Coles chief executive John Durkan told the Financial Review the responses from the manufacturers were a "smokescreen." He said all five were unwilling to help, which he found deeply frustrating.

"Us moving to [$1 limits] would have an impact on the rest of the industry and this is why we are not getting the manufacturers to help us," he said.

But it was something the industry should do. "Coles is determined to do it," he said. "We just have to find a way".

Mr Durkan also hit out at "antiquated" laws in Queensland that require liquor outlets to be tied to hotels.

Former Olympic rower Rob Scott was a late favourite to take over from Richard Goyder, David Rowe

Coles owns and operates 89 hotels and pubs, and the majority are located in Queensland because of this legislative quirk. This, according to Mr Durkan, is a law that is antiquated and needs to change. "It's back in the dark ages," he said.

The decision by Coles to take the bold step and go public on its push for $1 limits on pokies will put the highly profitable $11.6 billion poker machine industry high on the political agenda in 2017.

It is also expected to spark a Senate inquiry and calls for legislative change.


And it pits Coles against the rest of the sector, particularly rival Woolworths, which is the biggest single owner of poker machines in the country, through its Australian Leisure and Hospitality Group (ALH) joint venture with the billionaire Mathieson family.

Senator Nick Xenophon

Woolworths has made it clear it isn't considering a $1 cap on the 12,000-plus machines it owns through a network of more than 300 hotels. A spokesman for ALH said the group didn't believe it was evidence based.

At the very least, the move by Coles will force the investment community to wade into the debate on corporate responsibility versus shareholder returns.

The big issue with poker machines is problem gamblers generate much of the profit, so where is the duty? The more the machines, the more the value destruction to shareholders if a business opts for corporate and social responsibility and closes or moves to $1 cap limits.

Interestingly, a couple of months ago Credit Suisse hosted Tony Mohr, national campaign manager of the Alliance for Gambling Reform, in Sydney and Tim Costello in Melbourne, to discuss the issue of problem gambling.

Credit Suisse then followed up with a note to clients saying: "Will someone break from the pack and put in the $1 pokie limit?" It said the Alliance for Gambling Reform was working with an undisclosed organisation that might voluntarily enact the $1 pokie bet limit.

"Imagine if that was Woolworths or Coles under the guise of being socially responsible," the note speculated. "It would possibly send a very strong message and could cause a rift in the clubs industry, one of the most powerful lobbying groups. It would certainly garner a lot of media attention and possible pressure on Crown."


Litigation, legislative reform

The stakes are high. Besides generating a lot of media attention it will open up a can of worms at a time when the industry is battling a controversial legal suit launched by Maurice Blackburn against Aristocrat and Crown.

The action alleges that pokies are misleading and deceptive. The case focuses on the "Dolphin Treasure" machine, and alleges the machine misrepresents the true chances of winning because of deliberate design features in the machine's reels and symbols.

If successful, the litigation will have ramifications for the design of all poker machines in the industry.

The legal action is being supported by the Alliance for Gambling Reform, which estimates that 60 per cent of poker machine players go on to become problem gamblers. In Australia more than $11.5 billion is spent on pokies, which, if the figures are correct, equates to more than $6 billion of problem gambling.

This isn't the first time Wesfarmers has considered introducing $1 limits on poker machines. It is speculated to have looked at it after the Productivity Commission released a report in 2010 that recommended a $1 cap on poker machines. The report estimated that problem gamblers' share of total Australian gaming machine losses was about 40 per cent. "Moderate risk gamblers account for an additional substantial share," the report said.

It said a large proportion of industry (and taxation) gaming machine revenue came from these two groups of gamblers. For that reason, policies that may effectively address the problems posed by gaming machines would have a significant impact on industry and government revenues.

Wesfarmers boss Richard Goyder made the promise to tackle problem gambling at a private dinner with Tim Costello more than 2½ years ago.


Mr Costello said the fact that Mr Goyder had stood by his word showed him to be a man of principle. "He has discovered our frustration with this industry that in political power and capture terms is our equivalent to the NRA [National Rifle Association in America]."

Legislation prevents anyone but gaming machine manufacturers making changes to machines, which means the manufacturers are able to block moves such as a $1 bet trial.

The relevant pieces of legislation are the Queensland Gaming Machine Act 1991, which requires manufacturers of gaming machines to hold a suppliers licence, and in South Australia the Gaming Machines Act 1992, which authorises only those entities with a gaming machine dealer's licence to manufacture games, gaming machines and their components.

Senator Nick Xenophon, a long standing campaigner against problem gambling, said he was staggered that a company as big as Wesfarmers was being thwarted by the manufacturers. "It seems to me I would be looking for urgent legislative reform and I would want to get the numbers for a Senate inquiry, and get the manufacturers in front of me to explain why they can't do it."

He said every regulator should be involved in ordering the poker machine manufacturers to co-operate.

Senator Xenophon said it was a dramatic development in the fight for poker machine reform. He said Wesfarmers was behaving in good faith, while the manufacturers were behaving like a "malevolent pack of bastards".

Andrew Wilkie, another campaigner against problem gambling, said the decision by Coles to introduce safer poker machines was a heartening demonstration of corporate responsibility.

According to one of the world's leading researchers and experts on poker machines, Charles Livingstone from Monash University, Woolworths and ALH and others make a fortune from poker machine revenue. So do governments.

Dr Livingstone estimates the NSW and Victorian governments rake in $1 billion-plus each in taxes a year and the Queensland government earns more than $500 million from poker machine taxes. "Never get between a government and revenue," he said.

The stakes are high. Wesfarmers has made a gutsy decision to choose social responsibility over a significant slice of the profits being generated on the backs of problem gamblers.

But at the end of the day it is also about corporate reputation, something that companies – and investors – sometimes forget.