JOYCE—If you had gone forward with the project, would you have relied on just
desk top information for the analysis of prices or would you have gone out into the field from
time to time to check the empirical data?
Mr Stace—Yes. I was a bit surprised at the ACCC’s responses to your questions around
auditing of information this morning because in order for a website like GROCERYchoice to
have the credibility it needs with consumers, there need to be appropriate checks and balances
put in place along the way. We planned to do a number of checks and balances. There were
technical checks put in place so that as information was coming in electronically it was being
checked. So there was a system in place developed by SMS that would help achieve that. We had
a number of manual quality assurance processes as well. We were about to put in place a series
of baskets that only we would know about so that we could check whether anything was being
gamed in any way. So there were a number of checks and balances that we were putting place.
Ultimately, everything that comes from CHOICE has to be trusted by the public so we would not
have put any information out there which could not have been trusted by the public and in order
for it to be trusted it needs to be properly checked and verified.
Senator JOYCE—One of the parts of trust and transparency is disclosure. Do you believe
that if the body collecting the information was also collecting it for one of the major retailers that
that should have been disclosed on the website?
Mr Stace—We believe in transparency, not just in relation to grocery prices but in relation to
any perceived conflict. I certainly would not instantly draw the conclusion that because they
happen to work for a leading supermarket it meant that it was going to be biased. I would not
jump to that conclusion but in terms of the confidence that the public could have in the site, it is
important to be utterly transparent about other contractual obligations that these organisations
have.
Senator JOYCE—Would it be a fair disclosure? If people can argue that there is a Chinese
Wall that they cannot pass information through, surely that is a decision for the consumer to
make. You have a duty to disclose that you have a commercial relationship with one of the
entities that you are supposed to be checking.
Mr Stace—I think your point is exactly right. The truth is that, if it is not disclosed, people
will ask questions like the ones that you are asking about why it was not disclosed. This leads
people to assumptions around the fact that there was a conflict, even if there was not one.
Transparency of this kind of information is extremely important.
Senator JOYCE—Have you any knowledge of an updated website or a new website, or a
new process like GROCERYchoice or another version of it that will come into play?
Mr Stace—I should say that one of our key recommendations is the reintroduction of
GROCERYchoice, whether by us or someone else. The site has been mothballed for the time
being. I am sure that I can take those mothballs off and start it up again. So, in terms of an
answer to Senator Barnett’s questions around ‘Has this been a waste of money?’ it does not have
to have been because we can restart it if the government finds the political will to do that. Should
someone else take this site on? I know that there have been discussions around the supermarkets
doing it? If they do it, there needs to be some independent verification of the processes they will
employ and support given to that. This is because, given their record in the groceries market,
they are not particularly trusted by the government and, most importantly, by the public, and the
public should be able to trust this kind of price transparency site.
Senator JOYCE—If it were taken on by someone, what powers would you suggest that they
have? If you were to say, ‘That’s it. We’re not going to touch it again. Good luck to anybody else
who wants to have a go at it. But, before you do, I would recommend that you ask for these
powers,’ what would those powers be?
Mr Stace—Simply the power to make sure that the supermarkets give you the local price
information that is required. We entered discussions with the supermarkets before we took on the
contract, largely because we wanted to get a sense of their willingness to give us the local price
data. It seems from the early discussions that they were interested in doing so. That was the basis
on which we took the contract. With hindsight, I think we should have got some certainty either
from the supermarkets or from the government that, if the supermarkets were not willing at some
stage to provide the information, there would be some kind of legislative stick to force them to
do it. I have talked to a couple of ministers about price transparency legislation and about why
this information should be available to the public and that, if the supermarkets are not willing to
provide it, they should be forced to do so.
Senator JOYCE—All price transparency legislation comes about because, once the
marketplace becomes totally centralised, it starts to lose the inherent zest of a marketplace—that
is, too much power in the hands of too few entities. This means that the government has to step
in to be ipso facto competition by regulation or competition by regulation to bring about
transparency.
Mr Stace—Yes. I think it is a sad state of affairs when the government is required to step in in
that way. But it is only when markets are not functioning effectively in the consumer interest that
that is necessary. In many other markets there would be no need at all for the government to step
in in that way.
Senator JOYCE—In England, there are five major players, with Tesco being the largest. I do
not think it is even 30 per cent of the market. Because the market is more vibrant in England,
there is less requirement for this type of legislation. The market is evidently working in a more
efficient manner in England than it is in Australia where it has got a clunky nature with two
major players, plus a half of one.
