It’s the planning, stupid - Part 2: Supermarket Competition.
Why Kaufland failed in Australia but succeeded in Moldova
Too much media attention surrounding the recent ACCC supermarket inquiry focused on flimsy arguments around landbanking and ignoring how the planning system limits competition by creating an artificial scarcity of land zoned for supermarkets. The ACCC’s final report found that ‘planning and zoning laws restrict overall supply’, likely impacting competition to a significant degree.
Each of the major supermarket chains are often harmed by this planning system in the form of costly delays and planning rejection. But simultaneously they wield the obstructive power of the planning system against their competition. This is arguably to the benefit of the larger incumbents who can more afford to fight expensive legal battles against NIMBY’s and each other.
Kaufland exited Australia in January 2020 after burning through $500m without even opening a single store. That same year they continued their successful launch into Moldova , a growth area, where they are seeking to have 250 stores in Romania and Moldova by 2030. In 2015 just before they starting planning to expand in Australia, Schwarz Group ( which owns Lidl and Kaufland) was the fourth largest supermarket chain by revenue in the world.
What stops new entrants?
‘More so than any other country in which it does business, Aldi has found the challenge of securing appropriate property holdings in Australia the single most significant brake on its expansion’ - Competition Policy Review Final Report March 2015 (pg125)
Kaufland planned to open stores in 2019 but due to lengthy planning delays, even with a “streamlined” process announced by Victorian Planning Minister Richard Wynne which set up a special planning panel to permit 6 initial Kaufland proposals. This “streamlining” was slow enough that Kaufland exited the Australian market after its initial opening date but before many applications were decided. Yet even still the Master Grocers Association in response had begun its “Save our Shops” campaign against Kaufland and the streamlining process.
An incredibly prescient Sydney Morning Herald article from March 2017 was written by Simon Johanson when Kaufland first unveiled its Australian website. He noted that their “ambitious plans face daunting planning restrictions and a lack of available sites, particularly in NSW.” A retail expert from Colliers correctly predicted that “any retail brand entering Australia's market with such a large footprint would struggle to find prime locations.” They stated that the larger Kaufland stores “will be well above the current 1800 square-metre "as of right" limit for supermarkets in Commercial 2-zoned locations in Victoria” and a CBRE head said that NSW would be even trickier.
Proved Correct
(Kaufland Stores in Victoria Advisory Committee - Report 2 (AC) [2019] PPV 27 (3 May 2019))
At the planning panel for proposed centres in Coolaroo, Mornington and Oakleigh South, numerous commercial rivals took the opportunity to engage in anti-competitive planning opportunism. Vicinity Centres, A major REIT which invested in shopping centres, “argued that the sites under review were inappropriate for many reasons, and that there were more appropriate sites in and around various activity centres”. Kaufland which aimed to build standalone stores not apart of existing shopping centres (similar to Costco stores) was a direct threat to Vicinity’s investments, as a new supermarket competitor dragging market share from Coles and Woolworth stores in Vicinity shopping centres would hurt their business. The planning panel even shows how Kaufland spurned Vicinity’s offer to secure locations for them. “Vicinity Centres extended an invitation for Kaufland to engage with them, or other land holders, to secure appropriate in-centre locations” and after Kaufland declined they sought to block them, legally, through the planning process!
Other blatantly anti-competitive objections were made by multiple members of the Master Grocers Association who complained Kaufland’s permits were given a “back door”. Also “The Mt Eliza Chamber of Commerce questioned “why should this absolutely massive development be exempt for the normal and accepted processes … especially as it is our local Council and Council officers who know the local area inside out?”. Small businesses often have great weight in council objections due to their involvement with community events and their incumbency gives themselves relationships with local decision-makers.
“Mornington Peninsula itself (The Council) published a flyer that encouraged residents to object to this matter. Despite the fact that the flyer had many incorrect statements, it appeared to have been distributed widely.” The council also sought a further change to the hours of operation so that the supermarket could not trade beyond 10.00pm. The council would later celebrate the rejection of the Mornington store on Facebook.
The Mornington site on the Bata Shoe Company’s land was opposed by the Aventus Group who own the Peninsula Home Homemakers Centre literally 200m away. Kaufland, like Costco, sells a major range of homewares and furniture so this was a significant competitive threat. The “Mt Eliza and Mornington Chambers of Commerce noted that many of its member businesses are small family owned operations that would be hurt by the impact of Kaufland”. Again, this is not an argument against competition!! Also many of the businesses threatened here are giant companies. JB Hi-Fi has a market capitalisation of over $10B, Bunnings is owned by Wesfarmers!
