Australia’s Major Supermarkets Face Scrutiny Over Profit Margins Amid Rising Prices

Australia’s largest supermarket chains have expanded their profit margins while consumers face escalating grocery prices, according to a report released Thursday by the Australian Competition and Consumer Commission (ACCC). The competition regulator’s findings, as reported by Reuters, highlight concerns over fairness in the sector and propose measures to enhance market competition.

Per Reuters, grocery prices in Australia have surged by 24% over the past five years, outpacing wage growth and disproportionately impacting low-income households. The ACCC report, commissioned by the government, notes that while supply chain costs have played a significant role in driving up prices, supermarkets have also capitalized on the situation by increasing their profit margins. This suggests that “at least some of the grocery price increases have resulted in additional profits for ALDI, Coles, and Woolworths.”

Australia’s grocery sector is largely controlled by Woolworths, Coles, and privately-held ALDI, which collectively dominate around 75% of the market. The ACCC characterizes this structure as an “oligopoly,” with limited competition and few substantial changes expected in the near future. According to Reuters, while ALDI has managed to grow its market share to 9% in two decades, overall market competition remains weak.

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To address these concerns, the ACCC has recommended several measures, including mandatory disclosures of changes in package sizes, simplified planning regulations to encourage new market entrants, and restrictions on supermarkets’ bargaining power over suppliers. The report also proposes government support for community-owned competitors to improve market dynamics.

With a federal election approaching by May 17, the Australian government has been under pressure to tackle the rising cost of living. Inflation has begun to ease after peaking at 7.8% in late 2022, but the government has acknowledged the need for further action. According to Reuters, it has agreed in principle with the ACCC’s recommendations and pledged A$2.9 million ($1.84 million) toward educational programs aimed at empowering fresh produce suppliers in their negotiations with supermarket chains.

In a move to enforce fairer competition, the government has previously warned that supermarkets failing to adhere to a compulsory industry code of conduct could face hefty fines. Treasurer Jim Chalmers, who is set to present the federal budget on March 25, reaffirmed the government’s stance, stating, “Our ongoing supermarket crackdown means more competition, better prices, and better deals for Australians.”

Additionally, the ACCC has recommended greater transparency requirements for supermarkets. Meanwhile, legal action is already underway against Woolworths and Coles, with the competition regulator alleging that both companies have misrepresented shelf prices and falsely advertised discounts.

Source: Reuters