The ACCC has published its interim report for its inquiry into supermarkets, outlining what it has heard at the halfway point of the year-long inquiry.
This follows the ACCC announcing last week that it would sue Coles and Woolworths for allegedly misleading consumers through discount pricing claims on hundreds of common supermarket products.
The interim report includes detailed information gathered through stakeholder submissions, responses to the ACCC’s consumer survey, and feedback provided by suppliers at roundtable discussions held around rural and regional Australia.
According to the ACCC, supermarket retailing in Australia is an oligopoly, with Woolworths and Coles accounting for 67% of supermarket retail sales nationally. ALDI accounts for 9% and Metcash supplied independent supermarkets 7%.
“Oligopolistic market structures can limit incentives to compete vigorously on price. We see Woolworths and Coles providing a broadly similar experience to customers through largely undifferentiated product ranges, pricing at similar levels and similar non-price offerings including loyalty programs,” says ACCC Deputy Chair Mick Keogh.
“So far during this inquiry, we have heard in detail about many aspects of Australia’s grocery markets. Increasing grocery prices are one key contributor to the rising cost of living and are front of mind for consumers, given how often people shop at supermarkets and how much of their incomes people spend there.”
The price of a typical basket of groceries has increased by more than 20% in the past five years.
The ACCC’s consumer survey indicated that the majority of respondents in low-income households are spending more than 20% of their net income on groceries.
“We have observed that food price growth in the last five years is largely in-line with inflation in other goods and services, and that food price inflation is lower in Australia than in most OECD countries. However, we will look very closely at the extent to which any market power held by the supermarkets has a role in increasing prices to consumers or decreasing prices to suppliers,” says Mr Keogh.
“During the remaining five months of our inquiry, we will scrutinise whether, and if so how, the supermarkets may be using market power and the economic implications this has for Australian consumers and suppliers.
“We will examine whether supermarkets are exercising market power to increase retail prices more than is necessary to accommodate increases in the wholesale prices supermarkets pay.”
“We are also examining whether supermarkets are engaging in other business practices that may cause detriment to consumers or suppliers.”
Lost trust
Many consumers face real difficulties in trying to compare prices and find the best value for products, consumers told the ACCC.
“Many consumers have told us that they are losing trust in the sale price claims by supermarkets,” says Mr Keogh.
“These difficulties reportedly arise from some of the pricing practices of some supermarkets, such as frequent specials, short-term lowered prices, bulk-buy promotions, member-only prices and bundled prices.”
Almost 50% of respondents to the ACCC’s recent consumer survey said that they ‘always’ or ‘most times’ compare prices between stores before shopping. In contrast, the ACCC’s 2008 grocery inquiry found that only 17% of consumers reported ‘always’ comparing prices.
Many consumers have also raised concerns that they are being penalised for not participating in supermarket loyalty programs, particularly following the emergence of member-only pricing.
“With the introduction of member-only pricing, some consumers may feel they have no option but to participate in loyalty programs, even if they have concerns about handing over data to the supermarkets,” says Mr Keogh.
Suppliers facing unfavourable terms
Many grocery suppliers have told the ACCC that they consider they sometimes receive prices below the cost of production and have little choice but to agree to highly unfavourable terms, with these terms being subject to ongoing changes by the major retailers.
“The issues raised by a number of suppliers are concerning. We are using our compulsory information gathering powers to examine this reported behaviour by the supermarkets, and will include any findings in our final report,” says Mr Keogh.
Some of the issues raised by suppliers include being required to pay rebates to retailers for specials and promotions, to use retailer-specified advertising and transport services, and to comply with burdensome accreditation and packaging requirements.
In particular, perishable product suppliers have raised strong concerns about supermarket procurement practices, including accreditation obligations, demand forecasting, the application of quality standards and weekly tendering processes that lack transparency and transfer considerable risk on to suppliers.
“We are considering these issues and are analysing whether supermarkets are contributing to, or taking advantage of, information asymmetries, leading to suppliers not having access to the information they need to make efficient business decisions,” says Mr Keogh.
Barriers to expansion
The ACCC observes that ALDI has taken more than 20 years to reach a 9% share of national supermarket retail sales.
“This demonstrates the level of difficulty entering and expanding in supermarket retailing, and the significant investment, time and differentiated offering required to expand,” says the ACCC.
Mr Keogh says the ACCC’s preliminary view is that planning and zoning laws may slow a supermarket retailer’s ability to develop new stores by creating additional costs or adding significant delays.
“We have received submissions raising concerns about alleged ‘land banking’ but have not yet formed any views on this issue,” he says.
Next steps
The ACCC is continuing to consider the various issues raised and hasn’t yet reached any concluded views. It will present the results of its analysis in the final report of the inquiry, due in February 2025.
The ACCC has identified 14 products that will be the focus of detailed analysis over the remainder of the inquiry. It has selected supply chains with varying market dynamics to compare the issues and outcomes.
The 14 products that will be examined are:
- Beef
- Chicken
- Pork
- Bananas
- Apples
- Strawberries
- Cucumbers
- Potatoes
- Eggs
- Milk
- Cereal
- Biscuits
- Pet food
- Dishwashing tablets
The ACCC is using its information gathering powers to obtain further information, including detailed pricing and margins data, from the retailers.
The ACCC will also conduct public hearings involving senior executives of the major retailers and other relevant stakeholders in November to gain a more complete understanding of the key issues in the retail grocery sector and its associated supply chains.