Coles and Woolworths dominate grocery sales in Australia. They are locked in a battle to compete in every suburb and existing stores are being enlarged and new stores regularly added to increase their marketing reach. These two behemoths now share about eighty percent of the grocery market.
Both organizations have even wider aspirations beyond groceries. They moved into the market for car fuels when they bought petrol stations and there has been a steady increase into other forms of merchandise. Both now compete in the hardware field with separate giant trade centres and it is evident that the battle now includes selling insurance. In particular, they are competing with low cost car insurance and the ever widening field of funeral insurance services.
Power begets power - and many deplore the methods used to monopolise the advantages they hold. They have been accused of selling deliberately at below cost to force butcher and greengrocer competitors out of shopping centres and using petrol discounts to disadvantage other competitors in the petrol trade.
This " Petrol docket " war has waged for a very long time - and the discount had reached ridiculous levels which are impossible within the petroleum price structure. The discount was geared to the value of grocery purchases and it became obvious that cross subsidies were involved. Government regulators became concerned that this was causing retail prices for groceries to be unfairly levied on those not using the petrol discount scheme.
The government stepped in and entered into an " arrangement " with both Coles and Woolworths. The maximum petrol discount would be pegged at 4 c a litre and it was accepted that this would be earned by a grocery purchase of $ 30. It seemed that peace had returned to the petrol price wars.
It was short lived. Coles stuck by this " gentleman's agreement " but Woolworths added an addendum which increased the price offer to 8 c a litre. The customers received 4 c a litre when they produced a sales receipt for $ 30 or more of grocery items - and a further 4 c a litre if they spent an additional $5 in the retail section of the petrol station.
It was a clever ploy. Grocery items are subject to discounts but the offerings in service stations are usually from the " impulse " buy category - and attract a higher profit markup. The government regulators called foul - and it was expected that this practice would cease.
A full page advertisement by Woolworths in daily newspapers this week seems to be a declaration of war. The twin 4 c discounts and their continuation are the subject of this advertisement and it seems a challenge - both to Coles and the regulators that Woolworths will not be hampered by government diktat.
Clearly - a challenge has been issued. Woolworths has both the will and the deep pockets to carry this all the way to the high court. The ball is now back in the governments court !
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