Everyone seems to be a victim in the supermarket review

What started a few months ago, with the government’s populist swipe about supermarkets being complicit in price gouging, is evolving into finger pointing between the retail giants about who is potentially mistreating their small suppliers.

Everyone seems to be a victim in the supermarket saga. Woolworths doesn’t appreciate (along with Coles) getting singled out as the villains capitalising on the asymmetric bargaining power they have against small and medium-sized suppliers.

Craig Emerson has recommended considerable fines for supermarkets that break a proposed code of conduct.Credit: Peter Rae

Woolworths is engaging in a “look over there” strategy, suggesting that the spotlight be shared with other large retailers – such as Bunnings and Chemist Warehouse – that carry some grocery items on their shelves. For that matter, Woolworths wants the likes of Amazon and Costco to be captured in the net as well.

Further, confusing the debate, Woolworths found an unexpected ally from a bunch of horticulturists who jumped on board with claims they were effectively being bullied by Bunnings, which dominates the retail plant market.

Complaining about the cost of shrubs doesn’t really elicit the same response as the portrait of a pensioner scraping the bottom of their purse to buy milk. So it probably won’t meet the government’s populist criteria.

But it does feel like Woolworths is muddying the waters in this already-confusing debate, which was originally about the big supermarkets overcharging their customers.

There are two separate strands to the intense behavioural focus on the large supermarkets.

The first, which is being investigated by economist and former Labor minister Craig Emerson, deals with the voluntary Food and Grocery Code of Conduct. Since 2015, the code has set out the road map for how large supermarkets deal with their small suppliers.

In his first pass on the code, Emerson suggested some sensible improvements. First, make the code mandatory and second, beef up the size of the fines so they better reflect the infringement.

While there is no downside in giving the code stronger teeth, there is no obvious evidence it was being abused by the supermarkets, given there have been only six disputes lodged since 2021.

Complaining about the cost of shrubs doesn’t really elicit the same response as does the portrait of a pensioner scraping the bottom of their purse to buy milk.

Sure, this could reflect small suppliers being fearful of complaining about their treatment at the hands of the big supermarkets, or it could mean that the relationship between suppliers and supermarkets is not a problem.

That said, shoring up the code is designed to improve suppliers’ bargaining position, which in turn should enable them to receive a better price from supermarkets.

But how such an outcome is meant to achieve the government’s second objective of reducing the prices that consumers are paying at the checkout is a brain twister. (There are numerous government-sponsored inquiries into supermarket pricing already under way and the chief executives of Coles and Woolworths will be publicly grilled in Canberra next week.)

It’s economics 101 that if the supermarkets are paying more to suppliers, this increase will ultimately be passed to consumers.

In this respect, the two prongs of the government’s war on supermarkets actually fight each other.

Emerson took to morning television in an attempt to reconcile how helping suppliers can also assist in lowering the price at the checkout.

“As for shoppers, this review is about the relationship between suppliers and the supermarkets. And the way that this can work through well for shoppers is if suppliers can get a reasonable return on their investments. They’ll have enough money to invest in new technologies that reduce the prices that they charge while still making money, and increase the quality of the products … so, it works both ways,” he valiantly explained to the audience of toast-butterers.

His explanation seems as wishful as it does theoretical.

Meanwhile, the supermarkets are caught in this government pincer which seems intent on proving they are making too much money – either by financially monstering their customers (many of whom are struggling with a cost-of-living crisis) or their suppliers (such as beef farmers or zucchini growers).

Suggestions that the supermarkets are receiving profit margins aligned with their international peers are being drowned by the rest of the noise.

Read more:

• David has sold lamb for $4 a kilo. He’s shocked to see the price at Woolworths
• Coalition developing ‘big stick’ law to rein in Coles and Woolworths
• Supermarket inquiries send Woolworths, Coles into damage control

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