Australian supermarkets need more competition, but would government stores actually work? Allan Fels examines the Green Institute's proposal for a nationwide chain of government supermarkets, arguing that while the problem is genuine, the solution is doubtful.
The Proposal and Its Rationale
The Green Institute, the research arm of the Greens party, has proposed establishing a nationwide chain of government supermarkets. The proposal arises from a genuine problem, but whether it offers a feasible solution is doubtful.
The retail groceries market is less than fully competitive. Coles and Woolworths account for about two-thirds of national supermarket grocery sales, while Aldi accounts for about 9%, and other supermarkets even less. In this concentrated environment, consumers struggle with high grocery prices, and farmers and other suppliers complain that a lack of bargaining power leaves them short-changed.
The Cost and Scale of the Plan
Max Chandler-Mather, the executive director of the Green Institute and a former MP, said it was “common sense” that affordable prices on essentials require public ownership, comparing the publicly owned supermarkets to Medicare and public schools.
The Green Institute claims establishing 624 supermarkets and 13 distribution centres through new construction and acquisition of existing stores would cost $25.1bn over five years, after which revenue would make them cost-neutral. The new chain would have about 20% of market share; still below that of Woolworths and Coles, but significantly more than other competitors.
Challenges and Risks
A government supermarket would have to compete not merely on price, but on quality, convenience, range and reliability. Most Australians are accustomed to large stores carrying tens of thousands of products, fresh food year-round, home delivery and sophisticated online services. Replicating that is no small undertaking.
Government ownership could also disguise the true economics. A public supermarket might charge lower prices because taxpayers provided its capital, subsidised its premises or covered operating losses. Consumers might save $5 at the checkout while paying more indirectly through taxation.
Alternative Approaches and the Reality of Entry
There may be a stronger case for public intervention in remote communities where normal commercial supermarket provision is inadequate. But even there, a national government supermarket chain seems disproportionate. Targeted freight assistance and support for existing local stores or particular communities would probably be cheaper and more flexible.
The Greens would do better to strongly advocate for one of their established policies – introducing a divestiture power into competition law, enabling courts to break up large businesses that seriously breach the law. The only development that could realistically affect Australian supermarket competition would be entry of another large international group with the capital, technology, buying power and management expertise to compete seriously with Coles, Woolworths and Aldi.
Australia has already seen how difficult that is. The German supermarket giant Kaufland made extensive preparations to enter Australia, acquiring sites and committing substantial resources before abandoning the project in 2020 without opening a single store.
Australia may have to live with a supermarket industry that is less competitive than ideal for the foreseeable future. Establishing a taxpayer-funded national supermarket chain is unlikely to solve the underlying problem. Instead, it risks replacing concerns about supermarket profits with something just as troublesome: a large, never-ending bill for taxpayers.
