The big two supermarkets, Coles and Woolworths, have once again come under scrutiny following the release of a major report by the Australian Competition and Consumer Commission (ACCC).
The watchdog found that both chains have limited incentive to compete on price and continue to maintain strong earnings margins.
The investigation, prompted by rising cost-of-living pressures and allegations of pandemic-era price gouging, concluded that the concentration of Australia’s grocery sector leaves consumers with few alternatives.
Market dominance
The ACCC estimated Woolworths takes in 38% of supermarket grocery sales, while Coles controls 29% – a combined market share of nearly 70%.
Despite not formally declaring a duopoly, the regulator confirmed the sector is oligopolistic, with limited price competition and significant market power.
Former ACCC chair Graeme Samuel criticised the supermarkets for their treatment of consumers, particularly around pricing transparency and loyalty programs, which the report described as “ambiguous and confusing.”
He also questioned the value of new recommendations relating to supplier relationships, pointing to prior reforms already adopted by the government.
The report found both Coles and Woolworths increased their product margins, particularly on branded goods, over the past five years.
These increases have contributed to higher earnings margins, despite broader cost pressures in the retail sector.
By contrast, IGA-supplier Metcash was the only major player not to increase margins over the same period.
Suppliers in weak position
The duopoly scenario creates a weak bargaining position for suppliers, especially those in fresh produce, who are effectively dealing with only one buyer.
The report raises concerns over contracts lacking transparency on pricing or quantity, and noted supplier fears of retaliation when raising concerns.
German discount chain Aldi continues to provide some price competition, particularly through its exclusive home-brand model, but the ACCC noted its market share remains limited.
The regulator issued 20 recommendations, including greater transparency on pricing and discounting, a review of loyalty programs in three years, and enhanced oversight of supplier rebate practices.
It also called for more support for community-based supermarket models and co-operatives.
The federal government welcomed the report and announced a further A$2.9 million to help suppliers navigate the supermarket sector, but stopped short of committing to structural reforms.
It noted the ACCC’s findings did not support breaking up the major chains.
Customers can shop elsewhere: CEO
In her statement in response to the report, Woolworths Group CEO Amanda Bardwell said: “We have taken steps to improve the experiences customers and suppliers have with us and continue to listen carefully to them.
“We fully understand that customers want us to make it easier to find value, especially as the cost of living remains their major concern.”
Bardwell went on to attribute high prices to “several years of significant inflation” and the supplier costs to supermarkets in the wake of the COVID-19 pandemic.
“Our experience, in our store and online is that the Australian grocery sector is very competitive,” she added.
“Our customers have greater choice than ever before and are cross-shopping between different retailers more often. If we don't get it right for customers, they shop elsewhere.”
Investors didn’t seem to mind the report either, with shares in both companies rising today.
Woolworths stocks were up 4.5% to $29.4, while Coles' share price was 2.3% higher at $19.