Woolworths and Coles the subject of Senate Select Committee findings on Supermarket Prices

Senate Select Committee on Supermarket Prices

On 6 December the Senate established an Inquiry into the price setting practices and market power of major supermarkets with specific reference to the effect of market concentration and the pattern of price setting between the two major supermarket chains, Coles, and Woolworths. The report of the Inquiry was released on 7 May.

What the Senate Committee learned

The Senate Committee noted that Australia’s supermarket sector is one of the most concentrated in the world with the largest four supermarkets holding 82 percent market share of the $135 billion grocery sector. Woolworths and Coles had combined annual sales of $80 billion in the 2023 financial year, giving them two-thirds of the food and grocery market. Woolworths holds 37 percent and Coles 28 percent, followed by Aldi with 10 percent and Metcash at 7 percent. However, there are some localities in Australia where the combined market share of the two major chains is more than 90 percent.

What the Senate Committee recommended

Some of the Senate’s key recommendations are:

The Competition and Consumer Act be amended to create divestiture powers specific to the supermarket sector, where a supermarket has been found to have misused their market power, including charging excess prices, otherwise known as price gouging.

A Commission on Prices and Competition be established to examine prices and price setting practices of supermarkets that lead to high prices. This covers the authority to monitor and investigate supermarket prices and price setting practices, mark-ups, and profits.

The Food and Grocery Code of Conduct be made mandatory, with financial penalties for breaches and protections against supplier retribution. The Code should provide suppliers with a price register for farmers to assist them in understanding how market prices are determined.

The Australian Competition and Consumer Commission have the powers to investigate and make recommendations to government to address land banking in the supermarket sector.

Supermarkets be required to adopt a mandatory information standard for unit pricing, including changes in price and size of products to prevent promotional material indicating a discount when one is not available, including prominent disclosure of changes in the price or size of a product.

Supermarkets be required to publish regular data on food waste volumes, including food rejected for cosmetic reasons and food donated to foodbanks and similar charities.

What’s next?

The Federal Government has directed the Australian Competition and Consumer Commission (ACCC) to hold an inquiry into pricing and competition in Australia’s supermarket sector. The Inquiry will examine competitive dynamics in the retail supply of groceries and in associated supply chains, with particular regard to how prices are set at different levels of the supply chain, and the associated margins. The ACCC will submit an interim report by 31 August 2024, and submit a final report by 28 February 2025.

Potential implications for Coles and Woolworths

At first pass there’s not much in this report that should be a cause for concern by shareholders in Woolworths or Wesfarmers, which owns Coles.

Australia’s Competition Act, including the Consumer Law, already prohibits anti-competitive practices, including cartels and misuse of market power and it currently applies to the supermarket sector. This is enforced by the ACCC and prohibits unconscionable conduct and unfair contract terms.

There is considerable difficulty in prohibiting excessive pricing because while price gouging is undesirable, it is not illegal and there is no legal definition of misleading, deceptive or unconscionable conduct. However, price collusion and predatory pricing are illegal. Predatory pricing refers to businesses deliberately setting their selling price below the cost price to discourage competition and force other businesses out of the market.

The Food and Grocery Code of Conduct is a voluntary agreement and all major grocery and food market participants including Coles and Woolworths are already signatories to the Code.