Coles and Woolworths controversy an opportunity to win business: Aldi and IGA supermarkets

Alleged dirty tactics by Coles and Woolworths are shaping up to be a big opportunity for rival operators who say Aussies have had a gutful and a level playing field is needed.

Challengers to Coles and Woolworths say the supermarket industry is ripe for disruption as customers become increasingly fed up with alleged anti-competitive behaviour and the two face legal action for allegedly misleading shoppers over discounts.

Law firm Gerard Malouf & Partners (GMP) on Friday announced it had launched a class action investigation into the supermarket giants over their “misleading or non-existent” discounts.

The Australian Competition & Consumer Commission claims Woolworths and Coles inflated the prices of some products by at least 15 per cent while purchase prices remained steady.

The country’s third-largest retailer, Aldi, and independent operators are seeing a noticeable increase in foot traffic into their stores as shoppers chase better deals.

Aldi Australia managing director Jordan Lack told The Weekend Australian that more customers were turning to Aldi in search of lower prices in the face of cost of living pressures.

“Our data shows that we have over 4 per cent more households shopping with us as customers seek everyday value. That’s new customers coming to Aldi for the first time,” he said.

“On top of that, existing customers are increasing the frequency of their shops at Aldi. This is a trend that we have been observing for some time and preparing for as a business.”

The German chain said it was considering further opportunities to shake up the market. It is offering cut price mobile and insurance deals and announced an expansion into the packaged holiday space this week.

The ACCC’s interim report – published as part of an inquiry called by the Albanese government – said the chains were an oligopoly and warned it would scrutinise whether Coles and Woolworths were misusing market power to ratchet up prices.

The report highlighted the murky practice of “land banking” that could be keeping rivals such as Aldi out of regions, questioned the rise in food prices at their stores and said it had received complaints from consumers and suppliers.

Ritchies CEO Fred Harrison says the conditions are right for independent retailers to gain more customers. Picture: Glenn Hunt

Ritchies Supermarket chief executive Fred Harrison, who oversees the largest network of IGAs, said the current storm facing Woolworths and Coles was a chance for IGA to pick up more foot traffic, increase sales and expand its customer base.

“In this day and age, the customers are looking for competitive shelf prices. Our pricing is as sharp as anybody’s in the market at the moment and we are within 2 per cent of the major chains,” he said. “We probably run more specials than anyone else with our Ritchies Handbill and the IGA Handbills too. People are recognising our pricing improvement. This comes as consumers are shopping in three to four supermarkets each week in search of value.”

Drakes Supermarkets managing director Roger Drake said the public had been clear about their desire for a change in their supermarket options from the major players which controlled 70 per cent of the market, adding that the government needed to ensure customers were the priority.

“Governments have let us down as they continue to allow Coles and Woolworths operate without checks in place. History shows (Coles and Woolworths) are willing to overpay to buy out the competition, cherry-picking the best sites and leaving the scraps for us,” he said.

“Customers are recognising the importance that independent retailers play in keeping the duopoly honest.”

Mr Drake said that the supermarket chain had fielded calls to expand in Victoria and NSW due to demand from people who wanted to spend their money at businesses that prioritised customers instead of shareholders, adding that while they looked at opportunities it had become harder to make the numbers work.

He has called for more robust regulation to restrict the movements of Woolworths and Coles, saying that divestiture would only see them let go of unprofitable stores, which were not viable for a smaller operator to run.

“We just need an even playing field to prove to Australians that we can compete,” he said.

“With the extra funding the ACCC is receiving, this should be the area that it looks at first, not price-gouging investigations. They need to invest in small businesses to help make them an attractive alternative in the supermarket sector.”

The Coalition has proposed divestiture laws that would affect major supermarket and hardware players with more than $5bn in turnover a year and allow courts to force the sale of stores if a misuse of market power was proved.

Mr Harrison said supermarkets were facing the same situation that the banks did 10 years ago with the royal commission, where everything seemed to be the fault of supermarkets – but that was not entirely the case.

“I can speak for my business: profitability has decreased in recent years, so we’ve seen no financial benefit to what’s happened in the market,” he said. “Coles and Woolworths may be different, but Ritchies or IGA have zero to do with the decisions suppliers make around their packaging, if they maintain or shrink a pack. Instead of the government putting the onus on supermarkets for shrinkflation when maybe they should be talking to the actual manufacturers and suppliers themselves.”

For its potential class action, GMP Law is currently seeking lead applicants – specifically those who are members of the rewards programs run by Coles and Woolworths.

“GMP Law is committed to holding these retailers accountable and will be seeking refunds for affected consumers,” GMP law chair Gerard Malouf said in a statement. “The proposed legal action aims to recover the price differential between the alleged illusory discounted pricing and the original, undiscounted price.”

Mr Malouf said consumers had the right to receive honest and transparent information about the products they purchase.