Supermarket giants asked to boost their price transparency to combat shrinkflation and assist suppliers

Woolworths and Coles is an entrenched oligopoly but there’s no ‘silver bullet’ to halt their power, the competition watchdog’s final report says.

Woolworths and Coles have dodged a forced corporate break-up by the ACCC. Picture: David Swift

Woolworths and Coles will not be forcibly broken up by the competition regulator, but the $120bn supermarket sector they control will have to improve price and supplier transparency that is likely to wrap them in more costly red tape.

Unveiling the Australian Competition and Consumer Commission’s final report into the supermarket industry late on Thursday, the regulator has labelled Woolworths and Coles oligopolies enjoying an “entrenched” number one and two position in the nation’s grocery sector, but has stopped short of calling for them to be busted up.

Woolworths and Coles, as well as third-ranked player Aldi, will spend the next few days poring over the 441-page ACCC report and its 20 recommendations, but investors will take immediate solace that divestiture powers that could have forced the two publicly listed retailers to sell out of regions or businesses will not be pursued.

Nor is there any recommendation or outright banning of the twin supermarket giants sitting on undeveloped land for lengthy periods, known as “land banking”, which rival retailers have accused them of as a way to stop competition on their turf.

This is despite the ACCC report acknowledging that Coles, Woolworths and German discounter Aldi are some of the most profitable supermarket businesses among global peers, due partly to their entrenched positions, and their average product margins healthily increasing over the past five financial years.

“Coles and Woolworths’ dominance of the sector seems set to continue,” the ACCC concluded.

ACCC deputy chair Mick Keogh. Picture: Adam Taylor

“While they face ongoing and evolving competitive challenges on many fronts, their entrenched position in an oligopolistic market means substantial pro-competitive departures from the status quo are unlikely in the foreseeable ­future.

“There is no “silver bullet” to address all the issues identified by this inquiry. However, we have recommended a range of potential legislative and policy reforms and other actions aimed at collectively addressing aspects of the market that are not working well, including where competition is unlikely to emerge, and bolstering competition over the medium to longer term where it is possible to do so.”

ACCC deputy chair Mick Keogh, who oversaw the inquiry, told The Australian the regulator did not take a “big stick” to the powerful supermarket chains.

“I think that’s probably a fair observation and we are certainly conscious of that, and we see this in other areas we deal with, taking a big stick can sometimes have unintended consequences that don’t necessarily improve the situation,” Mr Keogh said.

He said that, as he ran the inquiry and formulated his recommendations, he was surprised at the extent to which senior supermarket executives brought before his public hearings did not have adequate operational knowledge.

“We had public hearings where we had senior executives seemingly not understanding some of the complexities, particularly of their supply arrangements, and how they played out in practice,” Mr Keogh said.

“Whether that compartmentalisation is deliberate, or whether a function of very large organisations, we weren’t able to get to the bottom of and that was surprising,” Mr Keogh added.

Woolworths CEO Amanda Bardwell appeared at the public hearings along with retired CEO Brad Banducci, deferring many questions to her predecessor and other executives as she had only been CEO for 11 weeks. Coles CEO Leah Weckert also fronted the public hearings late last year.

Mr Keogh was perplexed about this apparent knowledge gap. “Certainly it was surprising that there didn’t seem to be a stronger awareness and understanding,” he said.

The threat of forcing Woolworths and Coles to divest parts of their retail empires was a recurring theme last year as the ACCC produced its interim report – in which it also called the chains an “oligopoly” – and throughout the public hearings as the Greens openly discussed or advocated for a break-up.

After the ACCC heard from 20,000 customers, took more than 100 submissions, delved into thousands of internal documents and heard from executives, it settled on recommending clearer pricing practices and elevating suppliers’ negotiating power.

Coles Group chief Leah Weckert earlier this week. Picture: Luis Enrique Ascui

The recommendations, which include greater transparency for suppliers and reforms to planning and zoning laws, were designed to improve competition in the supermarket sector, make a difference for consumers, and give suppliers fairer bargaining conditions, Mr Keogh said.

The ACCC is recommending Aldi, Coles and Woolworths be required to publish their prices on their websites, and for Coles and Woolworths to also make available application programming interfaces that provide dynamic price information to third parties, such as online price comparison tools. This would allow third party digital platforms to give consumers live and dynamic information about shelf prices and compare the major chains, much like some websites offer price comparisons for hotels or airline tickets.

The ACCC is also 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,” Mr Keogh said.

A key concern raised by consumers during the inquiry was the lack of notice of price increases and, in particular, instances of “shrinkflation”, which is effectively a price increase by volume. 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 web page for the product. By giving consumers this transparency … consumers would be better able to ‘vote with their feet’ and switch to cheaper alternatives if that is their preference,” Mr Keogh said.

Woolworths chief executive Amanda Bardwell.

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 power through their trading terms and practices. There is substantial information asymmetry between fresh produce suppliers and supermarket chains when they participate in weekly tenders.

The ACCC is recommending that Aldi, Coles and Woolworths be required to provide fresh produce suppliers with greater transparency about how they negotiate price and volumes with suppliers.

This would involve further consultation.

The ACCC suggests 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 like a cyclone.

Further, supermarkets should be required to provide fresh food suppliers with more detailed ­information about seasonal ­forecasts to allow suppliers ­greater visibility over future ­demand.

Woolworths, Coles and Aldi, as well as the wider grocery and business sector, are expected to respond to the ACCC recommendations on Friday.

Originally published as Supermarket giants asked to boost their price transparency to combat shrinkflation and assist suppliers