By Byron Kaye

SYDNEY (Reuters)

Australia’s two dominant grocery chains, Woolworths and Coles, have expressed interest in over 150 unrealized development sites, leading the antitrust regulator to investigate potential “land banking” practices that may harm competition in the grocery sector.

The Australian Competition and Consumer Commission (ACCC) stated in an interim report that Woolworths and Coles, which control two-thirds of Australia’s grocery sales, are effectively operating as an oligopoly. The investigation focuses on how their control over supermarket real estate affects competition.

Concerns were raised by market participants that the grocery giants might be buying land to prevent competitors from acquiring it, thereby creating barriers to entry and expansion. The ACCC’s final report is expected in February 2025.

This inquiry into land banking occurs amidst ongoing public and regulatory scrutiny faced by the two companies during a period of rising energy, mortgage, and food costs.

The federal government plans to introduce a mandatory code of conduct to dictate how large grocery retailers treat suppliers, while the ACCC has also sued both companies for allegedly raising prices to entice shoppers with misleading discounts.

Woolworths and Coles noted that they may hold land for extended periods due to challenges like obtaining planning permissions and delays in construction, according to the regulator.

In a statement, Woolworths indicated it would review the ACCC’s report and respond in the following months. While the ACCC has not yet confirmed whether land banking is prevalent in the sector, it plans to investigate the issue further as it compiles its final report.

According to the regulator, land banking occurs when supermarkets buy land without a genuine intention to develop it promptly or to hinder competitors’ development efforts.

Woolworths holds interests in 110 sites for future supermarket use, while Coles has interests in 42. In comparison, ALDI, Australia’s third-largest grocer, has 9% of the grocery market and only 13 prospective sites.

The interim report suggests that Coles and Woolworths have competitive advantages in acquiring new sites due to being attractive tenants and their financial capability to outbid potential competitors, raising concerns about the implications for smaller, independent supermarkets.