Need to know
- Many shoppers believe the duopoly has made a lot of money from recent price hikes, but Coles and Woolies say food price inflation is due to external factors
- The biggest players say the supermarket sector in Australia is highly competitive and profit margins are slim
- The National Farmers Federation takes a different view, saying it's relying on the ACCC to expose the exploitation of suppliers and price gouging of consumers
When the Australian Competition and Consumer Commission (ACCC) announced in January that it was conducting a major inquiry into how supermarkets set their prices, many shoppers probably felt it had been a long time coming. It's the regulator's first full-scale investigation of the sector since 2008.
Many shoppers believe the two biggest players have made a lot of money from the price hikes of recent years. That it has happened during a cost-of-living crisis has made it all the more unpalatable.
Many shoppers believe the two biggest players have made a lot of money from the price hikes of recent years
But in their submissions to the inquiry, which were recently made public, Coles and Woolworths make similar self-exonerating claims to set the stage for their defence. They say that despite the prevailing view, the supermarket sector in Australia is highly competitive, and the big two are not that fabulously profitable. In fact, profit margins are razor thin.
Here's a breakdown of some of the main points outlined in their submissions.
What the big two supermarkets have to say for themselves
Profit margins are tiny
In 2022–23, Coles had $40 billion in revenue, but the company says its net profits are just $2.57 for every $100 it brings in. Woolworths says its banks $3.60 for every $100 of revenue.
Woolworths theorises that if it dropped food prices any further and made no profits at all, its customers would only save about $5 a week
Woolworths theorises that if it dropped food prices any further and made no profits at all, its customers would only save about $5 a week.
Woolworths would also like policymakers to bear in mind that its 176,000 locally based staff make it Australia's biggest private-sector employer. Another point made in the Woolies submission is that it paid over $5.1 billion in federal and state taxes and handed over $5.7 billion in dividends to shareholders over the past five years.
Increased food costs are due to factors outside their control
Suspiciously high food prices have been at the heart of consumer resentment, and both supermarkets weigh in at length on the subject.
Coles says grocery prices have been "impacted by a series of concurrent and unprecedented cost drivers and supply shocks". According to the company, they've gone up 19% in Australia since 2019.
The shocks include a "surge" of price increases for commodities, shipping, oil and fertiliser as well as the effects of wars and natural disasters.
According to Woolworths, the food price inflation Australians have been experiencing is attributable to international supply and demand dynamics, higher production costs, and weather events.
Both stress that the jump in food prices has been worse in other comparable OECD countries, where it has averaged 26%, according to Woolworths.
The industry is plenty competitive
Coles also disputes the claim that concentration in the Australian supermarket sector is an anomaly. Coles, Woolies, ALDI and IGA together have an 80% share of the market, but it's the same story in other countries with comparable populations and geographies, such as Canada and the Netherlands, according to Coles.
Woolworths says it faces "robust" competition from Coles as well as "a vast array" of other grocery retailers, including IGA, Foodland, Drakes, Harris Farm, Costco, and Amazon. Coles makes much the same claim.
Their submissions suggest that Coles and Woolworths feel they've been made into political fodder to absorb consumer anger at inflation more generally
Both supermarkets make the case that the ACCC's earlier big inquiry in 2008 found that the sector was basically competitive.
Coles points out that the earlier inquiry also "took place in an environment of food price inflation and concerns about a perceived widening in the gap between farmgate and retail prices".
Their submissions suggest that Coles and Woolworths feel they've been made into political fodder to absorb consumer anger at inflation more generally. Woolworths says "we recognise that our customers are experiencing pressure on household budgets across the board", but food makes up only 10% of this.
Many shoppers believe Coles and Woolworths have made a lot of money from recent price hikes.
Aldi weighs in
Aldi advances the narrative in its submission to the inquiry that it was tough trying to get a toehold in the Australian supermarket sector in 2001.
According to Aldi, it was government involvement in 2009 and 2010 "to stop anti-competitive behaviour" that allowed Aldi to open in the same shopping centres as the competition.
Aldi says it saves shoppers money because of its streamlined business model
The company says it now has more than 10% market share, over 590 stores in Australia and that about five million people shop there every month.
Aldi says it saves shoppers money because of its streamlined business model as compared to the competition. The company reports that it stocks about 1800 products as compared to the 25,000 products sold at stores such as Coles and Woolworths. About 90% of the Aldi products are exclusive brands.
"Competitor pricing is a significant consideration" when it comes to setting pricing, the company says.
Have farmers and suppliers been mistreated?
Both Coles and Woolworths suggest rumours regarding ill treatment of its suppliers are overblown.
Coles points out that some historical claims of its aggressive exertion of monopoly power, for instance, have proven tenuous. The ACCC Dairy Inquiry of 2018, sparked by the race-to-the-bottom milk wars between Coles and Woolworths, "recognised that $1 per litre private label milk was unlikely to have a direct impact on farmgate prices," Coles says.
Woolworths says it's "committed to fostering fair, transparent and mutually beneficial relationships with our suppliers" in line with the 2015 Food and Grocery Code.
In a statement released in late May, however, the National Farmers Federation (NFF) takes a different point of view, one that's also echoed in its submission to the inquiry.
Supermarkets will pay the lowest possible price for fresh produce and charge the absolutely maximum consumers are willing to accept
Jolyon Burnett, National Farmers Federation
Jolyon Burnett, Chair of the NFF Horticulture Council, said "growers are completely frustrated with supermarkets appearing before inquiries at both federal and state levels and being allowed to peddle the furphy that prices paid to suppliers, let alone those paid by shoppers, are driven by simple supply and demand".
Burnett says the NFF is "relying on ACCC powers to compel supermarkets to submit evidence that will fully expose the exploitation of suppliers and price gouging of consumers".
According to the NFF, produce in supermarkets can retail for up to ten times what the growers were paid.
"Supermarkets will pay the lowest possible price for fresh produce and charge the absolutely maximum consumers are willing to accept. Maximising profits for shareholders appears to be the primary motive," Burnett says.
It's a point touched on in Woolworths' submission to the inquiry. The company says it has an obligation to "generate returns for shareholders which are competitive with their alternatives" and implies that reducing its profits margins would reduce its ability to do this.
Stock images: Getty, unless otherwise stated.
