meanwhile in the AFR: Woolworths and Coles could be ‘innocent’: Samuel and Supermarket pile-on is going to cause real harm
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Woolworths and Coles could be ‘innocent’: Samuel
Woolworths and Coles could be totally innocent of allegations they were misleading customers and manipulating specials, with politicians wanting to find someone to blame for higher prices, former competition regulator Graeme Samuel says.
The former Australian Competition and Consumer Commission chairman’s comments come as the regulator’s interim report into the grocery sector found the two major supermarkets had increased their earnings and operating margins over the past five years.
The ACCC accused the two big retailers of targeting families with stretched budgets and seeking discounts. Bethany Rae
Those findings, from an investigation requested by Treasurer Jim Chalmers in February, will increase the political pressure on Woolworths and Coles, which argue they are not price gouging or making outsize profits.
“Customers don’t deserve to be treated as fools by the supermarkets. They deserve better than that,” Prime Minister Anthony Albanese said on Thursday.
The interim report published on Friday comes in a difficult week for Woolworths and Coles. On Monday, the ACCC accused both companies of misleading customers by increasing the price of goods then decreasing it slightly, telling shoppers that they were now on sale.
Don’t rush to judge
Mr Samuel – who ran the ACCC when it last reviewed the grocery sector in 2008 – said it was possible the supermarket giants had done nothing wrong during a time of high-cost inflation.
Mr Samuel said he had no interest in defending Woolworths and Coles, but there could be another explanation.
“If they deceived consumers they should have the book thrown at them, but if it is the other narrative ... there will need to be some apologies,” he said, adding politicians were not interested in explaining how a jump in the price of goods and logistics had pushed up prices on shelves.
“Coles and Woolworths will either be shown to have been deceptive and ripping off customers, or there is total innocence. It could very well be that the higher prices were caused by suppliers,” he said.
“It would be a month later the supermarkets decided to offer discounts and specials. That is a very different explanation to one that is being told this week.”
While the government commissioned the ACCC’s investigation, the Coalition and the Greens want more action. Both have called for the government to be given the power to force the sale of supermarkets if Woolworths or Coles are found to be acting in a way that is limiting competition.
The ACCC report found Coles and Woolworths may have consolidated market power through loyalty schemes and hoarding undeveloped land. Both had increased earnings margins over the past five years, it found, although the companies say their profit levels are not unreasonably high.
Graeme Samuel says the government should not stop players such as Amazon or Aldi from getting bigger, since they provide choice to shoppers. Alex Ellinghausen
Supermarket profitability and margins will be a key consideration in the final months of the 12-month inquiry, including through the analysis of the supermarkets’ own data provided to the competition regulator.
The company’s chief executives are set to face public hearings in November, ahead of a final report due by February next year. The ACCC will analyse the prices of products including beef, chicken, pork, milk, biscuits, pet food and dishwashing tablets over the next five months.
The ACCC estimates the price of a typical basket of groceries has increased by more than 20 per cent in the past five years.
Consumers losing trust
The ACCC’s deputy chairman, Mick Keogh, said growth in food prices was largely in line with inflation in other goods and services, and is lower than in most major economies. However, he said the ACCC planned to look closely at how market power held by the supermarkets had played into increasing shelf prices for consumers or decreasing prices to suppliers.
The ACCC found in its early investigations into the $135 billion sector that planning and zoning laws were likely to be slowing store development and hindering new entrants, which could challenge Coles and Woolworths.
It outlined Woolworths had a stake in 110 development sites for new stores around the country, while Coles had another 42 on its books.
Discount chain Aldi held only 13 undeveloped sites. Whether significant property purchases or blocks of undeveloped land proved allegations of “land banking” had yet to be determined, the ACCC said.
The ACCC will consider whether the retailers are unfairly hiking the prices charged to consumers on the everyday items, and whether suppliers, wholesalers are getting fair rates for their goods.
“Elevated margins and profitability can be a consequence of a business holding market power,” the 266-page report said.
“However, it is important to note that charging high prices, including in an exercise of market power, is not of itself a contravention of Australia’s competition or consumer laws.”
Mr Keogh said a key finding in the ACCC’s investigations was that many consumers had lost trust in supermarket pricing. They raised concerns about being penalised for not participating in loyalty programs.
“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,” Mr Keogh said.
Woolworths and Coles have a combined 67 per cent share of grocery retail sales while Aldi has about 9 per cent and Metcash supplied independent supermarkets IGA have 7 per cent.
It has taken Aldi more than 20 years to reach its position, showing the difficulty of growing in Australia. In 2020 German retailer Kaufland threw in the towel and withdraw from Australia before opening its first store.
