Key findings:
- Market concentration is high: Many local grocery markets are highly concentrated, particularly in regional and remote areas where consumers often have limited or no choice of supermarket. Sixteen percent of respondents in regional areas and 56% in remote areas reported having “no other option” than their main grocery store.
- Pricing practices are complex: Supermarkets extensively use promotional strategies including high-low pricing, multi-buys, and longer-term discounting. The ACCC found issues with unit pricing legibility and consistency, making price comparisons difficult for consumers. Concerns were also raised about “shrinkflation” (reducing package sizes while maintaining price).
- Loyalty programs drive retention: Major supermarkets use sophisticated loyalty programs to increase customer stickiness and reduce incentives to shop around.
- Supplier relationships are imbalanced: Coles and Woolworths exercise significant monopsony power over many suppliers, particularly fresh produce suppliers, with limited transparency in forecasting and tendering processes.
- Barriers to competition exist: Metcash (supplier to independent supermarkets) faces structural barriers to competition, while planning and zoning laws create barriers to entry and expansion for all competitors.
Key recommendations:
- Supermarkets should be required to publish clear notifications when package sizes change in ways adverse to consumers (addressing shrinkflation)
- Governments should simplify, streamline and harmonise planning and zoning laws to reduce barriers to entry
- Governments should consider supporting community-owned supermarkets in limited choice areas, particularly remote communities
- Supermarkets should be subject to minimum information requirements for discount price promotions
- ALDI, Coles and Woolworths should provide greater transparency to fresh produce suppliers about seasonal forecasts and tendering processes
- ALDI, Coles and Woolworths should not be permitted to unilaterally reduce agreed wholesale prices or volumes with suppliers except in force majeure events
The report emphasizes that these reforms would improve competition, enhance consumer welfare, and create a more transparent and fair grocery sector in Australia.
Concerns from the ACCC Supermarkets Inquiry Final Report
1. Food security and consumer vulnerability in remote communities
- Consumers in remote areas face substantially higher grocery prices with minimal choice
- 56% of respondents in remote areas reported having “no other option” than their main grocery store
- Supply chains in remote locations are vulnerable to extreme weather disruptions for up to 5 months annually
- Many respondents on lower incomes reported they “can no longer afford meat and fish,” are buying less fresh produce and dairy, and some are “eating less and skipping meals to provide for their children”
2. Power imbalance in supplier relationships
- More than 41% of surveyed Woolworths and Coles suppliers reported “fear of damaging a commercial relationship” as an impediment to raising issues
- Fresh produce suppliers bear disproportionate risk in production planning due to unreliable forecasts and volume commitments
- Suppliers lack transparency about pricing decisions, with supermarkets referring to a “market price” that suppliers cannot verify
- Many suppliers feel obligated to fund promotions they would prefer not to support to maintain their commercial relationships
3. Lack of genuine competition in local markets
- 100% of markets in remote and very remote areas are highly concentrated or single-site monopolies
- In regional areas, more than 50% of local markets (within 10 minutes’ drive time) are highly concentrated or monopolies
- Planning and zoning laws create significant barriers to entry for potential competitors
- The ACCC notes that “the fundamental dynamics of competition in this sector and associated outcomes appear set to continue for the foreseeable future”
4. Consumer confusion about pricing practices
- Complex promotional strategies make it difficult for consumers to assess true value
- Widespread confusion about what constitutes the “real” price of groceries due to constant discounting cycles
- Unit pricing is often difficult to read, inconsistent between products, and varies between retailers
- “Shrinkflation” (reducing package sizes while maintaining price) occurs with insufficient notification to consumers
5. Loyalty programs and data collection concerns
- 79% of respondents to a CHOICE survey said it is unfair for supermarkets to charge more for certain items if consumers don’t sign up for loyalty programs
- Member-only pricing creates barriers for consumers concerned about data privacy
- Increasing personalization of offers reduces price transparency for non-members
- Loyalty programs create “consumer lock-in” through sophisticated data collection and targeted offers
These concerns reflect systemic issues in the grocery sector that disproportionately impact vulnerable consumers and suppliers with less bargaining power.