The Australian Competition and Consumer Commission (ACCC) has revealed the final report into its long-running supermarkets inquiry, issuing broad recommendations around greater transparency around pricing and promotions.
Recognising that there was no “silver bullet” to address all the issues affecting Australia’s extremely concentrated supermarket sector, the ACCC recommended that the nation’s grocers introduce 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.
It also noted that ALDI, Coles and Woolies “appear to be among” the most profitable supermarkets in the world, adding that “Coles and Woolworths have limited incentive to compete vigorously with each other on price.”
Promotional Transparency
It said the “degree of promotional activity in Australia is extensive” driven by Coles and Woolies, noting that half the products on sale at the two were on promotions including specials, multi-buys, longer-term discounting and everyday low pricing.
It added the “complexity and quantity” of promotional practices at Coles and Woolworths make it more difficult for consumers to assess pricing, discounts and value for money, and multiple combined discounting schemes can lead to consumers making suboptimal purchasing decisions. It also found that Coles and Woolies seemed to run alternating discounts on many items.
It added a “key concern” raised by consumers throughout the inquiry was the lack of notice of price increases and, in particular, instances of ‘shrinkflation’, which is effectively a price increase where a product’s size decreases but the price either remains the same or increases. The ACCC is recommending that supermarkets be required to publish notifications when this occurs.
The ACCC also said that Woolies and Coles should be required to keep records of their promotional activities as well as new minimum information on discounts located close to products on sale.
It also said that the “very large supermarkets” should make “application programming interfaces available which provide dynamic price information for third parties”.
Loyalty Programs
The ACCC said that while there are “benefits to suppliers and consumers from promotional and loyalty programs” Coles and Woolies programs—Flybuys and Everyday Rewards—can “reduce their customers’ ability to make informed purchasing decisions” due to their “complexity and opacity”.
It also noted that concerns raised during the inquiry relate “almost exclusively” to the big two.
“Ultimately many consumers are left to make a judgement of whether they are getting a good deal overall based on impressions or perceptions rather than clear and useful information,” it said.
It recommended that Coles and Woolies be required to provide members with periodic loyalty program information disclosure summaries including the monetary value of points and other benefits earned and redeemed over the period and the amount the consumer has spent over the period. It also recommended that Coles and Woolies practices should be reviewed every three years.
The ACCC also noted that member-only pricing was not a “key concern” for shoppers in Australia, unlike their counterparts in New Zealand or the UK. This, it considers, is a good thing noting that member-only prices are “unfair” and “penalise consumers” who don’t want to sign up for loyalty schemes.
Retail Media
The ACCC noted that Coles 360 and Cartology, Woolies retail media arm, also need to have greater transparency, particularly with suppliers.
“The Australian Food & Grocery Council (AFGC) stated that retail media can provide benefits to suppliers, but there is unknown methodology for calculating the cost of using retail media, lack of transparency around the return of investment, and sometimes there can be very strong encouragement given to a supplier to use a retail media,” it wrote.
“The AFGC submitted that many suppliers have reported concerns they are pressured into using these services at markedly higher than market costs.”
Fresh produce suppliers, in particular, noted that they are “sometimes restricted” by Woolies and Coles from applying their own branding to produce. However, they said Coles and Wolies “request a monetary contribution” towards a campaign but had “no awareness” of whether the “contribution is proportional to that of other suppliers of the same category of produce.
“Nor do they have any awareness of how the funds are spent,” added the ACCC, “beyond seeing the public promotions the supermarket undertakes”.
The ACCC recommended that within three months of the end of the financial year Coles and Woolies “must provide each supplier that has provided funding to Coles 360 or Cartology with an itemised account of how the money contributed was used. In each instance where funding was used for any purpose other than promoting a specific brand or brands of the supplier, the amount of
funding contributed by other suppliers to each promotion must be provided”.
What They Said
In a statement, Woolworths Group’s new CEO Amanda Bardwell said: “We have worked constructively with the ACCC to help it understand our business, the sectors in which we operate, our suppliers and supply chains, and the considerable competition we face.
“We fully understand that customers want us to make it easier to find value, especially as the cost of living remains their major concern.
“We recognise they have experienced several years of significant inflation, with an escalation in the cost of mortgages, rent, transport, insurance, energy, food and many other household essentials. As reported by the ACCC, supplier costs to supermarkets also increased dramatically in the wake of the COVID-19 pandemic. Year on year prices in our Australian Food business have now declined for four consecutive quarters, as noted at our F25 Half Year Financial Result.
“Our experience, in store and online, is that the Australian grocery sector is very competitive. Our customers have greater choice than ever before and are cross-shopping between different retailers more often. If we don’t get it right for our customers, they shop elsewhere.
“We welcome recommendations that improve transparency for customers where they don’t have unintended consequences or increase costs,” she concluded.
Coles, meanwhile, added that the sector is “highly competitive” and is “evolving rapidly” noting that it is now competing with “major multinational players like ALDI, Costco, and Amazon, who have all established significant businesses in Australia and are expanding their market share.”
“As the ACCC’s analysis shows, grocery price increases during the past five years are significantly impacted by the rising cost of doing business. Coles and its suppliers have faced significant increases in costs like electricity, rent, insurances, wages, transport, and other costs essential for running a supermarket. We do not control these inflationary costs in the economy – but they contribute to higher grocery prices for Australian households.
“Coles has worked hard to keep grocery prices low, with grocery inflation of just 1 per cent, excluding tobacco, for the first half of this financial year,” it said.
“Our net profit margin has also not changed. Coles Net Profit After Tax – the only true measure of a company’s profits – has remained at around 2.6 per cent as a percentage of sales throughout the last five years, including through COVID-19 and the height of inflation.
“We have listened intently and have already made changes such as simplifying our promotional tickets, providing additional information to customers about promotions and are working to make
it easier for customers to compare products through clearer unit pricing. We remain committed to being part of industry-led solutions and we will be working even more closely with our suppliers, including fresh produce producers, to improve transparency and ways of working with them and all industry participants.”
Anna McGrath, CEO ALDI Australia said that the report confirms ALDI’s role in providing Australians with great quality products at everyday low prices.
”We’ve seen more customers turning to ALDI and we take pride in offering consistent value week in and week out, so our customers don’t have to chase discounts or specials. We keep prices low through extraordinary efficiency across our whole business. From our curated range of 1800 quality products, simplified packaging, our line-up of exclusive brands and our Australian first sourcing policy, to how we stack the shelves and load our trucks – delivering value to our customers is built into our business model.
“Behind the scenes, we have been working on a new website that will be live in April. This will include pricing for all items, including all our core range and Special Buys. We believe this will make it easier than ever before for our customers to compare the value they are finding at ALDI”.