A key development following the ACCC grocery inquiry in 2008 was the introduction of unit pricing, which has made it easier for consumers to compare products and find the best value.
The report also found the industry was “workably competitive”, and since then, more competition has entered the market from Aldi, Costco and Amazon.
Mr Samuel said the government should not stop players such as Amazon or Aldi from getting bigger, since they provide choice to shoppers.
“I say let them go, Amazon is offering competition to the incumbents. They are also supporting smaller businesses. I say give them free rein don’t stop them because they are big and American. Give consumers a free choice.”
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Supermarket pile-on is going to cause real harm
If the supermarkets are guilty, then throw the book at them. But it’s populist politics that is really at work here.
Who could be surprised? We have an election looming in the next nine months. We have sticky inflation and the resultant painful cost of living and interest rates. So someone needs to be blamed.
Supermarkets are the latest in the conga line of culprits blamed for the cost-of-living crisis. First, the Reserve Bank copped it briefly. Next in the blame game queue are the supermarkets – the duopoly of Coles and Woolworths – let’s not even acknowledge the presence of Aldi, Costco, IGA and other independents, and the ubiquitous Amazon.
And so the pile-on begins. They are accused of “price gouging” by politicians and my predecessor at the ACCC, Allan Fels, but no evidence is produced to validate these claims. Fels, the Nationals and the Greens, with the tacit support of the Liberals, want the ACCC to have the power to break up the major supermarket chains. In fact, this motley group would seek to break up any big business that behaves “anti-competitively”. It seems being big is bad.
The pile-on became a tsunami this week, after the ACCC launched legal proceedings against the supermarket chains alleging deceptive conduct in their pricing strategies. The fact that these are, at this stage, allegations to be tested in our courts, hasn’t stopped politicians from all sides, the media and former regulators, from ripping into the supermarkets on the basis that the ACCC claims have been proven.
Let me address some myths out there, not to defend the supermarkets, but hopefully to inject some rational analysis into the discussion.
First, the proposed Food and Grocery Code of Conduct. Despite claims made by some politicians, this has no impact on prices at the supermarket checkout counter – except as a possible constraint on supplier-demanded price increases. It is a code to regulate the trading relationship between the major supermarkets, including Aldi and Metcash (as a wholesaler) and their suppliers.
The code primarily seeks to ensure that these relationships are conducted in good faith. It imposes a mediation and arbitration process on negotiations between suppliers and the supermarkets to resolve disputes. Unless the farmers are directly supplying to the supermarkets, the code will not apply to them and their dealings with, for example, processors. Importantly, the code does not address the shelf pricing practices of the supermarkets.
If the supermarkets are exonerated … can we expect those who have been engaged in the pile-on to apologise?
The Choice comparison of the cost of baskets of supermarket products would have more credibility if it detailed the contents of each basket of goods to enable us to be sure that there is a like-for-like comparison. Aldi’s packaged goods are predominantly home-brand products, while Coles and Woolworths predominantly sell branded products, with inherent higher costs associated with the marketing of the label. This is why home brands are cheaper than branded products, often with little to differentiate between the two in terms of quality.
The recent court actions launched by the ACCC will be very interesting to watch as they unfold. If the ACCC is vindicated by the courts in its allegations of deceptive conduct, the big supermarkets will deserve all that the courts throw at them – and should be excoriated in the strongest of terms.
But there could be another explanation for the facts as detailed in the ACCC court documents as to what occurred through late 2022 and early 2023. It is possible that through that time, when inflation had peaked at 7.82 per cent, the suppliers demanded price increases, to which the supermarkets acceded. But these increases necessitated resultant increases in shelf prices. And then the supermarkets detected resistance to these products from customers. So they then reduced the prices, in the form of specials, to attract customer purchases. Deceptive conduct or savvy marketing? That will be for the courts to decide.
The truly credible inquiry and resultant report will be the formal ACCC price inquiry requested by the Treasurer in 2023 and to be released this year. It should be a thorough examination of supermarket prices and will either prove or debunk the allegations of “price-gouging”.
But will all this make any difference to the continued supermarket pile-on? Of course not, until at least inflation and interest rates start to fall. And if the supermarkets are exonerated in terms of the allegations of price-gouging and deceptive pricing practices, can we expect those who have been engaged in the pile-on to apologise for the reputational damage that has been and will continue to be sustained by the supermarkets?
Of course not – that is the nature of the populism that has invaded our political discourse over the past 12 months and will continue unabated until the next election and probably beyond.
