ACCC finds Coles, Woolworths among most profitable in the world

ABC NEWS (Australia)

ACCC Deputy Chair, Mick Keogh, says improving competition is still the best way to bring down prices.

Transcript

00:00It's quite a complex issue, because as you would realise, supermarkets typically carry

00:08anywhere between 25 and 30,000 different product lines, and the margins on those vary anything

00:16from 10% for some of the essentials, through to 40 or 50% for some of the luxury items

00:25that they might carry.

00:27And so in a typical basket, you can understand that there's a range of those products, and

00:33getting to the bottom of whether those margins are excessive or not is a very complicated

00:38piece.

00:40We focused on finding ways to improve competition, because of course that's the best preventative,

00:48if you like, to make sure margins aren't excessive, and that's where our focus has been in this

00:53inquiry.

00:54To pick up on your point about the margins of, they're between 10% and 50%, what is a

01:00fair margin?

01:03Well that's exactly the challenge.

01:06That's a very difficult question to answer, and if you want to go down the track of price

01:12regulation then it becomes a very complex issue.

01:15So we don't think that's the way to go, we think a better way to go is to enhance competition,

01:22because that means allowing consumers to better understand pricing, to look at true

01:28value and understand where the best bang for their bucks is, and get some of that confusion

01:35that exists at the moment out of the system, is the best way to make sure those margins

01:40aren't excessive, because they will have to compete to attract that consumer dollar more.

01:45And in terms of those margins, your report found that they've increased over the past

01:50five financial years, so is there price gouging for some items?

01:57Price gouging is very much an issue that people talk about, but is ill-defined.

02:05What we found is that the supermarkets have been able to steadily increase their margins

02:10over the last five years, and that's a reflection of their power in the market.

02:15They have such strong presence in the market that they can, for example, require their

02:20suppliers to fund promotions, to fund a whole range of things, and supermarkets retain their

02:27margins even when prices are increasing.

02:31That's where our focus has been, and finding ways to address that and make that more transparent,

02:36we think will help.

02:38And just one more on the margins point, when those items have a margin of 50%, what sort

02:44of items are we talking about here?

02:49You're probably talking more about things like luxury items, discretionary spending

02:53on chocolate bars, on those sorts of products where those margins can prevail because consumers

03:04are making impulsive decisions about them, and also the pricing of those tends to change

03:11almost on a weekly basis, so it's very difficult, for example, chocolate bars, we saw examples

03:17where chocolate bars double and then halve in price week in, week out, and so consumers

03:22find it very difficult to know what the actual price should be and where the value lies,

03:27and therefore they make impulsive purchasing decisions, and that's where those margins

03:32come into play.

03:33Commissioner, there's definitely a sentiment in the community that there is a duopoly when

03:37it comes to the major supermarkets, yet that's not a term that you've used, instead looking

03:43for other terms.

03:44I'm just curious about why that is.

03:48Well we certainly recognise the importance of Aldi as the third player in the marketplace,

03:55albeit Aldi has a limited range, around 2,000 product lines, and most of them are home brand

04:01products rather than competition directly for the major branded products that consumers

04:06are most familiar with.

04:08They're also limited in terms of their geographic extent, they're mainly in the major population

04:13centres, so it's not strictly a duopoly, there is competition there, there is also some competition

04:19from specialist retailers, butchers, greengrocers, and also some of the other retail chains,

04:25for example, chemist warehouse, bunnings, etc, are starting to carry some of the products

04:30that supermarkets also carry.

04:33So there is some competition at the margins, but consumers told us very strongly that the

04:38number one factor they consider in making their purchasing decisions is convenience.

04:43In other words, the location of the nearest supermarket, and the ability to do their shopping

04:48all in one go, and that's the particular strength that the two majors have.

04:55So we recognise that it's an oligopoly rather than a duopoly, but there is still significant

05:02market power held by the two major players.

05:06When it comes to shrinkflation, this is something that you've focused on and has come up regularly

05:11and including in political discussions in recent years, why is it so hard just to define

05:16exactly what shrinkflation is and what it looks like?

05:22It's not hard to define it, it's where the product size changes adversely for the consumer

05:29without a resulting change in price.

05:32What we think is important is that consumers are alerted to that, and that's the recommendation

05:39we've made here, that there's a requirement to actually indicate on the shelf where a

05:44product has gone through that shrinkflation and therefore is less valued for consumers.

05:51We think that's the best way to address that issue.

05:53And tell me what do you think needs to happen around pricing data, and how would that work

05:58in practicality, are there parallels to petrol pricing for example?

06:04There are.

06:06We've recommended that Woolworths and Coles in particular, but eventually Aldi as well,

06:10be required to make that pricing available in real time via application programming interfaces,

06:17by APIs.

06:19That would enable third party comparators for example, to provide consumers with an

06:25app that would allow them to compare prices in real times between the two major supermarkets

06:31for example, and also look at how that price has changed historically.

06:36And that would give much more information to consumers to be able to make sensible purchasing

06:42decisions even when there's all the confusion created by all the promotions, all the specials,

06:48all the different coloured tickets as they walk down the aisles.

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