Mr Stace—That is right. It does not mean that there are not some problems in the UK with the
supermarket sector. I would not want to give the impression that everything is perfect in the UK;
it is not. One example is the concentration of a particular supermarket chain in some localities.
Where that locality is—for example, the Milton-Keynes area just outside London—prices of fuel
and prices of produce are higher than in other localities. As a result of a recent competition
inquiry in the UK, competition is now a key component of planning laws in all localities. This
means that, if, for example, Asda is dominating a particular locality and Tesco wants to set up a
store there, it will be looked upon more favourably in order to ensure that competition is
encouraged.
Senator JOYCE—Are any of the major supermarkets in the UK involved in the insurance
industry?
Mr Stace—Yes, they are. In the UK, supermarkets can be a force for good in other sectors,
and I think it is worth putting that on record. For example, a number of years ago I worked very
closely with Tesco to encourage them to set up legal services in their stores to be a competitive
challenge to the partnership arrangements that existed in the rest of society. They are now
starting to set up real estate agencies as well, and of course insurance and so on. They can
provide a real competitive challenge to sometimes quite complacent markets. So I do not think
we should ever think that supermarkets cannot be a force for good; they can be. The problem in
Australia is that there is too much of a market concentration in the hands of the two big players.
Senator JOYCE—The major supermarkets in the UK are involved in legal, real estate and
insurance, but the mitigating factor is that they do not have market domination. Do you think it
would be a danger in Australia for Coles and Woolies to go into legal? There is no reason why
they should not. They are already involved in insurance in a major way. Why not real estate?
Everywhere a supermarket is located there is a window in which to sell houses.
Mr Stace—We welcomed, for example, Woolworths not so long ago getting into telcos and
providing a mobile phone tariff that was transparent and rather straightforward—more so than
many other mobile tariffs. I do not want to put me and my organisation into a corner by saying
that everything the supermarkets do is wrong. Our main focus is on groceries. There is a real
concentration of power there. I think there is a slight distrust amongst the public when the
supermarkets move into other areas, but let us keep the focus on groceries.
Senator JOYCE—That sounds good. At the end of the day, if we packaged one of the majors
into owning real estate, insurance, legal, alcohol, gaming machines and fuel, we could just sell
the whole lot off to state owned enterprise overseas. That would be a great outcome for us.
Thanks for that.
………………………………………………………………………………………..
Senator PRATT—You also need to take into account WA’s trading hours. Coles and
Woolworths have more limited trading hours.
Mr Cummings—We do not change the prices—
Senator PRATT—It just means you have a market available to you that Coles and
Woolworths do not.
Senator BARNETT—Tasmania’s market share?
Mr Cummings—I should know this off the top of my head, but I think the independent sector
is somewhere around 12 per cent or 13 per cent.
Senator JOYCE—You will be happy to know that in St George in Queensland it is 100 per
cent independent.
Mr Cummings—I thought it was 100 per cent national.
Senator JOYCE—Is the crux of the issue—and obviously it is a political one—that
consumers pay more? We have the highest food inflation in the Western world, and the farmer is
getting the same or, in some instances, less. There are exemptions from time to time, such as fat
lambs at the moment and the lamb price. It has political resonance, and Mr Rudd exploited that
very well at the last election saying, ‘This can’t go on; we’ve got to do something about it.’ If
GROCERYchoice is not the solution, what is? The political dynamic of it will continue. If Mr
Rudd could pick up on it last time, no doubt we will pick up on it this time It is going to become
a political football where you are talking to the biggest marketplace, which are the voters who
want something done.
Mr Cummings—The only answer I can give is that, to solve the problem of market
domination in Australia, it is going to take a whole pile of different things. There is not one,
single thing that will do it. A very simple example of that is unit pricing. I was in Sydney earlier
this week. You now have every grocery retailer in the suburb of Hurstville with unit pricing on
their shelves. Are we going to conclude that the average consumer in Hurstville is saving money
on their groceries this week over what they were paying two weeks ago because of that unit
pricing? I would not have thought so.
Senator JOYCE—So what is the answer?
Mr Cummings—As I said, Senator, I think it is a whole pile of different things. I think it is
more effective trade practices law, some things that we have been calling for over the years—
stronger predatory pricing, activity by the ACCC, creeping acquisitions, transparency in pricing.
