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.
“There is no ‘silver bullet’ that will address all the issues we have identified in the supermarket sector,” ACCC Deputy Chair Mick Keogh said. “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.”
Strengthening competition
The ACCC recommends 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.
Making price comparison easier for consumers, it says, may increase supermarkets’ incentives to compete more vigorously on price.
ACCC also identified 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,” Mr 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.”
The inquiry noted that Coles and Woolworths have advantages in competing for suitable retail sites due to their significant size, reputation and financial resources. 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,” Mr Keogh said.
Reducing the burden for consumers
The ACCC recommends 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 throughout the inquiry was the lack of notice of price increases and, in particular, instances of ‘shrinkflation’. The ACCC has called for supermarkets to 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,” Mr Keogh said.
“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.”
The ACCC has also recommended 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,” Mr 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.”
Fresh transparency
Noting substantial information asymmetry between fresh produce suppliers and supermarket chains when they participate in weekly tendering process, the ACCC recommends 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.
“We are proposing to hold a consultation process with relevant stakeholders to develop reform recommendations for supermarket fresh produce weekly tendering arrangements,” Mr Keogh said.
The ACCC recommends 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,” Mr Keogh said.
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, it also recommends that the Food and Grocery Code be amended to prohibit grocery retailers from being able to negotiate out of core protections in the Code.
Core recommendations
In the past 12 months the ACCC has heard from more than 20,000 consumers who responded to a consumer survey, received more than 100 public submissions, held eight supplier roundtables, reviewed tens of thousands of internal documents, conducted private hearings and ten days of public hearings, and analysed billions of points of supermarket data.
“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,” Mr Keogh said.
The ACCC’s 20 recommendations are:
- Governments should consider support for community-owned stores in limited choice areas (particularly remote areas) with appropriate governance measures
- Supermarkets should be required to publish pricing information
- Governments should adopt measures to address planning and zoning issues
- Supermarkets should be subject to minimum information requirements for discount price promotions, supported by record keeping obligations
- We support the Australian Government’s proposal to consult in relation to proposed changes to the Unit Pricing Code
- Supermarkets should be required to publish notifications when package size changes occur in a manner adverse to consumers
- Coles and Woolworths should be required to provide members with periodic loyalty program information disclosure summaries
- Coles and Woolworths’ loyalty program practices should be reviewed in 3 years
- We recommend measures to strengthen complaints handling mechanisms in remote locations
- Supermarkets should not be able to negotiate out of key minimum protections in the Food and Grocery Code
- Harmonisation of accreditation and auditing requirements
- ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with detailed information about their supply forecasts
- ALDI, Coles and Woolworths should be required to provide fresh produce suppliers with greater transparency about the weekly tendering processes they use to negotiate price and volumes with suppliers
- Greater transparency about supermarkets wholesale fresh produce prices
- ALDI, Coles and Woolworths should not be able to unilaterally reduce wholesale fresh produce prices or volumes agreed with suppliers
- Greater transparency for growers who sell fresh produce through intermediaries
- Suppliers of supermarket branded fresh produce to supermarkets should have earlier certainty about orders placed with them
- Suppliers should be allowed to apply their own branding to fresh produce
- There should be greater transparency about the rebates suppliers pay to supermarkets
- Coles and Woolworths should be more transparent about how supplier funding contributions to their inhouse retail media services are used.
The full report can be found here.
Read industry responses to the report and its recommendations here.
