Smaller suppliers are increasingly feeling pressured to spend more on advertising through major retail networks, according to confidential submissions to the Australian Competition and Consumer Commission’s (ACCC) ongoing supermarkets inquiry. Many suppliers say they are being compelled to advertise on the retail media platforms of Australia’s most prominent players, including Woolworths’ Cartology and Coles’ Coles 360, to maintain their commercial relationships with these powerful retailers.
These platforms, along with Chemist Warehouse, dominate Australia’s growing retail media landscape. Forecasts by Morgan Stanley predict that retail media spending on in-house advertising platforms will surge from $1 billion in 2022 to $2.8 billion by 2027. However, smaller suppliers are raising concerns about the financial burden of these growing advertising costs, which they say they are forced to bear to ensure continued business with the retail giants.
The ACCC’s interim report from the inquiry highlights concerns about the significant buyer power held by Coles and Woolworths. Suppliers report feeling obligated to purchase additional services, such as retail media and data analytics, which are tied to their ability to sell products in these supermarkets.
“One participant also raised that suppliers are being asked to cover a new charge for advertising through retail media. This includes physical and digital advertising in store, in shopping centres and online,” the report detailed.
Coles 360 and Cartology offer a wide range of services, including in-store advertising, digital marketing, social media promotions, and targeted ads to loyalty program members. For many suppliers, particularly those dealing in products like fresh produce, these advertising costs are often imposed without transparency. Suppliers are sometimes asked to contribute to a collective campaign budget but are left in the dark about whether their contributions are proportionate to those of other suppliers or how the funds are spent.
This lack of transparency, combined with the high costs associated with in-house media platforms, is placing increasing strain on smaller suppliers, many of whom have limited marketing budgets. These suppliers are also grappling with the discounts demanded by retailers during promotional periods, further squeezing their margins. In some cases, suppliers feel pressured to accept lower wholesale prices to accommodate the supermarkets’ aggressive discounting campaigns, such as Coles’ “Down Down” and Woolworths’ “Prices Dropped” initiatives, which have both come under scrutiny by the ACCC for potentially misleading advertising practices.
Another issue raised in the inquiry is the supermarkets’ use of consumer data for targeted advertising. Some suppliers and consumer advocates, like CHOICE, argue that the supermarkets’ data enrichment practices give them a competitive edge, allowing them to offer highly targeted and personalised marketing. This data is often gathered through loyalty programs and combined with external sources, enabling retailers to gain deeper insights into consumer behaviour. While this can enhance retail offerings, it raises concerns about privacy and the manipulation of consumer choices.
CHOICE’s submission to the ACCC noted that almost three-quarters of Australians find targeted advertising intrusive, with less than 10% feeling comfortable with being targeted without prior consent. Additionally, nearly half of Australians are uncomfortable with companies using their personal characteristics for advertising purposes unless they have explicitly opted in.
As the supermarkets’ media empires expand, smaller suppliers are left grappling with an increasingly uneven playing field. With their limited access to data and smaller budgets, these suppliers find themselves at a growing disadvantage in the high-stakes game of retail advertising, where failure to participate can lead to exclusion from Australia’s largest grocery chains.
The ACCC has yet to form a formal opinion on whether the data collection and advertising practices of supermarkets raise regulatory concerns. However, the inquiry’s findings so far shed light on a system that many smaller suppliers feel is becoming increasingly unsustainable as they struggle to keep up with the demands of retail giants and their ever-growing media empires.
It was announced last week that the ACCC would take Coles and Woolworths to the Federal Court for allegedly misleading consumers with false discount pricing on hundreds of products. According to the ACCC, both supermarkets raised prices by at least 15 per cent for short periods before promoting these items in Woolworths’ ‘Prices Dropped’ and Coles’ ‘Down Down’ campaigns, offering prices that were higher or the same as the original price before the spike.
“Following many years of marketing campaigns by Woolworths and Coles, Australian consumers have come to understand that the ‘Prices Dropped’ and ‘Down Down’ promotions relate to a sustained reduction in the regular prices of supermarket products,” said ACCC chair Gina Cass-Gottlieb. “However, we allege the new ‘Prices Dropped’ and ‘Down Down’ promotional prices were actually higher than, or the same as, the previous regular price”.
The ACCC identified this conduct through consumer complaints and social media monitoring. The ACCC alleges that between September 2021 and May 2023, Woolworths misled consumers on 266 products, while Coles did the same on 245 products between February 2022 and May 2023.
While the ACCC can take legal action, it does not regulate supermarket prices; instead, it enforces the Food and Grocery Code of Conduct and the Unit Pricing Code.
