Many Australian consumers and grocery suppliers have told the ACCC they are concerned that some of Australia's supermarket retailers have considerable market power and are engaging in practices which disadvantage both their customers and suppliers.
The Interim Report for the ACCC's Supermarkets Inquiry, published today, outlines what the ACCC has heard at the halfway point of the year-long Inquiry. This 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.
Supermarket retailing in Australia is an oligopoly, with Woolworths and Coles accounting for 67 per cent of supermarket retail sales nationally. Aldi accounts for 9 per cent and Metcash supplied independent supermarkets 7 per cent.
"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," ACCC Deputy Chair Mick Keogh said.
"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 per cent 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 per cent 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."
"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," Mr Keogh said.
Many consumers report having lost trust in supermarket pricing
Many consumers are concerned about higher prices at the supermarket and are increasingly comparing grocery prices online before going shopping. However, they 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," Mr Keogh said.
"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 per cent 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 per cent 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," Mr Keogh said.
Suppliers report facing unfavourable terms that are set by supermarkets
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," Mr Keogh said.
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," Mr Keogh said.
Barriers to expansion
The ACCC observes that ALDI has taken more than 20 years to reach a 9 per cent 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.
"Our 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," Mr Keogh said.
"We have received submissions raising concerns about alleged 'land banking' but have not yet formed any views on this issue."
Information provided by Coles and Woolworths suggests land may be held for lengthy periods of time for various reasons, including the need to obtain rezoning and development or planning approvals, construction delays, site cleanups, and population growth being slower than expected.
Information provided to us suggests Coles and Woolworths have interests in a significant number of sites intended for future supermarket use:
- Woolworths has interests in 110 sites
- Coles has interests in 42 sites
By way of comparison, information provided by ALDI suggests it holds 13 undeveloped sites.
We are considering this issue further for the purposes of our Final Report.
Next steps for the Supermarkets Inquiry
The ACCC is continuing to consider the various issues raised, and has not yet reached any concluded views. The ACCC will present the results of its analysis in the final report of the Inquiry, due in February 2025.
The ACCC has identified fourteen products that will be the focus of detailed analysis over the remainder of the Inquiry. The ACCC has selected supply chains with varying market dynamics to compare the issues and outcomes.
The fourteen 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.
More information about the public hearings will be published on the ACCC website by 24 October: Supermarkets inquiry 2024-25
A summary of key insights from the ACCC's consumer survey have been published to the ACCC website alongside a snapshot of feedback from submissions and roundtables with suppliers. These can be found at: Supermarkets inquiry 2024-25 interim report
A summary of the supplier roundtable discussions held across regional Australia can be found at: Supermarkets inquiry 2024-25 supplier roundtables
The ACCC invites feedback on the key issues raised in the Interim Report by 18 October 2024. This feedback will be considered before the ACCC makes findings or recommendations in the final report. Information on how to make a submission can be found on page 24 of the Interim Report.
Background
On 25 January 2024, the Australian Government announced that it will direct the ACCC to conduct an inquiry into Australia's supermarket sector.
The ACCC received the formal direction from the Australian Government and the terms of the reference for the inquiry on 1 February 2024.
On 29 February 2024, the ACCC published an online survey and issues paper seeking views from consumers, farmers and other interested parties.
The ACCC last conducted a comprehensive inquiry into the grocery sector in 2008.
The terms of reference require the ACCC to consider matters such as the approach of suppliers, wholesalers and retailers to setting prices, the role of small and independent retailers (including those in regional and remote areas), and the use of data analytics and other technological developments.
The final report for the inquiry is due to be provided to the Government by 28 February 2025.
The ACCC's investigation into the conduct which is the subject of our recently announced separate proceedings against Woolworths and Coles pre-dates the commencement of this inquiry. The issues in dispute in these proceedings will not be considered by the Supermarkets Inquiry.
