ACCC blocks Coles’ proposed Kalgoorlie supermarket: Implications for shopping centre developers, owners and managers

The ACCC has determined that Coles must not put into effect its proposed acquisition of a leasehold interest for a new supermarket site in Kalgoorlie-Boulder, Western Australia. The decision is significant for shopping centre owners, developers and managers because it shows that supermarket anchor tenant arrangements, including proposed leases over greenfield sites, may attract detailed ACCC scrutiny where the regulator considers the transaction may affect future local grocery competition.

The decision is also an early practical example of how Australia’s new merger regime may affect land and leasing transactions involving Coles, Woolworths and their connected entities, particularly in low-growth or highly concentrated markets. The decision raises important issues for those making investment decisions on the expectation that a major supermarket will anchor a new or redeveloped centre.

Background

Coles proposed to acquire a leasehold interest in south-west Kalgoorlie-Boulder. The site was vacant and undeveloped. Coles proposed to develop a large-format supermarket with a selling floor area of approximately 2,800 square metres, together with an associated Liquorland store, as part of a broader neighbourhood centre development.

As a major supermarket, Coles and Woolworths must notify the ACCC of any acquisition of, among other things, a lease over vacant land exceeding 2,000 square metres, even if other merger notification thresholds are not met.

The ACCC moved the matter to Phase 2 review on 29 January 2026 and issued a Notice of Competition Concerns on 5 March 2026. On 30 June 2026, the ACCC determined that the acquisition must not be put into effect because it was satisfied that the acquisition would be likely to substantially lessen competition in a market. The entire ACCC process, from initial notification, ran for a period of seven months.

Why the ACCC was concerned

The ACCC’s concern was not that a new supermarket is inherently anti-competitive. It expressly recognised that investment in new supermarket capacity can benefit consumers, and that the proposed Coles supermarket would be a high-quality store in a new location. The issue was the specific local market. Kalgoorlie-Boulder is a remote city of around 30,000 people, approximately 600 kilometres east of Perth. The ACCC noted that consumers were served by six supermarkets, including four larger or full-line supermarkets: Coles, Woolworths, Spudshed and O’Connor Fresh IGA. Coles and Woolworths together already account for 62% of gross lettable area used for larger supermarkets.

The ACCC considered that a second large-format Coles supermarket would represent a significant increase in grocery capacity in a market where population growth was expected to be below one per cent. Coles advanced a ‘profit sacrifice test’, arguing that its entry was not dependent on competitor exit, and that the acquisition would only be anti-competitive if it was commercially irrational absent competitor exit.

The ACCC concluded that the new supermarket was expected to win significant sales from existing supermarkets, creating a material risk that an independent competitor, which serves as an effective competitive constraint, would come under sufficient financial pressure such that it would exit the market. Coles argued that any competitor exit would represent ‘competition on the merits’, with the displacement of a less efficient firm by a more efficient one. The ACCC rejected this characterisation. Drawing on OECD principles and its separately sourced economic analysis, the ACCC distinguished between conduct that harms competitors but enhances competition, on the one hand, and conduct that harms competition itself. It concluded that simply categorising the acquisition as ‘competition on the merits’ does not remove the requirement to assess whether the overall effect is likely to substantially lessen competition.

While the public reasons published by the ACCC have material portions redacted on the grounds of confidentiality, including financial modelling, diversion estimates and details identifying the relevant independent supermarket, it is clear that the ACCC considered Coles’ internal business case and source-of-sales modelling, along with information from Coles, Metcash, the relevant independent supermarket and other market participants.

The ACCC gave significant weight to Coles’ internal documents but also questioned whether aspects of the business case may have understated the impact on the relevant independent competitor. The ACCC considered expert financial evidence, assumptions about variable costs, employee and store expenses, capital expenditure, lease costs, possible rent relief, equity support and whether the business or its assets would continue under alternative ownership. It concluded that there was a real prospect that the relevant independent would not remain viable and that its assets would leave the market, rather than facilitating replacement supermarket entry.

The ACCC concluded that the affected independent is not inherently inefficient and that its potential exit would be caused by a significant addition of capacity to a low-growth market, not by its inability to compete on the merits. The likely effect, in the ACCC’s view, would therefore be to increase concentration, with Coles operating two of the four full-line supermarkets, and remove a material competitive constraint on remaining supermarkets.

The ‘differentiated local offer’ issue

A key feature of the ACCC’s reasoning was its focus on the likely loss of a differentiated local offer. The ACCC considered that the supermarket likely to exit provided a competitive offering valued by consumers, including local products, longer trading hours, higher-touch customer service, and locally responsive pricing and product ranging.