I agree 100 per cent with transparency in pricing. We argued at the grocery inquiry that
transparency of pricing needs to go not only from the shelf but all the way down to the farmer. I
cannot today explain why farmers in Australia, if it is raining, get something like $2,000 a tonne
for rice and I retail it for $28,000 a tonne. I do not know the answer to it.
Senator JOYCE—Or why the price of milk at the shelf is not going down but the price for
milk that the farmer is receiving is certainly going down. That is the next inquiry we have got, I
think.
Mr Cummings—If you look at milk as an example and you look at house brand milk, the
reality is—and we have spoken about these figures time and time again—that, of the available
gross margin on milk, something like 78 per cent of it is available to the retailer and only two per
cent of the available margin is available to the farmer. And that is just wrong.
Senator JOYCE—That obviously is wrong. By far and away, the farmer is doing the most
work. They are kicking themselves out of bed at half past three in the morning to go milk the
damn cows and then doing it again in the afternoon 365 days of the year. What is the answer? Do
the farmers just end up militant like they are in Europe and just start blockading things and
shutting down production?
Mr Cummings—I have said for some time that some people think that the way to solve this is
to buy powdered milk from Brazil, take it up to China, hydrate it and bring it down here as UHT
milk to put on your ‘cornies’ tomorrow morning.
Senator JOYCE—With melamine in it!
Mr Cummings—Yes.
Senator JOYCE—And kill a few people. Obviously once we do that, we would lose food
sovereignty and, as a nation, we would be terribly exposed. That would never be politically
palatable—or it would be until there was a period of crisis and then, as food production shuts
down and people start being unable to afford the food in their shopping trolley, you would really
have a political breakout which you would probably never have seen before in the country, as in
the nation.
I will raise one other question. Prior witnesses have put to us the involvement of Metcash with
independent groceries, saying that this is another form of the monopoly wholesaler and that this
is another problem. I know you have an association with them, so I will put it on the table: what
are your views on that?
Mr Cummings—The reality is that I have only one place that I can buy Heinz baked beans
from in Western Australia, and that is from that warehouse. The warehouse used to be owned by
a company called Foodland, and it was taken over by Metcash. I am not a shareholder of
Metcash and never have been. I was not a shareholder of Foodland. Quite frankly, I could not
care who owns it. Obviously, at the end of the day, I will do whatever I can to buy baked beans
from the cheapest place and the most convenient place that I can get to. Because of the scale that
those wholesale operations have to work in, I would not have thought that it would be in
Metcash’s interest to have poor simple retailers like me trying to sell baked beans at $2.50 a can
if Coles and Woolies are selling them at $1.59. So there is competitive pressure put on that to
make sure that we are all selling around the same price.
Mr Henrick—Back in the early nineties, there was at least one wholesaler in each state. Over
the period of the next decade or so, they were consolidated into the one company that now
exists, Metcash. All of those acquisitions and mergers were approved by the ACCC.
Senator JOYCE—Yes. We are trying to find something that the ACCC will not approve. At
the start of your evidence you talked about your budget and how much you spend on advertising
a year. It makes the statement that you are prepared to invest for the consumer to know what the
price is, because you believe that that attracts them to the store. But then you also said that
no-one has approached you about reintroducing the website. If it is pertinent that the consumer
wants to know the price prior to purchase—they want to be pre-informed of the price—then
surely an effective website would be able to do that.
Mr Cummings—I concede that. The reason that we engaged in conversations with CHOICE
was that some of the things that they were proposing seemed to make sense. Maybe there is a
place in the marketplace for a website that can achieve those sorts of things. Our point was that,
at the time, it could not achieve those things because the information they were asking for
simply did not exist.
Senator JOYCE—Couldn’t we have a website which says, ‘These are the best deals of the
stores in your area right now,’ and everybody submits to that? You put in what you think are your
50 most attractive deals on consumer items and allow people, as they do everywhere else, to
click on the items that make up the basket of goods and then they can compare the items they
want on line. You could be given even more latitude with a basket of goods that is not
regimented. You could put your best 100 priced items on the site, but you would have to give a
guarantee that when the person goes down to the store they can buy them at that price.
Mr Cummings—Certainly, which is why one of the suggestions was that weekly specials
would be put on that website. But, again, I think the majority of consumers perfectly understand
that, if Cadbury’s block chocolate is available in one of those supermarkets this week at a special
price of $2.49, it will be available in the next one the week after and, in the next one, the week
after that. That is the way the rotation of weekly specials goes.
