Graham Samuel & ACCC: A toothless and friendly watchdog!

My previous post on Woolworths acquisition of Macro stores and their conversion to "Thomas Dux" has attracted an excellent response amongst readers interested in retailing issues. Voting on the Web Poll is open until October 31st.

I would like to present this post as a sumpplement to the Thomas Dux, and quot from a AFR article titled: (Sat 24th Oct 2009, page 13)

"Can Woolworths become too big for AAA?"

Based on the figures quoted in the article, the clear answer is A big "No!"

The Chairman of ACCC, Graham Samuel's persistent dismissal of lessening of competition and misuse of market power by the two retailing giants in Australia (Woolworths & Wesfarmers) is no longer surprising anyone familiar with his track record at ACCC.

In the past three years, ACCC has scrutinised 40 acquisitions by Woolworths & has given the go ahead in 38 out of the 40 acquisitions! These included Supermarkets, Liquor Stores, Discount Stores & Organic Food Stores (see my previous post).

Of course, ACCC grants an approval once it determines there will be no lessening of competition as a result of an acquisition. For example, ACCC is of the opinion that Woolworths will increase competition by entering the big box hardware market to directly compete with Bunnings (Wesfarmers owns Coles & Bunnings) because Bunnings currently controls aaround 50% of the hardware Retail Sales in Australia & has no direct big box competitor. At the same time, ACCC is investigating the proposed $88m acquisition of hardware Wholesaler Danks by Woolworths. Danks supplies to 1500 independently owned hardware stores in Australia.

However, most small business observers almost take it for granted that whilst Graham Samuel is at the helm of ACCC most such acquisitions will be approved. Samuel & ACCC claim the perception is due to the fact that most armchair critics (such as myself) do not understand the scope of various sections of the Trade Practices Act. Whilst this is undoubtedly true, it does seem that ACCC puts more emphasise on protecting competition than worrying about misuse of market power of major players in the future or the potential lessening of competition & price rises as a result of formation of virtual duopolies in most markets in Australia.

For example, does ACCC worry about the medium to long term lessening of competition when many smaller hardware stores go out of business as a result of direct competition with two big box operators?

A brief look at the following details demonstrates why Graham Samuel & ACCCC have such difficulty convincing Small Business of their effectiveness:

• Woolworths intends to open 150 large box hardware stores to compete with Bunnings. At the same time, it also intends to control wholesale supply to 1500 small independent hardware stores.


• Last fiscal year Woolworths opened 25 new Supermarkets, 77 Liquor Stores, 51 Consumer Electronic Stores (Dick Smith)


• 138 Stores were refurbished (refer to my blog post on Consumer Shopping Experience)


• The new Qantas affiliated Customer Loyalty Program is estimated to raise sales by 1% or approximately $370m in teh first year.


• Amongst many brands Woolworths owns: Woolworths & Safeway Supermarkets, Pay4Less Supermarkets, Big W, Woolworths Liquor, Dan Murphy's, BWS Liquor, Dick Smith & Tandy Electronics (being converted to Dick Smith), Thomas Dux Grocer, Woolworths Petrol Stations & their Retail shops,
• It will be interesting to see what the medium to long term effect of Woolworths foray into the big box hardware market will be and whether it results in lower prices and/or increased competition, or the usual duopoly and subsequent increase in prices as observed previously in case of Supermarkets, Discount Variety Stores, Petrol &; Liquor.
  

Regardless of the outcome one thing is almost certain: If Graham Samuel is still around by then, he will find a way of justifying his toothless and friendly dealings with the big players!

Blog Poll: Should Thomas Dux Grocer customers be told that all Thomas Dux stores are fully owned & operated by Woolworths?

Please read this post with your "Consumer Hat" on, and answer the following Blog Poll on the right column afterwards:
 
Should consumers be explicity told that Thomas Dux Stores are fully owned & operated by Woolworths?

If you wish to add your comments please use the comment section at the end of the post.


