Woolworths and Coles are making a land grab for smaller, corner stores, in the centre of the nation's capital cities, taking on 7-Eleven and other convenience-style operators.
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The trigger is the increase in city-based population and associated rise of office-block conversions to apartments where space is not available for traditional supermarkets.
In Sydney, for example, Woolworths is trying to snare sites of 200-400 square metres that will take on 7-Eleven and City Convenience as they see big growth in this area.
A Woolworths spokesman said: "We have a small number of smaller format supermarkets that are designed to best meet the needs of the local community."
The push comes as Australian Competition and Consumer Commission chairman Rod Sims said the regulator would not push supermarkets to divest assets despite a stern warning from former Woolworths liquor executive Tony Leon that the supermarket's liquor operations had become far too powerful.
Despite persistent complaints by suppliers about misuse of market power, Mr Sims said the regulator did not, and should not, have powers to break up companies.
The initial branding for Woolworths' corner store push is "Woolworths Small Format" and it is starting in Sydney and Melbourne.
The stores will offer a limited range of products, and will be feeder stores to the medium-line Woolies Metro stores, such as the one in Melbourne's Southern Cross Station.
Agents have said the retailers are sending their own property specialists to walk the streets for locations.
Woolworths already has a smaller-format store in Crown Street, Woolloomooloo, which will be used as the template for the concept.
According to the leasing agents, the supermarket operators see it as a major growth area.
It is expected that as more people opt to live in the city, convenience stores and supermarkets will also look to offer lockers, to store goods bought on the internet – as has happened in the US – with a trial under way between Ebay and 7-Eleven stores.
Woolworths has lodged a development application for a site close to Sydney's Central railway station and plans to offer a wide range of products to cater for the new apartments in the area.
"We understand Woolworths are looking through us and others at a lot of sites in the CBD," said Leif Olson, director of retail services at CBRE.
He said the permit application lodged with the City of Sydney, showed the Surry Hills store would and include a two-level supermarket and internal cafe.
It would operate 24 hours, seven days a week.
Coles are also said to be looking at a different business model to compete and offer supermarkets in and near the new apartments being built in all capital cities.
Woolworths pioneered smaller, city-based supermarkets. The rent paid for the smaller stores is traditionally much higher, but Woolworths and Coles will use their muscle to try to renegotiate smaller rents but over long-term leases.
Mr Leon, the mastermind behind Woolworths' successful Dan Murphy's chain and who has also worked at Coles in the liquor division, told Fairfax Media on Saturday that Woolworths had too much power in the liquor industry and ACCC intervention could be warranted.
Mr Sims said the regulator might need to look at Mr Leon's concerns.
"I agree that when someone of that stature and knowledge of the market makes those comments it's something that we may need to look at," Mr Sims said.
But he said the ACCC already had powers to deal with misuse of market power and did not think the regulator should be given rights to break up company assets.
"It's such a big step [forced divestment] to take that I think it's too big a step to take in my personal view," he said.
"Obviously it is a policy issue for governments to think about that but as a person who would be part of an organisation that would have to make that decision I think it's too big a decision for a regulator to make."
A Woolworths spokesman would not comment on the views of a competitor but said liquor retailing was a "very competitive market". "Customers enjoy the low prices, range and convenience Dan Murphy's and BWS provide. We intend to continue to do that," he said.
Australian National Retailers Association acting chief executive Rob Hadler said the ACCC had sufficient powers to manage the behaviour of the big supermarket retailers.
The Harper review of competition law interim report did not support changes to divestiture powers.
SMH
