Too late, the trolley has bolted


In 1975 Woolies had 17.7 per cent of the branded grocery market, Coles spoke for 17.5 per cent, Franklins 4.8 per cent and a swathe of independents and state-based chains such as Jewell and Composite Buyers had the rest.
The two supermarket leviathans now control 80 per cent of the market – roughly 43 per cent for Woolies and 37 per cent for Coles – while the lads from Metcash are busy mopping up the independents.
As far as competition policy goes, you can shut the gate, the trolley has bolted. For groceries, as for shopping generally, Australians pay high prices compared with other people.
Back in the day, supermarkets used to be cheap. Now there is just Aldi, which is fair-dinkum cheap but has a frugal range so the average shopper has to top up at Woolies or Coles anyway and tends, therefore, to go straight to one of the biggies.
The matter of supermarket dominance was thrown into stark relief again this week when Adele Ferguson broke the story that the brewing giant Foster’s had ordered its trucks to stop supplying the duopoly after learning they were planning a blitz promotion to sell its beer below wholesale prices.
It was quite a feat of brinksmanship from Foster’s, seeing the chains account for half its customer base.
Should the milk wars extend into ales and lagers, the chains would trash the independent liquor stores.
Foster’s is big. If it had to resort to such draconian tactics to protect its brands from discounting what hope is there for the smaller suppliers?
Already, private labels (that is, supermarket home brands which compete with the suppliers’ brands) account for one quarter of Australia’s $70 billion grocery market. On IBISWorld numbers, private labels will make up 10 per cent of the wine market in two years’ time.
AS FAR as public institutions go, the gold standard for culture and governance in this country is the Reserve Bank. Yes, fair enough, Securency was somewhat of a slip-up. Nobody’s perfect.
But you won’t hear it being called Glenn Stevens’s Reserve Bank. The institution is bigger than the person.
However, a whip through the Future Fund press clippings, suggests the name David Murray had become fairly synonymous with the Future Fund, even dubbed David Murray’s Future Fund on at least one occasion.
To many, Murray was refreshingly outspoken. To many in Canberra though he was too outspoken. His remarks on the mining tax, banking reform and other controversies were embarrassing. And so it was that, just 12 days before the end of his term, the government announced his reappointment to chair the Future Fund – but for just one year.
It was the classic political compromise. Wayne Swan wanted him out. Penny Wong didn’t want the government to look pushy and so lobbied for one more year on the chairman’s term.
One insider reckons Murray’s most valuable skill was “feeding the chooks”; keeping the politicians and media at bay so management could get on with the job.
Some favourite moments:
“This goes against every fundamental concept in investing … it also sounds like the right thing to do”: uttered by Murray in response to yet another departure from industry standard practice.
Another memorable moment involved Trevor Rowe:
Rowe (unwittingly quoting Keynes): “But this proposal is pretty strange, and you know what they say – isn’t it better to fail conventionally than succeed unconventionally?
Employee: “Who said that, Trev”?
Rowe: “Some guy from Citi”.
No darn book learnin’ but a hardened corporate warrior.
In any case, David Murray had fed the chooks too often. The man loomed larger than the institution, and this at a sensitive time in the early development of Future Fund culture.
There is no doubting the performance of this $71 billion fund, the steward of public servants’ superannuation, has been admirable. Even weighed down by a huge chunk of Telstra stock, it has performed well. Indeed it started well. Fearing the sharemarket was overvalued, they sat tight on a mountain of cash in 2007, just before the market crashed.
What has not been reported is the radical nature of the Future Fund portfolio. Flying in the face of boilerplate industry conservatism, it comprises a hedge fund portfolio (15 per cent) – the largest of its kind in the world. There are no government bonds at all. The credit portfolio (15 per cent ) contains sub-prime CDOs, structured credit, leveraged loans, all bought on the cheap after the ravages of the financial meltdown. This is three times the typical credit allocation in super funds.
Meanwhile, Murray may well line up some directorships elsewhere, although word is he missed out on a non-executive director gig at BHP.
YOU have to hand it to John Kinghorn. Is this man canny, or what? At one hour to midnight he floats RAMS into the market in mid-2007. The stock promptly plunges as the credit market meltdown takes grip.
Then, with the shares trading for cents, he gets control of the RAMS rump, runs it up to 80¢ with promises of a share buy-back chock-full with juicy franking credits. Alac! There is a hitch – the buy-back deal has a proposal to delist the shares attached – despite it being a nice liquid trading stock with $1.15 a share in cash and a $4 billion mortgage book in run-off. And at 88¢ the offer is way below NTA.
Kingo is doing what Kerry Stokes has done all his life: using company money to increase his stake. Thanks to a complicated structure, if he gets one-third of minority shareholders off his back he can lift NTA from $1.40 to $1.70 a share. But shareholders are angry. There is a tight timetable to oppose the deal. They don’t want to be locked in with Kingo in an illiquid stock with no disclosure requirements. The dogs are barking. Stay tuned for some action next week.

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