25 July 2008
Former Australian Competition and Consumer Commission (ACCC) Chairman, Allan Fels has warned of the tragedy for consumers of town planning laws.
Professor Fels made his comments at an Urban Taskforce luncheon just a week before the ACCC finalises its report into competition in the grocery sector. He said one shopping centre owner had admitted at the ACCC that they were using the under-supply of supermarkets to drive up the rent.
Tackling the power of the retail landlords should be an important part of any reform recommended by the ACCC, he said.
Professor Fels said evidence before the ACCC revealed the restrictive mentality of shopping centre owners when it comes to securing anchor tenants such as supermarkets.
Franklins, Superbarn and Aldi rarely get a look in, he said.
Shopping centres go straight for the big two.
Whats more, smaller chains are prevented from opening down the road because of centres policy planning laws that concentrate major shopping centres in select areas banning or limiting competitors in surrounding suburbs.
Professor Fels said an Australia-wide study by the Bureau of Infrastructure and Regional Economics found that consumers without ready access to a major chain supermarket paid 17 per cent The Economist intelligence Unit cost of living survey found that mid-size stores charged an average of 22-39 per cent more than larger stores, such as supermarkets. Professor Fels said that planning laws were denying consumers access to these cheaper retail formats.
The National Charter of Integrated Land Use and Transport Planning was endorsed in 2003 by both Ministers for Transport and Ministers for Planning across Australia, he said.
The Charter emphasises that activity-intensive development should be concentrated in hubs, for the sake of efficient use of transport infrastructure.
While it is difficult to disagree with this proposition, the Charter omits some other important principles.
The Charter should have recognised the possibility that the transport infrastructure for existing hubs may reach capacity and that new hubs would be essential.
The charter should have recognised the need to ensure that there are enough hubs … and that hubs are large enough… to sustain a fully competitive market for goods and services.
If an existing retail outlet is doing a poor job of servicing consumers or is charging its tenants excessive rents then an entrepreneur should be free to establish a new competing retail outlet.
Even the threat of a new outlet can be effective in ensuring that incumbent retail property owners invest in their assets and keep costs down.
Professor Fels said that the push by planning authorities to reduce competition has been increasing rather than decreasing.
I am not necessarily fond of big retailers. In my time at the ACCC we successfully initiated action against Woolworths twice, securing many millions of dollars of fines.
We also got Coles fined many millions in one case and blocked a merger of Coles with Foodland.
However, this does not mean I favour legal restrictions on the creation of large format chain stores. They bring benefits to consumers even though they need scrutiny under the Trade Practices Act.
We must also question any regulation that might hinder efforts by new-entrant grocery chains such as Aldi … the IGA Supa stores…. to set up large format stores in competition with the dominant players.
Thats why the restrictions in town planning laws do not make sense.
None of this means we should not pay close attention to other retail competition issues.
But I believe that the biggest gains would come from looking at planning laws and their impact on competition. Tough federal and state action will be crucial if anything is to be done.
A copy of Professor Fel’s speech is available here.