In May this year, Woolworths bought Macro Wholefoods, an organic food supermarket chain of 9 stores for a repoted $30m from Brett Blundy's Retail Group, which had previously sunk millions of dollars into the stores and was happy to sell its loss making venture to Woolworths (although this was denied by co owner Pierce Cody)


As reported at the time in the financial media, Woolworths were interested in Macro stores for two primary reasons:

1. Macro had more than 100 organic private label products.
2. The acquisition of the 9 Macro stores would fast track Woolworths' entry to the high margin upmarket gourmet food market as the stores would be rebranded under the newly established "Thomas Dux Grocer" division of Woolworths. Thomas Dux was already operating and would have 11 stores in Sydney & Melbourne after the rebranding of the 9 Macro stores.

Macro wholefoods was the first large scale attempt by any food retailer in Australia to duplicate the likes of the impressive"Whole Foods Market" chain in the USA. These business models attempt to sell high quality organic and/or naturally grown fresh & packaged food products at higher margins.

Macro's business model did not manage to achieve the widespread reputation or get close to the high benchmark standrads of the "Whole Foods Market" and as mentioned earlier was rumoured to have always been a loss making venture for the astude Brett Blundy (in partnership with the founder Pierce Cody).

Woolworths have always been wary of the commercial fragility of a purely organic products based food retailing business model in Australia. Generally speaking, there is an immediate & direct negative effect on retail sales of organic food products when there is pressure on discretionary income.

Therefore the "Thomas Dux Grocer" employs a different business strategy altogether. On the official website, thomasdux.com the stores are promoted as being all about rediscovering all that is good & exciting about food, with fresh fruits, vegetables & deli products as well as speciality foods from around the globe.

The Thomas Dux format has the potential to introduce an innovative, exciting & much needed retailing format to the deprived consumers in Australia (compared to the USA), and it will most probably thrive considering that the business model has been designed & implemented by Woolworths, the most capable food retailer in Australia.

Nevertheless, there are certain aspects of the way the brand is being promoted which are rather disturbing.

Thomas Dux Grocer is being promoted to consumers as (quoted from the official website & full page ads in local papers):

"We're the local store: it's the place for people who love good food to shop every day. It's a meeting place that reflects the communities we serve. .....................Thomas Dux is about being 'just around the corner'."

The wording of the description of the business on the website, and design & wording of the advertisement in the local papers the emphasis on the "Local" aspect of the business are cunningly structured to promote the business and give the impression that Thomas Dux Grocer is like a "Small local family owned start up that is now expanding!". Not surprisingly, there is no mention of "Woolworths" in any of the promotions, on the website or (I suspect, although I am yet to inspect the stores closely) at any of the stores.


I acknowledge that not promoting or revealing the parent company is not an unusal business practice, is not necessarily a deceptive or misleading practice and in fact occurs in many industries to various degrees.

In case of the Thomas Dux stores, it is the "local, small, family feel" aspect of the promotional strategy that I take exception to.

Whilst I am sure Graham "Woolworths(!) Practices Act" & ACCC would not see any contravention of the relevant sections of the Trade Practices Act with the issue in my point, I am still of the opinion that the public must be informed when a local "Small Business" they shop at and perceive as an independent operator is in fact owned by a giant corporation with a massive market share and influence. I have also made this point about the many bottle shops and pubs that are owned by Woolworths & Coles (Westfarmers) in the past.

But none of the cases have seemed to be as belatently veiled as the Thomas Dux.

In many instances, consumers continue to support small local (& family owned) businesses even though they (at times incorrectly) perceive theses businesses as being more expensive to shop at compared to larger operators.

The Thomas Dux model & image fits both of the above. It looks like a local small business start up that is expanding, and it is more expensive than many other outlets with a similar or competing offer.
The Thomas Dux model & image fits both of the above. It looks like a local small business start up that is expanding, and it is more expensive than many other outlets with a similar or competing offer.

The dilemma is this: When giant retailers open small store formats in high streets in neighbourhoods under the pretence of "Local Store", should their customers be informed of the fact that for e.g. that in case of Thomas Dux Stores in Australia, they are in fact dealing with a major corporation with substantial marketpower as the parent company and the full owner of the business & not a small business operator?