Coles 2.9% on M&A retreat|ACCCs new merger block threatens every future store

The Rally That Asks a Question

Coles Group shares jumped 2.9 per cent on Friday — one of the stock's strongest single sessions in weeks — after the supermarket giant confirmed it would no longer pursue a takeover of Greencross Pet Wellness Company. The deal had hung over the share price since talks with Greencross's private-equity owner, TPG Capital, were first disclosed earlier this month, and investors clearly welcomed its removal.

Yet on the very same day, Coles filed an application with the Australian Competition Tribunal challenging the competition watchdog's decision to block its planned second supermarket and liquor store in Kalgoorlie. The relief rally and the regulatory fight are not separate stories — they are opposite sides of the same strategic question: what kind of growth does this market actually trust Coles to pursue?

The market is signalling that discipline on acquisitions is welcome. But organic store growth — opening new supermarkets in underserved regional towns — is precisely what the ACCC's new regime is now prepared to block. If investors bought the Greencross exit as a sign Coles will stay disciplined, they may not have fully priced in what the Kalgoorlie contest means for every future store the company wants to open.

The First Test of Australia's New Merger Law

The Kalgoorlie case is not just a dispute about one regional supermarket. It is the first supermarket transaction to go through the ACCC's Phase 2 merger review and, so far, the only transaction knocked back under the new regime, which came into force on 1 January 2026. That makes the tribunal's forthcoming ruling something the entire Australian retail sector will be watching — it will define how the new merger laws apply to supermarket developments in regional markets.

The ACCC argued there was a real prospect that approving the development would lead to the exit of an independent competitor, leaving shoppers worse off. Coles countered that the project would increase, rather than reduce, competition, pointing to its statewide pricing model under which Kalgoorlie customers would pay the same grocery prices as shoppers in metropolitan Perth. The regulator and the retailer are not disagreeing about the facts — they are making opposing judgments about what those facts mean for competition, and that dispute is now before a tribunal that will have to pick one.

The buried assumption in most investor analysis of Coles is that organic store growth — as opposed to acquisitions — is unambiguously good for the business and unambiguously safe from regulatory friction. The new merger regime has just challenged that assumption directly. A company can now be blocked from opening a new store on the grounds that doing so might crowd out a smaller rival, even if the new store would offer lower prices to consumers. That is a fundamentally different regulatory environment from the one Coles has operated in for most of its recent history.

Coles argued the Kalgoorlie project would have supported around 250 new homes adjacent to the site at a time of critical housing shortage in the city, created roughly 120 local jobs, and served a substantial fly-in, fly-out workforce the ACCC had underestimated. The ACCC did not dispute the town's growth but concluded the competitive harm to smaller operators outweighed those benefits. The tribunal will now decide which evidence carries more weight — and the timeline for that decision remains uncertain.

Absorbing the Cost Squeeze

To understand what the regulatory constraint costs, consider what Coles is trying to protect. In the March quarter, supermarket sales reached 9.8 billion dollars, up 4 per cent, with online growth of 24.8 per cent. Supermarket price inflation, excluding tobacco, fell from 1.7 per cent to 0.8 per cent — a signal that Coles has been actively absorbing cost pressure rather than passing it to shoppers.

But the cost side is now moving against that promise. Coles flagged that the Iran war, which began on 28 February, has been driving up fuel, freight, and packaging costs across its operations. Supplier cost-price-increase requests have accelerated in recent weeks. The company said it partially absorbed beef and lamb price rises rather than passing them through — a margin decision that analysts expect to weigh on the second half. Liquor earnings are also expected to be hit as consumer sentiment softened in March.

This is where the ACCC constraint and the operating model intersect. Coles absorbs supplier cost increases by leveraging supply-chain scale, logistics density, and fixed-cost fractionalisation across a growing store network. More stores — including regional ones — are not just a revenue story; they are the mechanism by which Coles sustains the pricing promise to customers. If the new merger regime begins constraining where and how quickly Coles can add stores, the cost-absorption model comes under structural pressure that quarterly sales figures will not immediately show.

Macquarie remains positive on Coles, citing market share gains and scaling supply-chain investments as the key earnings driver, with its analysts forecasting EBIT growth of 14 per cent year-on-year in FY26. That thesis is coherent — but it embeds an assumption that the store rollout continues at pace. If the Kalgoorlie ruling becomes the template for how the ACCC treats new-store applications in competitive regional markets, the supply-chain scaling argument loses one of its structural inputs. That risk is not yet visible in any quarterly sales report.

What the Tribunal Will Decide — and What to Watch

If the Australian Competition Tribunal sides with Coles, the ruling will establish that the ACCC's Phase 2 powers do not extend to constraining new-store developments in growing regional markets — only to acquisitions of existing competitors. That would remove a significant uncertainty from Coles' long-run earnings story, potentially re-rating the stock's expansion premium.

If the tribunal upholds the ACCC's determination, every future Coles store application in a town with existing independent competitors becomes a potential Phase 2 review — a pipeline constraint that the current share price does not reflect. The 2.9 per cent relief rally from the Greencross exit would look, in retrospect, like the market pricing discipline on acquisitions while missing the larger question about organic growth. The holder who bought that rally needs to know which outcome the Kalgoorlie ruling delivers before adding to the position. The watcher considering entry has a cleaner entry case once the tribunal sets the precedent — in either direction.