The cruellest part? Coles and Woolworths appeared to target battlers

If the allegations of dishonesty and illegality against Coles and Woolworths are accepted by the Federal Court, the effects on the supermarkets – and on public policy – will be large.

They include general reputation damage, huge fines and questions about who in the business knew what about the illegal practices and when.

Illustration: Joe Benke

The Australian Competition and Consumer Commission alleges Coles and Woolworths temporarily increased the prices of 245 and 266 products respectively for short periods, before placing them on “Down Down” and “Prices Dropped” promotions.

But what is particularly galling about the scandal is the products for which prices were allegedly manipulated include many staples of ordinary and low-income families – Tim Tams, Kellogg’s and Weet-Bix cereals, Moccona coffee, Sprite soft drink, Bega cheese, Colgate toothpaste, Maggi noodles, Sakata rice crackers, Whiskas cat food and more.

These are not luxury items favoured by wealthier shoppers. Those being allegedly conned and exploited were families struggling at the height of the cost-of-living crisis.

The systematic nature of the manipulation, its duration, and the fact that a significant number of ordinary consumers were able to establish its existence raises important questions about Coles and Woolworths management and directors.

If ordinary consumers could readily establish this behaviour occurred, what about senior management and the board? If consumers knew, didn’t they? Was a blind eye turned?

Shoppers have long suspected that this gouging has been going on – now there seems to be credible evidence. Indeed, if this was occurring on that scale and in such a systematic manner, it has perhaps gone on for much longer. To that extent, these allegations are even more serious.

Were there rigorous compliance programs operating in these businesses? If there were, they would surely have known the standard point made in elementary consumer law texts and compliance programs that false discounting of this kind is illegal.

If they are found guilty, the fines are likely to be big – in the hundreds of millions of dollars due to recent changes in the law. Doubtless the Australian Competition and Consumer Commission, which is running the case, will argue in court that the big retailers, assuming they knew what was going on, regarded the behaviour, if detected, as a cost of business to be weighed against the potential substantial profits it would generate.

The courts will be urged to set a fine so large that it deters businesses from treating this behaviour as a small cost risk. And if the allegations are proven, I believe the fines should be in the hundreds of millions of dollars. This sends an important message to Australian business as a whole.

But what choices do consumers have in Australia? Can they retaliate? Sadly, Coles and Woolworths operate as a cosy duopoly. There is no other major groceries’ provider available. There is some competition from Aldi, for example, but not much choice. Aldi is a different kind of shopping experience.

To create more competition and true fairness in the market, Australia needs new big players to make life and pricing more uncomfortable for the duopolists. Unfortunately there are few signs of this on the horizon. Every step should be taken to strengthen competition by opposing big retailer land banking, by tightening merger control and by competition policy institutions exposing dubious price practices and shaming offenders.

Currently, there is a debate about whether Australia should have a divestiture power, which would allow the government to break up the assets of a company with too much market power, as is the case in the US, the UK and many OECD countries. I believe it is important that Australia does have a divestiture law that would be applicable to the whole competition law, and that it should be used occasionally.

Even if the gouging claims are proven, I doubt it would be appropriate to break up the big supermarkets. But I do believe that if there had been a divestiture power, it would have deterred this kind of behaviour.

My report for the ACTU on price gouging emphasised a number of business practices such as loyalty pricing, drip pricing, rockets and feathers, inappropriate price discrimination by personal prices. False discounts is another good example.

Does this sort of behaviour contribute to inflation? A little bit. It is particularly relevant to the task of reducing inflation. Business has to do its part rather than use dishonest practices.

A standard claim by retailers, recently endorsed by the Business Council of Australia president Geoff Culbert at their annual dinner – in the presence of the prime minister, senior ministers and the media – is that profit margins in retail look small. On a per unit basis, they are small. But when multiplied by the millions of products being sold, they add up to big profits. Net profit after tax is low, but still well above the same numbers in the UK and many parts of the US where markets are more competitive.

In their duopoly, Coles and Woolworths have a licence to print money. That license is premised on them not bleeding the Australian public dry through price manipulation on products favoured by those struggling financially.

If found guilty, the supermarkets would join the likes of Qantas as having lost the trust of Australians for good. And rightly so.

Allan Fels is the former chair of the ACCC.

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