The Australian grocery retail sector is worth $130 billion and is dominated by four main retailers who account for 80% of the market, Woolworths, Coles, Aldi, and Metcash. Woolworths currently control approximately 37% of the market followed by Coles with 28%, Aldi with 10%, and Metcash with 7%. Thus, between Coles and Woolworths, they control 65% of the Australian grocery market. This can be seen as a duopoly and the power between these two companies to control the price of food in Australia is significant.
Inflation has increased 5.4% over the past 12 months in Australia. During this time we have seen high petrol costs, a tighter rental market, and soaring electricity costs push consumer prices for goods higher. A recent notification advised that cheese has had a stunning 16% increase in price in the year to September 2023.
There are several mechanisms in Australia under the Competition and Consumer Act 2010 (Commonwealth) that provide provisions to prevent the abuse of market power and promote competition in the Australian marketplace. This is largely protected by the Australian Competition and Consumer Commission (ACCC). There are five major aspects to this law.
- The misuse of market power found in section 46 of the Act
This section prohibits corporations with substantial market power from taking advantage of that power for anti-competitive purposes. The law aims to prevent monopolistic or, in these circumstances, duopolistic behaviour, such as predatory pricing, exclusive dealing, or other actions that harm competition.
- Anti-competitive agreements
This can be found in sections 45 and 45A of the Act. These sections protect against anti-competitive agreements between businesses. This includes cartel behaviour (where companies collude to result in the increase of profit for the companies or to push a competitor out of the market pricing fixing, bid rigging and other activities designed to stifle competition.
- Mergers and acquisitions
This can be found in part VII of the Act. This includes provisions that regulate mergers and acquisitions to ensure they do not substantially lessen competition. The ACCC reviews proposed mergers and acquisitions to determine their impact on competition and provides advice and positioning to determine whether or not the merger or acquisition will be approved.
- Access Regimes
The act allows for the declaration of access regimes, which require companies with significant market power in essential facilities (e.g., telecommunications, infrastructure, railways) to provide access to their facilities on reasonable terms to other businesses.
- Authorisations and notifications
Part VIIA and Part VIIIA – Businesses can seek authorisation from the ACCC for conduct that may otherwise breach the competition laws. This process allows companies to demonstrate that their actions will result in a net benefit to the public such as increased competition or efficiency. Notification provisions also enable businesses to seek certainty for their proposed conduct.
We can now explore how the ACCC has considered the conduct of Coles and Woolworths in the past in relation to some of these aspects of the Competition and Consumer Act.
- Abuse of market power
In the past, both Coles and Woolworths have faced allegations of abusing their market power. For instance, they have been accused of engaging in practices like demanding excessive payments from suppliers or changing their contracts in ways that disadvantage small suppliers. These practices can harm competition in the supply chain, and the ACCC has investigated such cases to ensure fair and competitive practices.
- Anti-competitive behaviour
Coles and Woolworths have been under scrutiny for alleged anti-competitive behaviour, particularly in respect of price competition. For example, they have been accused of using predatory pricing strategies to undercut smaller competitors, make it difficult for small retainers to survive. These allegations fall under the Acts provisions against anti-competitive agreements and abuse of market power.
- Mergers and acquisitions
When Coles and Woolworths have sought to acquire other businesses or engage in mergers, the ACCC closely examines these transactions to ensure they do not substantially lessen competition. In the past, there have ben instances where the ACCC had imposed conditions or blocked mergers in the retail sector to protect competition. In May 2023, the ACCC opposed Woolworth’s acquisition of a Super IGA store in Karabar, NSW and its co-located liquor store. The ACCC argued that if this acquisition was approved, Woolworth’s would operate three of six supermarkets in the local area. Local consumers would only be left with just one Coles and two Aldi stores as alternatives. The ACCC had previously opposed Woolworth’s attempt to acquire this store in 2008.
In July 2023, the ACCC opposed Coles’ attempt to purchase two milk supply plants. The ACCC is concerned that Coles’ increased bargaining power could lead to reduced competition at the wholesale level, impacting on the processes long term viability and with the potential for flow on impacts to farmers in the regional area.
In 2014, the ACCC took action against Coles and Woolworths and investigated them in relation to using their market power to demand additional payments from suppliers or changing their contracts in a way to disadvantage suppliers. This resulted in both retailers making changes to their supplier relationships.
- The 2014 Coles ‘bread wars’
Coles was involved in a high-profile case relating to its ‘down down’ campaign where it heavily discounted bread products. This led to allegations of anti-competitive behaviour and concerns that smaller bakeries could not compete. Coles was ultimately ordered by the Federal Court to pay a $10 million penalty for engaging in unconscionable conduct towards suppliers.
- Coles and Woolworths Fuel Discounts
In 2013, both Coles and Woolworths were offering fuel discounts tied to supermarket purchases which raised concerns about anti-competitive behaviour. The ACCC examined these practices and implemented changes to ensure consumers could access the discounts without needing to make a separate supermarket purchase.
These are just some examples of some of the instances where the ACCC have stepped in to prevent anti-competitive behaviour by the Australian supermarket duopoly.
As international foods supply circumstances start to normalise, we should see a decrease in the cost of food and groceries. We are starting to see a reduction in fresh food prices, but some products are remaining stubbornly high. With the increased conflict in the Middle East, it is likely to effect fuel prices which has a significant effect on the cost of groceries. It will be interesting to see how this transpires and if the ACCC is required to rein in the duopoly’s pricing of everyday goods for Australians.
About the Author: This article has been authored by Steven Brown. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.