Supermarket greed and the grocery duopoly between Coles and Woolworths are the main reasons why grocery prices have risen, increasing cost-of-living pressures for struggling households, experts say.
In May, research from investment bank UBS showed that the cost of food at Coles rose 10.4 percent in April, while Woolworths rose 8.7 percent in the same month.
The study analyzed more than 60,000 supermarket products, with fresh food prices reporting a massive jump of 9.9 percent.
Former Australian Competition and Consumer Commission (ACCC) chairman Rod Sims blames rising supermarket prices on a lack of competitiveness, citing Australia’s duopoly between Coles and Woolworths, which together have a market share of around 70 percent.
Concerns abound over higher grocery costs at major supermarket chains as Coles and Woolworths continue to report extremely high profit margins (stock image)
According to Statistics, Woolworths Group holds 37.1 percent of the market share, while Coles Group holds 27.9 percent. Aldi owns 9.5 percent, IGA claims 6.9 percent, and the remaining 18.6 percent is held by other retailers, including Costco, Amazon and independent grocers.
“When you get into a period of inflation and rising costs, the question always arises, how much can we increase our price to cover the rising costs?” he said.
‘(From their increasing profits) it is clear that Coles or Woolworths raise their prices by more than their costs and I think they find that easier because they are only two.
“If they do both, that’s fine, there’s no competitive disadvantage… and that clearly means higher prices for the consumer.”
Mr Sims has argued for more merger reform, which would prevent Coles and Woolworths from taking over independent or smaller supermarkets.
During a federal parliamentary inquiry into supermarket prices, current ACCC boss Gina Cass-Gottlieb said she has “definite (shared) concerns” about the “level of concentration in the supermarket sector.”
Former Australian Competition and Consumer Commission chair Rod Sims (pictured) blames rising supermarket prices on a lack of competitiveness
While she said there were other factors driving higher prices, these elements could be “competed out” in a more competitive market.
“I would accept that there are fewer restrictions on them in a price competition than we would like to see,” she told the inquiry on Wednesday.
Recently, the consumer watchdog has also publicly opposed Woolworths’ acquisition of SUPA IGA in Karabar, NSW. It was concerned the takeover means that Woolworths would operate three of the six supermarkets in the Queanbeyan/Jerrabomberra local area.
Supermarket giants accused of scapegoating inflation
In April, food costs at Coles rose 10.4 percent and Woolworths rose 8.7 percent (pictured, fresh produce prices)
While Mr Sims agrees that rising inflation, logistical issues and supply chain logistics may be partly responsible for the increased costs, supermarket profit margins indicated that prices had risen more than ‘justifiably’.
In February, Coles reported earnings of $616 million in the same period, indicating an 11.6 percent increase.
The Woolworths group, which includes supermarkets, Metro stores and Big W, posted a profit of $907 million in the first half of fiscal year 2022/23, up 14 percent year-on-year.
According to the Australian Bureau of Statistics (ABS), the monthly consumer price index indicator is up 6.8 percent through April 2023, slightly up from March’s annual increase of 6.3 percent.
A 7.9 percent annual price increase for food and non-alcoholic beverages was the second most significant price increase, but it reported a marginal 8.1 percent drop the previous month.
“That’s the point,” Mr. Sims said.
“It’s not that prices shouldn’t rise because of inflation, of course they should, but if they rise more than inflation then you have to say, ‘How can they do that?’
Supermarkets are accused of taking advantage of a ‘cyclical cycle of conditions since the pandemic, to fatten their profit margins’ (stock image)
The director of the Australia Institute’s Center for Future Work, Jim Stanford, was harsher in his criticism, accusing supermarkets of taking advantage of a “confluence of events since the pandemic to drive their profit margins thick.”
“After the pandemic, there were some unique circumstances where greed kicked in, and we ended up with unusually wide profit margins in a number of key industries,” said Dr. Stanford.
Dr. Stanford was also critical of supermarkets citing higher supplier costs as a scapegoat.
“Every company is trying to point the finger at their own suppliers and say, ‘Look, we have to pay more for our inputs, so we have to charge more for our output,'” he said.
‘That is mathematically impossible, if the companies make higher profits. If they just passed on higher input costs, their profit wouldn’t change.’
According to Statistics, Woolworths Group holds 37.1 percent of the market share, while Coles Group holds 27.9 percent. Aldi owns 9.5 percent, IGA owns 6.9 percent, and the remaining 18.6 percent is held by other retailers, including Costco, Amazon and independent grocers (pictured)
Supermarkets are resisting accusations of price hikes
Despite Dr. Stanford, a Woolworths spokesman said a “main driver of inflation in supermarkets” was the “higher wholesale prices (supermarkets) our suppliers pay for goods.”
It is clear that suppliers have increased wholesale costs to four to five times above the usual level, fueled by the cost of ingredients, utility bills and labor costs. These costs can amount to about 70 cents on every dollar spent at the grocery store.
“The same dynamic is playing out across the OECD, where food inflation is nearly twice as high as Australia,” they said.
“Our grocery industry is fiercely competitive and continues to grow as retailers try to capitalize on the impact of technology, online innovation and the expansion of global retailers.
“We understand that Australians are feeling cost of living pressures and we will continue to work hard to deliver great value to our customers.”
A spokesman for Coles attributed their gross margin expansion to lower Covid-related costs and their Smarter Selling program, which aims to “deliver $1 billion in cumulative benefits by the end of FY23,” through measures such as loss prevention and efficiency in the supply chain.
Coles reported earnings of $616 million in February, indicating an 11.6 percent increase (stock image)
The Woolworths group, which includes supermarkets, Metro stores and Big W, posted a profit of $907 million in the first half of fiscal year 2022/23, up 14 percent year-over-year (stock image)
They also appreciated strategic sourcing, which may include using long-term contracts with manufacturers that can help them increase production capacity and reduce unit costs.
“Coles has never invested as much in our customers as he does now. We know that many of our customers rely on us to help them make ends meet and we are working harder than ever to deliver value,” they said.
“At a time when the cost of living continues to rise for many customers, Coles is committed to helping Australians with a range of value campaigns to support customers in difficult economic conditions.”
With the cost of living becoming an increasing pressure point on households, supermarkets have moved to cut costs.
On May 24, Woolworths reduced the cost of more than 450 grocery prices, such as Birds Eye Oven Bake Fish ($8 from $10.50), Woolworths Corned Australian Beef Silverside ($10 from $12), and D’Orsogna Shortcut Bacon 1kg ($ 13 from $19.50). Prices will remain frozen until August 22.
Coles has a similar Dropped & Locked program, where the prices of everyday items are reduced and frozen for a period of time, with current rates running until July 4th.
This week, Metcash-owned IGA pledged to cut prices on thousands of prices over three months in an effort to ease cost-of-living pressures.