Supermarket oligopoly reforms recommended in ACCC's final report

The final report for the ACCC’s supermarkets inquiry has made 20 recommendations after finding that ALDI, Coles and Woolworths are some of the most profitable supermarket businesses among global peers and their average product margins have increased over the past five financial years.

The recommendations, which include clearer pricing practices, greater transparency for suppliers, and reforms to planning and zoning laws, are designed to improve competition in the supermarket sector, make a difference for consumers and give suppliers fairer bargaining conditions.

Aspects of Australia’s supermarket sector, which is dominated by Coles and Woolworths, are not working well and this is leading to poorer outcomes for consumers and suppliers than would be expected in a more competitive market.

“In the past 12 months the ACCC has heard from more than 20,000 consumers who responded to our consumer survey, received more than 100 public submissions, held eight supplier roundtables, reviewed tens of thousands of internal documents, conducted private hearings and 10 days of public hearings, and analysed billions of points of supermarket data,” ACCC Deputy Chair Mick Keogh said.

“Based on this extensive analysis we have recommended a range of measures to improve conditions for competition in the sector and deliver better outcomes for consumers and suppliers.

“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,” Keogh said.

Giving fresh produce suppliers greater transparency of supply forecasts

The ACCC’s inquiry has found that there is a significant bargaining power imbalance between Coles and Woolworths and some suppliers, and Coles and Woolworths exercise 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 the weekly tendering process.

The ACCC is recommending 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,” 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.

Further, 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,” 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.

Strengthening competition over the short, medium and longer term

The ACCC is recommending 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.

There are significant barriers for new or smaller supermarkets to enter and expand at a large scale in Australia’s supermarket sector.

“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,” 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 find 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 have acquired approximately 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,” 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

The ACCC is recommending 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,” 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. The ACCC is recommending 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.”

“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,” Keogh said.

Improving price visibility in remote areas

The higher freight costs to serve regional and remote areas are likely the primary reason for higher prices in these areas. A lack of competition is 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.

The ACCC is recommending 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,” 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.”

The ACCC also recommends 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.

The Supermarkets Inquiry 2024–25 report can be downloaded here. 

Image credit: iStock.com/cyano66