THE Australian Competition and Consumer Commission released its long-awaited Supermarket Inquiry report this morning, offering a list of 20 recommendations, but stopping short of attempting to clip the wings of dominant national retail operators Woolworths and Coles.

Aspects of Australia’s supermarket sector are not working well, the report said, and this was leading to poorer outcomes for consumers and suppliers than would be expected in a more competitive market.

Farm sector groups applauded the release of the report, saying its contents reinforced concerns raised by farmers.

“The ACCC’s conclusion that major supermarkets’ use of market power could have lasting consequences for (farm sector) efficiency and sustainability underscores the urgency of action,” the National Farmers Federation said in a statement (see industry responses below).

The full supermarket inquiry report (click here to access) runs to some 437 pages, with an executive summary running to 23 pages alone.

The report found that both Coles and Woolworths were considerably more profitable than comparative supermarket retailers overseas, including Walmart, Tesco, Ahold, Carrefor and Kroger.

ACCC’s economic analysis appears to show margins on Coles’ and Woolworths’ meat, poultry and seafood sections are considerably less than segments like grocery (dry goods etc), chilled/frozen and bakery.

The supermarket industry in Australia is highly concentrated, the report said, but dominance by Coles and Woolworths is set to continue. ACCC estimated that Woolworths has 38pc of supermarket grocery sales nationally, and Coles 29pc.

Those figures roughly align with Beef Central’s understanding of each company’s national red meat market share of 37pc and 30pc, respectively.

There are significant barriers to entry and expansion at large scale in national supermarket retailing, the report said.

“In economic terms, this is an oligopolistic market structure in which Coles and Woolworths have limited incentive to compete vigorously with each other on price,” ACCC said.

Grocery prices in Australia had increased rapidly over the last five financial years. Most of those increases were attributable to increases in the cost of doing business across the economy, including particularly production costs for suppliers, which has increased supermarkets’ input costs, the report said.

However ALDI, Coles and Woolworths had increased their product and EBIT margins during this time, meaning that at least some of the grocery price increases had resulted in additional profits.

In addition, Coles and Woolworths were engaging in practices – through their promotional activities and loyalty programs – that made it harder for consumers to judge whether they are getting a good deal and make informed decisions about whether to shop with them or elsewhere.

Monopsony power

Coles and Woolworths’ dominance in grocery retailing also affects supply chains, ACCC suggested.

“They have a strong bargaining position when dealing with many suppliers and can exercise this bargaining power to obtain lower wholesale prices. In an inflationary environment, this often takes the form of resisting wholesale price increases in whole or part.

“This can be beneficial to consumers if Coles and Woolworths pass through savings to consumers, however both have monopsony power with some suppliers, in particular many fresh produce suppliers.

“Monopsony power arises where a firm or firms acquire such a large proportion of total sales of a product that they can affect the overall market price of a product (reducing the market price by purchasing less, or increasing it by purchasing more).

While monopsony power allows buyers to acquire products for lower prices, it typically leads to undersupply of the affected products and reduced investment by suppliers over time.

“Inefficient levels of supply and investment in production will in turn lead to higher prices and reduced choice or quality for consumers in the long run,” ACCC said.

Coles and Woolworths’ dominance of the retail sector seemed set to continue, the report said.

“While they face ongoing and evolving competitive challenges on many fronts, their entrenched position in an oligopolistic market means substantial pro-competitive departures from the status quo are unlikely in the foreseeable future. There is no ‘silver bullet’ to address all the issues identified by this inquiry.”

20 recommendations

However ACCC’s report recommended a range of potential legislative and policy reforms and other actions aimed at collectively address aspects of the market that are not working well, including where competition is unlikely to emerge, and bolstering competition over the medium to longer-term where it is possible to do so.

The final report for ACCC’s supermarkets inquiry made 20 recommendations. While stopping short of directly curbing national supermarket powers, many of the recommendations relate to strengthening competition, specifically within the fresh produce (fruit and vegetable) segment.

In summary, some of the recommendations sought:

• Clearer pricing practices
• Greater transparency for suppliers
• Reforms to planning and zoning laws on future supermarket sites to avoid ‘land-banking’.
• Giving suppliers fairer bargaining conditions.