Senator JOYCE—In retailing groceries, what brings people in the door? What is your
standard-bearer as a price? Is it the price of a litre or two litres of milk or the price of a kilo of
bananas? What do you think are big ones? To be honest, I have never actually gone shopping for
Cadbury chocolate. I might, if my kids are with me, end up picking up a block—
CHAIR—I bet you buy bananas, though.
Senator JOYCE—Yes, bananas. I will go in for milk, eggs, bananas, spuds, tomatoes, mince
and pasta—that sort of stuff.
Mr Cummings—The independent sector, rightly or wrongly, believes that milk and bread are
two of the driving factors. I doubt if you would find many independent stores around Australia
that did not have the cheapest milk and bread on their offer, especially if they were a large,
successful store. And then there are the obvious things. Coke is still a big drawcard for people,
and things like that. The way that the industry works is that we pick a whole basket of goods that
we think contains the key indicators that people will take. One of those key indicators is, of
course, Kraft Vegemite.
CHAIR—It has gone up in price recently.
Mr Cummings—Absolutely. We make 4.9 per cent gross margin on Kraft Vegemite because
we sell it at a very low price. It costs us about 18 per cent to run our business. You do not have to
be Einstein to figure out that if all we sold was Kraft Vegemite we would be broke in a very
short period of time.
Senator JOYCE—This is all about getting a better deal for consumers. You have said, and I
support this, ‘The more competition in the marketplace the better the marketplace is.’ Major
retailers are into insurance in a big way. We had evidence today of Tesco being in real estate and
legal services overseas. That will arrive here in Australia. They have already made the move into
the white-collar section of the marketplace and service delivery. When people decide to crosssubsidise
in your area and use the weight and power they have, not just from groceries but from
alcohol, gaming, cigarettes, low-line pharmacy goods—even though they cannot sell high-line
pharmacy goods—insurance, real estate and everything else, how will you survive when they
say, ‘We’ll just use this as a mechanism to sit around your thing and geographically price
discriminate until you go broke’?
Mr Cummings—That is our concern. Those large organisations go into those markets with
only one objective: to have 100 per cent of the market. They do not go in there to be satisfied
with 10 or 20 per cent of the market. That is where successful regulation has to play a role in
putting some sort of cap on this area. I notice that the word ‘divestiture’ has been mentioned
today, but nobody has ever had the political will to tackle that question.
Senator JOYCE—You will be happy to know that the National Party has divestiture as its
policy platform.
Mr Cummings—I understand that.
Senator JOYCE—Do you think that there is a political power associated with the major
supermarkets that covers off a lot of these issues in Canberra?
Mr Cummings—No, I do not. I think they, just like a huge giant, are hard to feed. They are a
bulldozer. Once they start, you cannot stop them; they just keep on going ahead. The other thing
we have to understand as independent business people—and I am not unique in this regard—is
that every dollar I have is invested in my business. It is not a part-time thing for me; it is
completely there. If the business I own does not make a dollar this week, guess what? I do not
take home anything. For Coles and Woolworths, if one of their stores does not make a dollar this
week, who cares? If one of their stores loses this week, who cares? They just make it up
somewhere else.
Senator JOYCE—Do you have evidence that, where independents do not exist—as you are
representing the independents—the price is higher than where independents are?
Mr Cummings—Yes. We would argue that in a lot of instances—and we put this to the
grocery inquiry—Coles and Woolworths tend to market share in preference to competing when
they are in the same area. I guess you can understand that. If one of them tried to sell the
cheapest bread, they would both end up selling bread for 1c.
Senator JOYCE—You were talking about how you are annoyed and that it had been reported
to you that a person in your store was taking down information. You also gave evidence about
how it became obvious that one of the things they were interested in was 750g of Weet-Bix. That
is the picking up of information. You have obviously ascertained some reason of competence or
otherwise in the actions of that person. If I were paying the contract for that person to go out and
source that information, should check what he is doing once in a blue moon?
Mr Cummings—If it were my money, I would be.
Senator JOYCE—Do you think you could totally rely on working out the capacity of that
person’s job, how he was doing his job and how he was spending the public’s money, if all you
ever did was a desk analysis of what he did?
Mr Cummings—I can answer that in this way: in our business, if I give one of our staff the
task of doing pricing, putting up tickets and checking things, if I do not take the time to walk
around and see how it was performed—whether it was done in a timely fashion and correctly—I
am a mug.
Senator JOYCE—Most people would agree with you totally. If you do not do some quality
control of the work that you are paying for, then you will pretty soon find that you are paying for
nothing. Thank you very much that.