A power struggle

Late last week, the Australian Competition and Consumer Commission called for submissions on whether or not it should allow supermarket giant Woolworths to buy the hardware wholesaler and retailer, Danks Group.

All of sudden, it’s power tools at 10 paces, with small independent hardware companies warning the competition watchdog that the deal will effectively kill them off.

The move is part of Woolworths’ push into the lucrative hardware market, currently dominated by Bunnings, which is owned by Wesfarmers, the same company that owns Coles.

Woollies is aiming to buy Danks (thus securing its supply chain) and then do a joint venture deal with US hardware retailer Lowes, which will provide the retail expertise.

But a group of small retailers represented by The Retail Association (one of the many retailer groups in this country) has hit back and want the deal blocked for two main reasons.

Firstly, there’s the issue of competing against what is likely to become a very powerful duopoly – not unlike that in the supermarket sector.

Secondly, there’s the issue of small independent hardware stores currently being supplied by Danks now having to buy goods from Woolworths – their big competitor.

The Retailers Association chief Scott Driscoll says these small retailers are worried that they might find themselves cut off from their supply chain.

“That means it’s goodnight nurse for your business if you don’t keep on their good side, but if this deal is allowed to go ahead it’s only a matter of time before the lights are switched off anyway,” Driscoll told The Australian.

There’s no doubt these comments have a touch of extra drama added for good measure, but Driscoll and his members certainly have a good point.

In the last few years, government’s and competition regulators have spent thousands of dollars and hours investigating and, in many cases, seeking to limit the power of Coles and Woolworths in the grocery sector.

Allowing the very same companies to establish a similarly powerful position in the hardware sector is not something that should happen without a lot of consideration – even if it will mean increased competition and probably lower prices for consumers.

The unique position of Danks as a wholesaler to small, independent stores makes this an ever bigger decision for Samuels and his team. These SMEs are right to speak out and Samuels must look at how their difficult position can be protected.