ACCC heard from some 20,000 consumers who responded to consumer survey, received more than 100 public submissions, held eight supplier roundtables, reviewed tens of thousands of internal documents, conducted private hearings and ten days of public hearings, and analysed billions of points of supermarket data, ACCC deputy chair Mick Keogh said.

“There is no ‘silver bullet’ that will address all the issues we have identified in the supermarket sector, but we are confident that our recommendations will make a difference for consumers, will equip suppliers to make more informed business and investment decisions while bearing a more appropriate level of risk, and will boost competition in the sector,” Mr Keogh said.

Strengthening competition over the short, medium and longer term

ACCC recommended that ALDI, Coles and Woolworths be required to publish their prices on their websites, and Coles and Woolworths also make available application programming interfaces that provide dynamic price information to third parties such as online price comparison tools.

While there were significant barriers for new or smaller supermarkets to enter and expand at a large scale in Australia’s supermarket sector, ACCC suggested small-scale local entry and expansion was more achievable in the immediate future.

“While small-scale entry by independent supermarkets is less likely to deliver significant price competition to incumbent chains compared to large-scale entry of a new chain, they deliver important benefits to those in the local market by providing a different range and level of service,” it said.

“Currently, the availability of suitable retail sites is limited by planning and zoning laws, which restrict overall supply and can lead to delays that deter entry or expansion for competitors,” Mr Keogh said.

“To improve competition and enable greater entry and expansion, we are recommending that all levels of government simplify and harmonise planning and zoning requirements to make it easier to establish new supermarkets.”

New merger regime will benefit competition

The inquiry has heard that Coles and Woolworths have advantages in competing for suitable retail sites due to their significant size, reputation and financial resources. Consequently, their potential rivals found securing retail sites very challenging.

These challenges highlight the importance of enhancing the ACCC’s ability to scrutinise acquisitions by Coles and Woolworths, which the recently passed merger reform laws will assist with.

Since 2019, Coles and Woolworths had acquired about 260 sites between them (including existing stores, land and shopping centres), of which the ACCC was only notified of 14, and sometimes this was by third parties.

“The recently passed merger reform laws, and a potential Ministerial instrument that would introduce further notification requirements for supermarkets, will give the ACCC greater power to scrutinise supermarket acquisitions and guard against any substantial lessening of competition within the supermarket sector through such acquisitions,” Mr Keogh said.

“The recommendations outlined in our final report, in partnership with the new merger laws, will help to improve competition within the sector over the longer term, and lead to better outcomes for both consumers and suppliers.”

Reducing the burden for consumers when making shopping decisions

ACCC recommended greater transparency regarding pricing, promotions and loyalty programs to reduce the burden on consumers when they try to understand the value for money of supermarket offers.

“Through clearer sales tickets and promotions, consumers will be better placed to make more informed decisions about what products offer the best value for them at the checkout,” Mr Keogh said.

A key concern raised by consumers throughout the inquiry was the lack of notice of price increases and, in particular, instances of ‘shrinkflation’, which is effectively a price increase where a product’s size decreases but the price either remains the same or increases. ACCC recommended that supermarkets be required to publish notifications when this occurs.

“This information would, at a minimum, be required to be published in proximity to the product ticket on shelves, and on the webpage for the product,” Mr Keough said.

“By giving consumers this transparency over what are effectively price increases, consumers would be better able to ‘vote with their feet’ and switch to cheaper alternatives if that is their preference,” he said.

Improving price visibility in remote areas

Higher freight costs to serve regional and remote areas are likely the primary reason for higher retail prices in those areas, ACCC found. A lack of competition was also likely to affect prices and result in reduced range, store amenity, opening hours and service quality compared to more competitive markets in metropolitan areas.

ACCC recommended measures to increase price transparency and complaints handling in remote areas, and that governments of all levels should consider supporting community-owned and run stores in remote areas where there is limited or no choice of supermarket.

“Some supermarkets in remote locations do not display the price for all grocery items on the shelves, which inhibits a consumer’s ability to make an informed choice about product value,” Mr Keogh said. “We support recommendations to improve price transparency in remote locations, including introducing a mandatory requirement for supermarkets to display pricing information on all items in stores.”

