Why a feeding frenzy over Coles and Woolworths prices? The Prime Minister’s breathless recent announcement of ‘a crackdown on dodgy supermarket practices’ suggests something is terribly wrong.
The Australian Competition and Consumer Commission is taking legal action against Coles and Woolworths for allegedly misleading customers through discount pricing claims. Fair enough, we shall see what they find. The ACCC will also undertake an inquiry on competition in the sector, on top of the Senate committee inquiry of May this year, that recommended stronger anti-merger powers, divestiture powers, and anti-price gouging powers. These come on top of a clutch of inquiries from Alan Fels for the ACTU, former Minister Craig Emerson for the government, a review by The Treasury, and on and on.
These inquiries are all about retail politics, not food retailing. The Senate committee listed tales of woe from many submissions but nowhere supplied proof that Coles and Woolworths were responsible as a matter of practice (as opposed to passing on higher prices) for the soaring prices that Australians face.
Scores of individuals and organisations, including farmers, beef producers, fruit growers, unions, and consumer groups claimed the duopoly crushed them. To add insult to injury, the Senate committee concluded that if supermarkets are not gouging, they are wasting decent food.
Woolworths countered with some useful insights. For example, eighty-six per cent of Woolworths customers also shop at Aldi, Coles, or IGA. Woolworths stores typically have five competitors found within a short distance. Consumers can and do shop around.
Between allegedly squeezing workers, suppliers, and consumers, it follows that the two giants must be making super profits. What did Treasury have to say in its submission to the Senate inquiry? ‘Woolworths obtained around 6 cents in every dollar spent as earnings before interest and tax, while Coles obtained almost 5 cents. These figures have increased slightly over the past five years.’
These margins are not exceptional and 3-5 per cent lower than typical profit margins in other industries. Keep in mind Apple’s reported net profit margin is 28 per cent; Facebook-owner Meta’s is 35 per cent; Google-owner Alphabet’s is 24 per cent; and Microsoft’s is 35 per cent.
Also keep in mind that Coles distributes 80 per cent of its profits to 440,000 shareholders, including many ‘mum and dad’ investors and superannuation funds representing millions more Australians.
The Australian Bureau of Statistics reported that food and non-alcoholic beverages had the fourth largest increase in inflation, but that alcohol, tobacco, housing, and transport were significantly higher.
In the last four years, prices for food and non-alcoholic beverages increased in Australia by 19 per cent which is lower compared to New Zealand, the UK, Canada, and the US, as well as the EU, where prices have increased between 23-31 per cent. Alcohol, tobacco each have significant taxation levied nothing to do with Coles and Woolworths as such.
Inputs are obviously powerful drivers of inflation. Nestlé submitted that it has seen significant and prolonged cost inflation in ingredients and raw materials, packaging, transport, labour, and energy. The prices of cocoa and robusta coffee, have continued to rise into 2024 and cocoa beans have increased 200 per cent since the start of the year, on top of record prices.
As a side issue and something well-to-does and Greens (the committee was chaired by The Greens Senator Nick McKim) obsess about is food wastage, which took up a great deal of the Senate committee’s report.
One submission, published by the Senate committee, noted ‘that if supermarkets were in a position to put so many items into the bin, it lends support to the argument that their business models are very profit driven.’ And that is a crime?
Coles discussed this wastage, advising that 'with things that you would find in a bin, it's not always completely obvious as to why it was put there' and 'we would just caution anyone not to eat food out of a Coles bin, because there's probably a good reason why it's there'.
What the wastage obsessives never ask is how much waste would there be if we were a nation of small shopkeepers, which was once the case. The food distribution system would be far less efficient and more wasteful, and far more expensive. Coles and Woolworths are out to make a quid and their wokeness riles, but they are not the cause of inflation - taxes and the climate change response are much more relevant, but then the blame would be aimed at the politicians.
Gary Johns is chair of Close the Gap Research and shops at Coles
