Many Australian consumers and grocery suppliers 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, according to the interim report for the ACCC’s supermarkets inquiry.
Halfway through the year-long inquiry, the competition watchdog has detailed information gathered through stakeholder submissions, responses to a consumer survey and feedback from suppliers at roundtable discussions held around rural and regional Australia.
The ACCC this week took Woolworths and Coles to court accused of misleading consumers through discount pricing advertising on hundreds of supermarket products.
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,” ACCC deputy chair Mick Keogh said.
"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.
“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," Keogh said.
"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."
Many consumers are concerned about higher prices at the supermarket and are increasingly comparing grocery prices online before going shopping.
However, they face 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,” 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 half of respondents to the ACCC’s recent consumer survey said 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 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,” Keogh said.
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,” 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.
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,” Keogh said.
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