The Australian Competition and Consumer Commission blocked Coles from taking over a site near the airport in the Goldfields town of Kalgoorlie-Boulder in Western Australia, ruling the move was likely to push out a smaller rival, reduce consumer choice and leave shoppers worse off.
Coles has appealed the decision and argued that the project would increase, rather than reduce, competition in the regional centre.
"Coles has lodged an application with the Australian Competition Tribunal seeking review of the ACCC's decision to oppose Coles' proposed supermarket and liquor development in Kalgoorlie," a spokesperson told AAP.
"Coles respectfully disagrees with the ACCC's assessment and remains of the view that the proposed development would not substantially lessen competition in Kalgoorlie."
The company said the case was the first supermarket deal to go through the ACCC's Phase 2 merger review and, so far, the only transaction to be knocked back under the new regime.
The ruling raised important questions about how the tougher merger rules should apply to new supermarket developments, especially in growing regional markets, the supermarket heavyweight said.
"Coles also considers that the issues raised by the determination may have broader implications for future supermarket developments under the new merger regime," it said.
"Customers would also have benefited from Coles' statewide pricing model, meaning they would pay the same grocery prices as customers in metropolitan Perth."
The retailer says the ACCC has underestimated the town's growth outlook and the extra demand created by its fly-in, fly-out workforce and busy airport.
Council forecasts show Kalgoorlie-Boulder needs more than 400 new homes a year to meet rising demand, and a local business report identifying about 1000 residential lots in planning and more land flagged for housing.
It says the supermarket project would have supported about 250 new homes next to the proposed site at a time of "critical housing shortage" in the city.
"Kalgoorlie is experiencing significant industrial activity, planned residential growth and comprises a substantial FIFO workforce, all of which are expected to increase demand for supermarket capacity across the region," Coles said.
Kalgoorlie has six supermarkets – two IGAs, a FoodWorks, Woolworths, Coles and Spudshed – and has previously had seven, including two Coles stores for much of the past decade.
Coles says the development would have created about 120 local jobs and that delays, added red tape and higher project costs risk making it harder to deliver major retail and housing projects in regional growth areas.
The tribunal's decision is expected to provide guidance on how the new merger regime will apply to future supermarket developments, including in regional towns, where regulators fear that extra capacity could ultimately force smaller competitors out.