ACCC also recommended governments provide support and funding to state and territory fair trading bodies to monitor compliance with price transparency in remote locations as well as ensuring remote supermarkets make consumers aware of where they can make a complaint.

A number of the report recommendations were focused on giving fresh produce (fruit and vegetables, not meat) suppliers greater transparency of supply forecasts.

ACCC found that there is a significant bargaining power imbalance between Coles and Woolworths and some suppliers, and both companies exercised their buyer power through their trading terms and business processes and practices.

“There is substantial information asymmetry between fresh produce suppliers and supermarket chains when they participate in weekly tendering process,” the report found.

ACCC recommended that ALDI, Coles and Woolworths be required to provide fresh produce suppliers with greater transparency about the weekly tendering processes they use to negotiate price and volumes with suppliers. The implementation of this recommendation would involve further consultation which should be undertaken by the ACCC.

“We are proposing to hold a consultation process with relevant stakeholders to develop reform recommendations for supermarket fresh produce weekly tendering arrangements,” Mr Keogh said.

The ACCC is recommending ALDI, Coles and Woolworths should not be able to unilaterally reduce the price or volume agreed in purchase orders confirmed through their weekly tendering processes other than in the case of a force majeure event.

Supermarkets should be required to provide fresh produce suppliers with more detailed information about the basis for seasonal forecasts to allow suppliers greater ability to predict and forecast future demand.

“Improving transparency for demand forecasts will give suppliers greater certainty and greater ability to assess their risk exposure in the supply of fresh produce,” Mr Keogh said.

“We received detailed information in confidential submissions and roundtables with suppliers who placed significant trust in the ACCC to hear their views. Many suppliers fear retribution from raising concerns directly with the major supermarkets. We found that suppliers need more information and protections to be able to make more informed investment decisions.”

The ACCC recommends that major retailers be subject to mandatory market reporting obligations, so that suppliers of fresh produce can obtain a much better understanding of market conditions and will be better able to engage in informed supply negotiations with supermarkets.

To improve the current bargaining power imbalance and enhance protections for suppliers, the ACCC is also recommending that the Food and Grocery Code be amended to prohibit grocery retailers from being able to negotiate out of core protections in the Code.

ACCC last conducted a comprehensive inquiry into the grocery sector in 2008.

Click here to access the full report

Industry responses

The National Farmers Federation welcomed the Supermarkets Inquiry Final Report, which it said confirmed that market imbalances could have long-term consequences for Australia’s fresh produce sector.

NFF President David Jochinke said the report’s independence and thorough evidence gathering reinforce concerns raised by producers.

“For two years, debates have raged about supermarket market power, but this independent report provides clear confirmation: fresh produce suppliers are facing serious, real challenges.

“While not all agricultural commodities are affected, fresh produce suppliers have been particularly vulnerable to market imbalances, information asymmetries, unclear supply and demand forecasts, and buyer incentives that undermine competition,” he said.

“The ACCC’s conclusion – that major supermarkets’ use of market power could have lasting consequences for efficiency and sustainability – underscores the urgency of action.”

“It’s now critical that these recommendations don’t gather dust. We welcome the Government’s in-principle support for all recommendations and call for bipartisan commitment to their implementation,” Mr Jochinke said.

“Whoever forms the next Government must work closely with fresh produce suppliers to ensure these recommendations deliver meaningful change.

NSW Farmers said many farmers felt vindicated by the findings after decades of pain from the nation’s powerful supermarkets.

“Farmers have seen prices go up at the checkout and come down at the farmgate, and our major supermarkets can no longer hide behind excuses for their disgustingly huge profits,” Mrs Reardon said.

“These giants are world-leader on profits, which ultimately come from shoppers’ pockets and farmers’ incomes. Unfair behaviour is behind these super profits, and it’s pushing the people that grow our food out of business at a rate we’ve never seen before.

A crackdown on unfair behaviour within the grocery sector was long overdue, Mrs Reardon said, with the Australian Government urged to take swift action.

“If we really want to change the culture of our supermarket sector for good, then we need price transparency systems – as well as divestiture powers to break up these giants when they misbehave.