“Newpac Investment Group, owner of the Mornington Village Shopping Centre, opposed the proposal and submitted that it had the potential to significantly undermine the Mornington Activity Centre”, coincidentally also where their investment sits.
Despite the panel even disagreeing with council and the biased retail competition, believing it unlikely that “much harm” would come to existing retailers, the panel still recommended that the draft amendment be abandoned, on built form and traffic concerns.
Coolaroo
The Coolaroo store proposed at the same planning panel was seeking to build where an old Masters site had been. Despite this, they still needed planning permission for a supermarket as it was over 1800sqm. While Hume council usually “does not support out-of-centre development proposals” it did support this specific proposal noting how if built, it “will offer competition to existing supermarkets operating in the Roxburgh Park and Broadmeadows shopping centres.” Kudos to Hume for specifying the competitive benefit!!
Hilariously after the panel quotes the competition to existing centres, Vicinity which owns the Roxburgh Village Shopping Centre within the Activity Zone, argued that the Kaufland here should also be rejected due to not being in the Activity Zone. They even showed their own self interest quoted as saying that the “approval of the Kaufland store in the proposed location will “reduce investability in the Roxburgh Park MAC by reducing turnover in supermarkets”. Or in other words, less retailers will pay high rents in our supermarkets if foot-traffic and turnover is lower in our nearby shopping centre! They even stated that further competition is not important as Vicinity “concluded that the retail trade sector has become more competitive in recent times and as such there is a compelling argument that introducing further competition is not a high economic priority.”
Morgan’s IGA submitted that if the Kaufland at Coolaroo proceeds, “it will severely impact the Meadow Heights shopping centre … (and) that the IGA and the smaller shops it supports will become unstainable”. IGA doesn’t know the word unsustainable apparently. Ironically the typo means that they wrote that the IGA will become morally reprehensible!! Economic impact assessments should not occur or consider the potential profitability of existing small businesses. More competition should reduce profitability and creative destruction requires that inefficient retailers that customers don’t support with their wallet, should not be propped up in vague wider community interest concerns.
Woolworths’ expensive lawyers v Coles’ expensive lawyers
(Fabcot v Whittlesea CC 2014 VCAT 600)
Fabcot (Woolworths’ property development arm) went to VCAT to stop a Coles anchored shopping centre complex being built across the road from a Fabcot owned plot of land with an existing permit in 2014.
Spoiling the outcome but Mernda Woolworths with Coles sign on the distant right in 2023
Fabcot successfully argued at VCAT that the Coles location was unsuitable for a supermarket despite being diagonal from the ‘suitable’ Woolworths location as a supermarket location there wasn’t in accordance with Whittlesea’s Mernda Town Centre Comprehensive Development Plan. Then planning minister Matthew Guy had to use his call in power to effectively overrule the VCAT decision.
On a side note it feels a little ridiculous to have multi-billion dollar corporations with duelling QC’s for a VCAT hearing. VCAT was intended as a body to reduce the cost, delays and need for lawyers for settling legal disputes.
So this doesn’t drag on
I have literally dozens more examples of this. You can just search Fabcot, Coles or Supermarket in Austlii and find hundreds of these examples. Fabcot Pty Ltd v Maribyrnong CC [2025] VCAT 378 (5 May 2025) was a more recent example that YIMBY Melbourne covered.
The takeaway is that we shouldn’t allow multibillion dollar corporations like Vicinity Centres, Coles or Woolworths to legally block competition through planning. This is not a panacea though as small retailers, councils and NIMBY’s also abuse the planning process to prevent change even at the cost of higher grocery prices or more choice. Supermarkets are also necessary for housing. People won’t want to live in higher density if there aren’t necessary services like supermarkets. Even NIMBY’s agree.
So please legalise grocery stores so that we don’t have to read another 5 years worth of dumb landbanking articles.
Thanks for reading and the nice compliments people have told me!
"More competition should reduce profitability and creative destruction requires that inefficient retailers that customers don’t support with their wallet, should not be propped up in vague wider community interest concerns."
Banger again. The power they have is outrageous.