Independent grocers would struggle to compete in a market dominated by Coles and Woolworths without the backing of a larger network, an inquiry into supermarkets has been told.

Representatives from Metcash, which licenses the IGA brand, appeared before the Australian Competition and Consumer Commission’s inquiry into supermarkets on Thursday.

The commission is considering the company’s role as a major supplier to independent supermarkets and whether this could limit price competition because many had no cost-effective alternative.

Metcash told the inquiry it did not set retail prices, which a recent Choice analysis found were significantly higher at IGA stores than at major chains.

But some stores are more independent than others.

The company’s support ranged from providing a reliable supply chain, finding sites and operating three stores it owned, Metcash Foods chief executive Grant Ramage told the inquiry. 

Independent grocers are expected to buy from Metcash as long as prices are “competitive” and some retailers, provided with additional support beyond the standard terms, have agreements to buy specific products.

The company supplies about 70 per cent of groceries at IGA stores and helps plan promotions.

“Once that has been agreed, all stores are expected to implement those activities,” Mr Ramage said.

Stores are required to carry a “base range” everywhere but in NSW, where it is only “highly recommended”.

The range was driven by what shoppers expected to find, he said.

It would be more difficult for independent grocers to compete without the company, Metcash group chief executive Douglas Jones told the inquiry.

The company helped independent grocers take advantage of economies of scale and distribution networks and fostered competition by providing shoppers with choice.

“We do that across the country, in many instances in regional and remote areas,” Mr Jones said.

This occasionally extended to helping retailers secure sites by assisting negotiations or through sub-leasing arrangements.

Finding the right sites was key to competing with Coles and Woolworths, who could sustain lower returns for longer while opening new stores.

Landlords and developers were particularly attracted to getting one or both of the market-dominating supermarkets in their shopping centres, the inquiry was told. 

Metcash-supplied retailers account for about seven per cent of supermarket sales, compared to Coles and Woolworths’ combined two-thirds market share.

The consumer watchdog’s interim report found sales have been shrinking at Metcash-supplied independent grocers, while Aldi, Coles and Woolworths increased their footprints.

IGA stores across the nation outnumber all others but are typically smaller.

Woolworths, Coles and Aldi have introduced smaller-format stores in recent years and the commission is investigating whether that creates other barriers to independent entry.

Aldi representatives faced public hearings earlier in the week, while those from Woolworths and Coles will appear from Monday.

The ACCC’s final report is due in February.

The federal government has proposed changes to merger laws and a mandatory food and grocery code of conduct, carrying multimillion dollar penalties for serious breaches.

This post was originally published on Michael West.