‘Muddying the waters’ is one of the cleverer and more effective tools deployed by public relations advisers.
The method involves creating a distraction, and one so good that even though everyone knows that a distraction is being deployed, there is no obvious way to put that distraction aside and get back to the main issue. Once seen or heard, it can’t be unseen or unheard.
A recent example of this strategy is undertaken by Woolworths. When faced with recommendations by former ALP Minister Craig Emerson to make the Grocery Code of Conduct mandatory and bolstered with stiff fines for breaches, the supermarket chain said they welcomed it, but, and here is the mud to discolour the water, it should apply also to others like Chemist Warehouse and Bunnings.
Woolworths is under investigation because of a public outcry over the alleged anomalous pricing of certain product lines in recent years. For example, even though wholesale prices of beef and lamb had fallen in late 2023 and early 2024, these reductions were not reflected in prices on the supermarket shelves. Similarly, customers felt that there was excessive pricing of fresh fruit and vegetables.
To my knowledge, Chemist Warehouse has not been exposed for excessive pricing, indeed its business model is one based on growing market share by selling goods at highly competitive prices.
Bunnings is more complicated, but it seems well trusted and appreciated by shoppers. As you’ve likely heard, it promises that if you find a competitor with a lower price they’ll beat that price by 10 per cent. It has come under some criticism from small suppliers who wanted better contract conditions, but generally it has a very high consumer trust level.
By accepting Emerson’s code recommendations, but then arguing the code should apply to these other businesses, Woolworths is engaged in classic muddying the waters tactics.
It is so effective as a strategy because one of the cardinal rules of public policy design is that regulatory rules should apply equally to all businesses that compete with one another. Because Woolworths sells cleaning products, they are competing with Bunnings in that product line.
Because Chemist Warehouse sells band-aids and toothbrushes, it too is competing with Woolworths because both carry these items on their shelves.
So, in arguing the Grocery Code should apply to these other businesses, Woolworths is leveraging a near consensus amongst policymakers that rules should apply equally. That’s why it is so effective.
It puts the Albanese government into this painful dilemma, do they discard sound regulatory design and insist the Grocery Code apply only to Coles and Woolworths?
Or do they take on the potential fight involved in expanding the scope – even to businesses that don’t deserve to be hit with a level of regulation and compliance?
Already suffering business disillusionment over industrial relations changes and soaring energy costs, my guess is that Albanese does not want to be seen applying more regulatory burden.
It could be argued that because the Grocery Code is not actual government regulation, the same principles of sound regulation development do not apply. However, any set of rules that constrains business autonomy, involves financial penalties and is essentially mandated by government has the same character as formal regulation, so sound principles should still govern their design and implementation.
Woolworth’s strategy will be effective in watering down or even killing momentum for Emerson’s recommendations. However, they have recommended a path that makes much more palatable the alternative recommendation to deal with supermarket market power – that of forced divestiture. This is being championed by the Greens and National Party.
Forcing divestiture of supermarket outlets means the problem of market power can be tackled at its source. While it is not costless, pricing power can be addressed without the cumbersome and dead hand of regulatory rules imposed across all large retailers like Bunnings and Chemist Warehouse.
Critics of forced divestiture will point to the fact that countries that have these powers rarely use them. They argue there may have been a case to break up Standard Oil in 1911, but that since then free markets have done a good job in constraining excessive pricing.
There is also a related argument that market power is typically a short-term phenomenon because excessive profits attract the interest of entrepreneurs who want a piece of the profit action.
But this theory can break down where significant barriers to entry exist, such as in the case of supermarkets, where there is a shortage of well-located retail sites that are suitable for this type of business.
Another fascinating angle to this issue is the positioning of the Liberal Party. Having lost blue ribbon seats to the Teals, the party is now looking to do better in outer suburban and regional seats. The party does not seem constrained by the free-market principles it once did, the sort of non-populist principles that would naturally oppose a policy as interventionist as forced divestiture.
And even others who traditionally could be relied upon to fight against divestiture, may be deflated by Woolworths’ political decision not to stock Australia Day paraphernalia.
Both in terms of Woolworths’ own argument, and the changing political environment, the possibility of a divestiture intervention is looking increasingly likely.
Nick Hossack is a public policy consultant. He is former policy director at the Australian Bankers’ Association and former adviser to Prime Minister John Howard.