“Families are sick of paying too much for their groceries, and farmers are sick of being paid next to nothing. We all need fair prices, fast, or Aussies won’t just be worried about cost-of-living – we’ll be worried about where our next meal will come from.”

Coalition response

Leader of The Nationals David Littleproud said Labor’s supermarket inquiry showed it was designed for a government about to go to an election.

Mr Littleproud said the Albanese Labor Government had a business-as-usual approach, to protect families and farmers against the major supermarket’s profiteering and anti-competitive behaviour.

“Prime Minister Anthony Albanese pledged on January 16, 2024, ‘if the ACCC asks for more powers, then my government will give it to them’, after ACCC chief Gina Cass-Gottlieb said she would welcome new powers to break up big business including supermarkets and that those powers would be ‘useful to have in the toolkit’.

“However, just a month later, after the big supermarkets had obviously got to him, he declared he would rule out divestiture because ‘we are not a Soviet country’.

“Mr Albanese has never been genuine about real change and has played politics while families go without meals tonight.

“Labor’s Mandatory Food and Grocery Code won’t take effect until April 1, despite the cost-of-living crisis being now, not April 1, and the Coalition calling for action since 2022.

“Under Labor, supermarkets can continue to price-gouge on families and ditch suppliers with one simple tarnished product, because Anthony Albanese’s ’s measly fine of $198,000 could be pulled out of a till at any city that does nothing to change culture.

“Anthony Albanese has also been too weak to stand up to the major supermarkets and has had the wrong priorities, making excuse after excuse for three years.”

The report found some types of groceries have skyrocketed more than others in price since 2019, such as oils and fats (49pc), eggs (47pc), milk (34pc), cheese (33pc), and bread (32pc), stating grocery prices have ‘increased significantly in Australia and impacted affordability for consumers’.

“The inquiry asks for more transparency and reporting but fails to understand if there’s not a consequence for doing the wrong thing, then it’s just business-as-usual for the big supermarkets.”

Mr Littleproud said the Coalition had a strong plan to crack down on major supermarkets and deliver fair prices, that included:

• Higher penalties from $2 million on the spot fines, scaling up to $10 million.
• Increased powers for the ACCC to be conduct random audits of major supermarkets.
• A Supermarket Commissioner, to act as a confidential avenue for farmers and suppliers, to address the fear of retribution.
• Sector-specific divestiture powers, in the hands of the ACCC and the courts, as a last resort to address the behaviour of supermarkets and to put an end to instances of price-gouging.

“All families and farmers are asking for is a fair price but Labor has let them down. The Coalition will have the back of families and farmers.

“Our changes will protect families at the checkout and farmers at the farm gate.”

Here’s a summary of ACCC’s 20 recommendations:

• Governments should consider support for community-owned stores in limited choice areas (particularly remote areas) with appropriate governance measures
• Supermarkets should be required to publish pricing information
• Governments should adopt measures to address planning and zoning issues
• Supermarkets should be subject to minimum information requirements for discount price promotions, supported by record keeping obligations
• We support the Australian Government’s proposal to consult in relation to proposed changes to the Unit Pricing Code
• Supermarkets should be required to publish notifications when package size changes occur in a manner adverse to consumers
• Coles and Woolworths should be required to provide members with periodic loyalty program information disclosure summaries
• Coles and Woolworths’ loyalty program practices should be reviewed in 3 years
• We recommend measures to strengthen complaints handling mechanisms in remote locations
• Supermarkets should not be able to negotiate out of key minimum protections in the Food and Grocery Code
• Harmonisation of accreditation and auditing requirements
• ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with detailed information about their supply forecasts
• ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with greater transparency about the weekly tendering processes they use to negotiate price and volumes with suppliers
• Greater transparency about supermarkets wholesale fresh produce prices
• ALDI, Coles and Woolworths should not be able to unilaterally reduce wholesale fresh produce prices or volumes agreed with suppliers
• Greater transparency for growers who sell fresh produce through intermediaries
• Suppliers of supermarket branded fresh produce to supermarkets should have earlier certainty about orders placed with them
• Suppliers should be allowed to apply their own branding to fresh produce
• There should be greater transparency about the rebates suppliers pay to supermarkets
• Coles and Woolworths should be more transparent about how supplier funding contributions to their inhouse retail media services are used.