The Australian Competition and Consumer Commission's (ACCC) Supermarkets Inquiry has entered its next phase, following a review of consumer and supplier concerns. The interim report, published today, paints a picture of a retail oligopoly, with Woolworths and Coles accounting for 67% of supermarket sales nationally. Aldi and Metcash account for 9% and 7% respectively.

Consumers have reported a loss of trust in supermarket pricing and are increasingly comparing grocery prices online before shopping. However, they face difficulties in comparing prices and finding the best value for products. Almost 50% of respondents to the ACCC's recent consumer survey said they 'always' or 'most times' compare prices between stores before shopping - by comparison, the ACCC's 2008 Grocery Inquiry found that 17% 'always' compared prices.

"Oligopolistic market structures can limit incentives to compete vigorously on price. We see Woolworths and Coles providing a broadly similar experience to customers through largely undifferentiated product ranges, pricing at similar levels and similar non-price offerings including loyalty programs," said ACCC Deputy Chair Mick Keogh. "So far during this inquiry we have heard in detail about many aspects of Australia's grocery markets. Increasing grocery prices are one key contributor to the rising cost of living and are front of mind for consumers, given how often people shop at supermarkets and how much of their incomes people spend there.

The price of a typical basket of groceries has increased by more than 20% in the past five years, and the ACCC's consumer survey indicated that the majority of respondents in low-income households are spending more than 20% of their net income on groceries.

"We have observed that food price growth in the last five years is largely in-line with inflation in other goods and services, and that food price inflation is lower in Australia than in most OECD countries. However, we will look very closely at the extent to which any market power held by the supermarkets has a role in increasing prices to consumers or decreasing prices to suppliers," Keogh said.

Many consumers told the ACCC they are losing trust in the sale price claims by supermarkets, Keogh said. "These difficulties reportedly arise from some of the pricing practices of some supermarkets, such as frequent specials, short-term lowered prices, bulk-buy promotions, member-only prices and bundled prices."

Consumers also raised concerns that they are being penalised for not participating in supermarket loyalty programs. "With the introduction of member-only pricing, some consumers may feel they have no option but to participate in loyalty programs, even if they have concerns about handing over data to the supermarkets," Keogh said.

The ACCC report also highlights suppliers facing unfavourable terms set by supermarkets, with many having raised concerns they sometimes receive prices below the cost of production and have little choice but to agree to highly unfavourable terms, with these terms being subject to ongoing changes by the major retailers.

Some of the issues raised by suppliers include being required to pay rebates to retailers for specials and promotions, to use retailer-specified advertising and transport services, and to comply with burdensome accreditation and packaging requirements. In particular, perishable product suppliers have raised strong concerns about supermarket procurement practices, including accreditation obligations, demand forecasting, the application of quality standards and weekly tendering processes that lack transparency and transfer considerable risk on to suppliers.

"The issues raised by a number of suppliers are concerning. We are using our compulsory information gathering powers to examine this reported behaviour by the supermarkets, and will include any findings in our Final Report," Keogh said. "We are considering these issues and are analysing whether supermarkets are contributing to, or taking advantage of, information asymmetries, leading to suppliers not having access to the information they need to make efficient business decisions."

The final report for the inquiry is due to be provided to the Government by 28 February 2025. "During the remaining five months of our Inquiry we will scrutinise whether, and if so how, the supermarkets may be using market power and the economic implications this has for Australian consumers and suppliers," Keogh said. "We will examine whether supermarkets are exercising market power to increase retail prices more than is necessary to accommodate increases in the wholesale prices supermarkets pay. We are also examining whether supermarkets are engaging in other business practices that may cause detriment to consumers or suppliers."

The Supermarket Inquiry continues separately from other ongoing actions, including a Choice investigations into the supermarket sector as well as the ACCC's decision to take both of the largest supermarkets to the Federal Court alleging their respective 'Prices dropped' and 'Down down' marketing promotion campaigns are misleading consumers on pricing of hundreds of common supermarket products. The issues in dispute in these proceedings will not be considered by the Supermarkets Inquiry.

On the subject of market force, the ACCC noted ALDI has taken more than 20 years to reach a 9 per cent share of national supermarket retail sales. This demonstrates the level of difficulty entering and expanding in supermarket retailing, and the significant investment, time and differentiated offering required to expand, it stated.

"Our preliminary view is that planning and zoning laws may slow a supermarket retailer's ability to develop new stores by creating additional costs or adding significant delays," Keogh said. "We have received submissions raising concerns about alleged 'land banking' but have not yet formed any views on this issue."

Information provided by Coles and Woolworths suggests land may be held for lengthy periods of time for various reasons, including the need to obtain rezoning and development or planning approvals, construction delays, site cleanups, and population growth being slower than expected. Information provided to us suggests Coles and Woolworths have interests in a significant number of sites intended for future supermarket use: Woolworths has interests in 110 sites; Coles has interests in 42 sites. By way of comparison, information provided by ALDI suggests it holds 13 undeveloped sites.

The ACCC has identified fourteen products that will be the focus of detailed analysis over the remainder of the Inquiry: beef, chicken, pork, bananas, apples, strawberries, cucumbers, potatoes, eggs, milk, cereal, biscuits, pet food, and dishwashing tablets.

The ACCC will also conduct public hearings involving senior executives of the major retailers and other relevant stakeholders in November to gain a more complete understanding of the key issues in the retail grocery sector and its associated supply chains.