Without competition, Coles and Woolworths misuse their market power – and the Australian public gets screwed
This is an extract of evidence given to the Senateelect committee on supermarket prices on 15 April 2024.
I have spent over a decade working on the frontline of supermarket pricing, working for suppliers wanting to sell their products within Australian supermarkets. I have been fortunate to work for some of the biggest brands, allowing me to have a breadth of experience and contact across all functions of the supermarket sector.
During this time, I have witnessed first-hand the tactics and practices Australia’s supermarket duopoly, Coles and Woolworths, deploy to price gouge suppliers and, ultimately, customers.
Coles and Woolworths are currently running risk-free businesses. They are propped up by suppliers who are paying for the majority of their expenses, with the Australian public being overcharged at every step. They have gotten away with this for years due to the lack of competition in the market and their market power abuse. As a result, you consistently see higher recommended prices, compared with other countries on the same products from large multinationals.
In order to do business with Coles and Woolworths, you must: (1) agree to the terms of trade they set; (2) meet the category margin – that is more than 40% – that they set; (3) agree to the promotional plan and margin, which is again set by them despite being mostly funded by the suppliers; and (4) commit to significant advertising support in Coles and Woolworths owned media, typically in amounts exceeding half a million dollars. These are clear signs of misuse of market power.
Due to their size and reach, Coles and Woolworths are the only real options suppliers have in Australia. Both retailers have similar margin expectations, promotional allowances and advertising support requirements, meaning there is no real competition between them or their shelf pricing.
This doesn’t happen by accident. And it causes real financial strain on businesses – who are then forced to increase their prices, ultimately hurting consumers. Coles and Woolworths are the only winners.
Price increases can happen for two reasons, and are always at the request of the supplier. The first reason is that there is a genuine increase in costs justifying the increase. The second is that suppliers see an opportunity to increase price and make more profit. Both Coles and Woolworths have minimum requirements for every price increase and none of them have anything to do with protecting their customers. The criteria are:
No change to retailer margin percentage – the money Coles and Woolworths make selling the product;
No change to promotional frequency and margins – the campaigns and discounts that the supermarkets use to entice customers; and
No change to advertising commitment – the money Coles and Woolworths make through their own instore and online advertising mediums.
In my experience, having directly negotiated price increases with Coles and Woolworths over a long period, the playbook they use time and time again is fourfold.
First, they reject or only partially accept the price increase request. Second, they determine a “gap” – a number that in my view is invented and doesn’t hold any real substance – that is then used to get suppliers to invest more money into Coles and Woolworths. So, in circumstances where a supplier has indicated that their costs have increased, the supermarkets then seek to extract more money – ultimately compounding ultimate price increases for customers.
Third, the supermarkets play games and delay until the last minute, at which time they finally align on some form of payment or incremental investment from the supplier, in the form of promotions, margins or advertising support. At last, the price increase is approved.
Because Coles and Woolworths set margin percentage expectations, they know that with every price increase, they stand to make millions. No wonder there is little effort … by the retailers to understand the cost pressures or look at alternative solutions, such as margin reduction, instead of passing the cost to the customer.
The only party getting screwed here is the Australian public.
The current cost of living crisis on food has been deliberately fuelled by the greed of Coles and Woolworths. Make no mistake about it – we find ourselves in this situation because there is no true competition in the supermarket industry.
Blowing the whistle on the supermarket duopoly’s price gouging and market power abuse is the biggest risk I have taken, both personally and professionally. I would be lying if I said I wasn’t apprehensive about the future. By publicly giving evidence, I have effectively made myself unemployable in this industry and possibly others. But despite the risks, despite the advice I received discouraging me from doing this, I feel compelled to speak up.
I ask only one thing in return. My plea is this – do not let this opportunity go to waste. Do not let the risks taken by me, and no doubt others, be for nothing. The Albanese government has the power to stop this cycle of greed and alleviate the cost of living pressures felt across the nation.
Coles and Woolworths are not unique – similar practices are also occurring in the housing, banking, utilities and insurance industries, compounding the pressures faced by everyday Australians. But taking strong action against Coles and Woolworths will send a message to all industries: stop now or risk being the next industry to face action.
Consumers are not powerless either. My message to Australians is that they can spark change, too, by spending with brands and retailers that support them rather than price gouge them. Australians should look for other retailers in the market, visit produce markets to support growers, and look online for new brands to drive more competition. As an insider I can tell you – such changes to consumer habits will be immediately felt and noticed.
The country is watching and waiting for action to be taken to ensure relief is felt by households.
• Abdel Badoura has worked for over a decade in the consumer goods sector with some of Australia’s biggest brands. This is an extract of evidence he gave to the Senate select committee on supermarket prices in Canberra on Monday