This is important for shopping centre developers, owners and managers. The ACCC’s concern was not confined to price competition. It also considered non-price rivalry, including product range, trading hours, service quality, store quality and local responsiveness. In its Notice of Competition Concerns, the ACCC identified independent supermarkets as competing on price, range and quality of products, store quality and customer service. It also noted evidence that independent supermarkets monitored and responded to Coles and Woolworths, including by matching or beating them on key value items.

The decision therefore demonstrates that, in the right factual circumstances, the ACCC may treat the presence of an independent or differentiated supermarket as an important local competitive constraint, even where Coles or Woolworths proposes to develop a new supermarket on a vacant site.

Consequences for centres looking for a supermarket tenant

Where Coles or Woolworths is proposed for a centre, developers, owners and managers should consider whether the supermarket lease or related land dealing is notifiable, whether a waiver may be appropriate and whether the transaction could raise substantive competition concerns in the relevant local market. This is particularly important where:

• the proposed supermarket is in a smaller, remote or concentrated local market
• Coles or Woolworths already has a significant presence nearby
• the development would add substantial full-line supermarket capacity
• population or demand growth is limited
• independent supermarkets provide a differentiated offer in the local area
• suitable alternative supermarket sites are limited
• the project economics depend on a major supermarket lease being implemented within a particular timeframe.

In those circumstances, shopping centre owners may need to build greater flexibility into commercial arrangements, planning assumptions and project timelines.

Developers should not assume that a greenfield site is low risk simply because no operating supermarket is being acquired. The ACCC’s concern in the Kalgoorlie decision was not the immediate loss of an existing competitor. Rather, its concern was that the proposed Coles supermarket would add substantial capacity in a small and isolated market, with the likely longer-term consequence being that an independent competitor would exit and consumers would lose a differentiated local offer.

The issue is not only what is being acquired today, but what the acquired interest enables in the market tomorrow.

For landlords and developers, there is a clear practical warning that the ACCC may scrutinise tenant business cases, source-of-sales assumptions, population growth assumptions, site catchments, expected revenue diversion and the financial resilience of existing operators. Modelling that assumes material new demand may need to be supported by clear evidence.

Watch this space: Coles has avenues of recourse

This may not be the final word. Coles may apply to the Australian Competition Tribunal for review of the determination. Any application for review must be made before the end of 14 calendar days after the statement of reasons is included on the ACCC’s Acquisitions Register.

While Coles may also instead apply to the ACCC for a public benefit determination and contend that there are prevailing net public interest grounds that justify the lease proceeding, that would seemingly be less likely.

Learnings from other transactions

The Kalgoorlie determination does not exist in isolation. Several other supermarket lease acquisitions have been assessed by the ACCC, providing additional context for shopping centre owners.

For example, practical distinctions may be found where:

• replacement or quality-improvement transactions may be lower risk where they do not result in an additional Coles or Woolworths supermarket in the local area
• ancillary or enabling land acquisitions may be lower risk where the land cannot realistically support a competing supermarket use and is directed to improving or supporting an existing development
• genuine new entry may be more straightforward where the major supermarket is not already operating in the local area, and the transaction introduces an additional competitor to existing grocery retailers that introduces competitive pressures without distortive oversupply
• the establishment of a major supermarket in a metropolitan greenfield mixed-use development, which involves a higher-growth, less concentrated urban market.

Practical considerations for shopping centres

The Coles Kalgoorlie decision reinforces that supermarket anchor tenant arrangements are no longer only a leasing or development issue. In some local markets, they may also be a material competition law and transaction certainty issue.

While there is still a case for ‘watch this space’, shopping centre developers, owners and managers who are considering Coles or Woolworths for a new or relocated tenancy should nevertheless take into account:

• assessing notification requirements and waiver options early
• testing local market concentration, existing supermarket capacity and demand growth
• identifying whether independent supermarkets provide a differentiated local offer
• considering whether the proposed supermarket could place financial pressure on existing competitors, the consequence of which is further concentration rather than a replacement market participant
• testing source-of-sales assumptions, including whether forecast sales are genuinely incremental or diverted from existing operators
• building ACCC review risk into project timelines, conditions precedent and sunset dates
• preparing evidence on the counterfactual, including what is likely to happen to the site if the proposed supermarket lease does not proceed
• ensuring financing, leasing and development assumptions do not depend on unconditional supermarket tenant certainty before regulatory risk has been addressed.

Authored by:

Adam Walker, Partner