A big week for supermarket scrutiny 

27 September 2024

This has been a big week for supermarket scrutiny, even by the standards of what we’ve become accustomed to in 2024.  

ACCC inquiry interim report  

The ACCC has released the interim report from its supermarket inquiry. At 266 pages the report will take some time to fully digest, but the major themes most relevant to suppliers are summarised below.  

• Oligopoly. Australia’s supermarket retail sector is an oligopoly. Despite the gradually growing market share of Aldi since the last ACCC inquiry in 2008, Coles and Woolworths continue to be the dominant players, and have increased their:
  • share of take-home food and grocery sales 
  • number of stores and geographic coverage.  
• Changes in the industry. The ACCC acknowledges the expansion of Coles’ and Woolworths’ businesses into broader “ecosystems” covering adjacent markets, as well as their increased reliance on production, sales and consumer data. 
• Aldi only a partial constraint on Coles and Woolworths. Despite Aldi’s foothold in the retail market, it is only a partial constraint on the two majors because of its:
  • limited range 
  • low store numbers 
  • geographic limitations, and 
  • lack of online or delivery services 
• Barriers to entry. With reference to the time it has taken for Aldi and Costco to establish themselves in the market, the ACCC is considering the significance of various barriers to entry, most notably:
  • building a supplier network 
  • achieving economies of scale 
  • consumer loyalty programs 
  • ‘land banking’. 
• Profitability, margins and risk. The ACCC’s preliminary analysis indicates that Coles and Woolworths may appear more profitable than some international peers. The ACCC also noted concerns from stakeholders regarding retail margin accretion and transference of risk from retailers to suppliers. However, the ACCC acknowledges the challenge of meaningfully measuring the profitability of Australia’s supermarket retailers. These issues will be a major focus for the remainder of the inquiry. 
• Buyer power. The ACCC will also focus on investigating the impact of major retailer buying power on supplier businesses and the efficient operation of grocery supply chains. This includes through:
  • purchasing goods at prices below efficient levels 
  • exploiting informational asymmetry 
  • terms and practices that unfairly retain disproportionate value for the retailer, and place disproportionate risk on the supplier. 
• Pressure to increase trade spend. The ACCC acknowledges supplier concerns about retailer pressure to increase trade spend commitments, whether as a condition of achieving price increases, or during range reviews. 
• Shrinkflation. The ACCC referred to concerns raised by consumers and stakeholders about a lack of transparency around shrinkflation. In doing so, the ACCC refers to the French and European approaches to addressing transparency around shrinkflation underpinned by signage on shelf for 2 months. The ACCC may consider this in its final report.  

ACCC legal action 

On Monday the ACCC announced it is taking separate actions against Coles and Woolworths for alleged breaches of consumer law in their respective ‘down down’ and ‘prices dropped’ initiatives. The ACCC alleges the widespread use of “illusory” discounts “misleading” consumers about hundreds of products. 

The crucial elements of this case are: 

• whether the time period between the price increases and discounts was “reasonable”; and  
• the fact the retailers planned to later place the prices on a “Down Down” or “Prices Dropped” promotion before the price increase, and that the temporary price increase was a device to establish a new, higher “was” price. 

Coles has indicated that it will defend the charges, while Woolworths has not committed to defending or settling the case against it. 

Woolworths and Coles have each issued statements to the ASX, acknowledging the ACCC’s action and reiterating their commitment to consumer value. The AFGC will keep a watchful eye on this matter as it unfolds. 

Food and Grocery Code of Conduct exposure drafts 

Later on Monday, the Treasury released exposure drafts for the legislation and regulations to bring in the mandatory Code of Conduct. The AFGC is engaging with members to ensure that the drafts are fit for purpose, and will provide feedback to government during the consultation period. In addition, we are continuing to raise our concerns that the Code Review failed to consider strengthening the specific clauses of the Code such as delisting, range review and price negotiations. Due to a sunset provision, the implementation must be concluded prior to 1 April 2025. 

We will keep members informed of any significant developments as they arise. 

Next steps 

The remainder of the ACCC inquiry will narrow its focus to the following areas (outlined on pages 18-20 of the interim report): 

• supermarket price setting practices 
• consumer experience 
• retail competition 
• supermarket profitability and margins 
• grocery supply chains. 

In preparation for its final report, the ACCC will draw on a series of case studies for various products, including: 

• milk 
• cereal 
• biscuits 
• pet food 
• dishwashing tablets. 

It is expected that members operating in these categories will be contacted by the ACCC in preparation for the next stage of the inquiry. If you would like to discuss the ACCC review, please contact samantha.blake@afgc.org.au or rick.umback@afgc.org.au.  

The ACCC will conduct public hearings in November, featuring various stakeholder representatives including the AFGC. We do not anticipate individual suppliers to be called to these hearings.  

We will host a webinar on 8 October to discuss the interim report in further detail. 

The inquiry’s final report is due by 28 February 2025. 

TANYA BARDEN  
CHIEF EXECUTIVE OFFICER