Coles (ASX: WES) and Woolworths (ASX: WOW) have been operating under the watchful eye of the ACCC for many years now. Ever since their petrol discount schemes began, the two supermarket giants have been the subject of many complaints from small business owners who felt that the chains were establishing a monopoly and forcing out competitors.
Coles and Woolworths have faced similar complaints from farmers and suppliers who feel that the giants are using their market power to maximize the sales of their in-house product lines and control the prices farmers are paid for their produce. Earlier this year, the Australian Competition and Consumer Commission (ACCC) stepped in to investigate allegations of the bullying of suppliers and use of market power for anticompetitive purposes.
The ACCC has a long history of interactions with the supermarket chains, however it has largely shied away from the big issues such as petrol discounts and the abuse of market power by Coles and Woolworths. The ACCC has always declared that it did not believe the fuel discount schemes were 'anticompetitive'.
Perhaps the numbers of complaints against the supermarkets have reached a tipping point because, despite the completion of a voluntary code of conduct created by the supermarkets over the last 18 months, the ACCC has announced its intention to continue with the investigation.
It is difficult to see what sort of adverse impact the investigation will have on Coles and Woolworths at this point as the ACCC has a very poor record at demanding significant penalties for unconscionable or anticompetitive conduct. Previous violations have resulted in $11.75 million in fines for anticompetitive conduct in the liquor industry (fines were split between Woolworths and Liquorland, owned by Wesfarmers), while a second finding regarding restrictive lease agreements still allowed the ~148 restrictive agreements to continue for another five years from the conclusion of the investigation.
Foolish takeaway
There is no cause to worry for shareholders at the moment. The ACCC has been described as a 'toothless tiger' for about as many years as it has been interacting with the supermarkets. Previous penalties are pocket change to these ASX 50 companies, and the likelihood of stronger penalties being imposed is quite small given the financial backing available to Coles/Woolworths legal teams and the difficulties faced by the ACCC in proving 'unconscionable conduct' (a vague, morality-based judgement) has occurred.
