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ANGE:

From Schwartz Media, I’m Ange McCormack. This is 7am.

Supermarket prices have finally caught the attention of our leaders…

While the cost of living crisis continues, customers - and now, politicians - are getting more fed up at the price of groceries, while Coles and Woolworths make billions in profit.

So, what can be done about it? And will government scrutiny be enough to fix an industry dominated by two powerful players?

Today, senior reporter for The Saturday Paper, Rick Morton, on how 2024 could be a year of reckoning for Coles and Woolies.

It’s Monday, January 22.

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ANGE:

Rick, anyone who's walked into a supermarket or bought groceries over the past year would have noticed, or probably complained about prices going up. But Coles and Woolworths have particularly been in the spotlight over the past few weeks. Why is that happening now?

RICK:

One word probably, profits. Coles and Woolies have managed to really lead the way in growing revenue and profit margins.

So just to take you through the very quick, high level details, Coles and Woolworths have both recorded profits. You know, that is after tax, in excess of a billion dollars for the last financial year.

Audio excerpt – News Reporter:

“It seems the cost of living crisis has been very good to Coles, the supermarket giant posting a net profit of more than a billion dollars today.”

Audio excerpt – News Reporter:

“Woolworths today announced a $1.6 billion haul. Total sales topped a massive 64 billion.”

RICK:

That fact in itself has become infuriating for people because they're seeing what looks, and is in a to be an exorbitant amount of money in profit, following through to these major supermarket chains where they are really struggling to afford their usual groceries.

Audio excerpt – Unknown:

“Tonight's dinner and some cleaning products…

Audio excerpt – Unknown:

“cost me over 100 bucks.”

Audio excerpt – Unknown:

“Over $100?”

Audio excerpt – Unknown:

“Yeah.”

Audio excerpt – Unknown:

“That's ridiculous.”

Audio excerpt – Unknown:

“I know.”

RICK:

And so the question now becomes, how much of that increased cost that we are paying at the checkout? How much of that is due to profiteering and price gouging? How much of that is because of general inflation? How much of that is because of Russia's invasion of Ukraine? How much of it is because we've had crazy weather, flooding, rain, cyclones, growing conditions being interrupted. Do those costs of doing business completely add up to the extra price that we are paying at the market? The problem is, we do not know.

And throughout the last year we've seen this kind of accusation, this collective accusation of alleged price gouging gaining momentum. And there have been these guerrilla campaigns with people sticking labels in Coles and Woolworths stores.

And they're getting shared online with signs like we've made over $1 billion in profits while the price of your food goes up, up, up, which is a nice little play against the Coles advertising slogan there.

And so the anger now has been kind of converted almost into this bigger question about how these, particularly the big supermarket chains operate, what is the market structure, what is their pricing structure, how do they actually do business? And is it in our best interest to allow that market structure to exist in its current form?

Those questions have really gained a lot of momentum in the last few weeks particularly, which means we might finally be able to pull back the curtain, I guess, on some of the mystery, about how prices are set and how we come to pay, what we pay when we go shopping.

Now we've got a couple of different reviews happening. Senate inquiries, and potentially a really big inquiry from the competition regulator all starting to roll out looking precisely at this issue.

ANGE:

Right. And so what are these different reviews and inquiries, and what will they be looking at exactly when it comes to this issue?

RICK:

I think it’s really important to be really clear about all of this today, Coles and Woolworths are 70% of the market. They are two of the country's biggest employers, many suppliers have no choice but to sell to them and don't have any other buyers for their products or services.

Consumers almost always have to buy from either Coles or Woolworths, because in a lot of places, that's all you've got to choose from. And so competition doesn't get in there at all.

First is this Senate inquiry that was announced in October last year that would be led by the Greens.

Audio excerpt – News Reporter:

“Australia's two supermarket giants will face scrutiny as a Senate inquiry investigates their market power and pricing decisions. The Greens have secured the government support to establish the inquiry next week.”

RICK:

They're looking particularly at the price setting practices and market power of the major supermarkets, but they don't have all of the powers that we need to really get to the bottom of the path, markets upright. They don't have the power to force supermarkets to hand over confidential information about how they run their businesses. Separate to that, we've got what had to be done anyway, which is a scheduled review of what's called the Food and Grocery Code of Conduct.

Audio excerpt – News Reporter:

“The federal government has announced former cabinet minister Craig Emerson will lead the review of the Food and Grocery Code of Conduct.”

RICK:

And it's a voluntary code. And just to be clear about what it does, it's being set up by the industry itself. It's meant to regulate voluntarily if you choose to be a part of it, conduct between supermarket chains and their suppliers.

Audio excerpt – Anthony Albanese:

“The voluntary code of conduct that, is, currently run by industry. This will be an examination of whether further mandating is actually required.”

RICK:

The supermarkets probably, they're probably aware of that. Right. And they'll certainly be participating. And they've been urged to by the assistant minister for competition, Dr Andrew Leigh, they've been urged to engage properly and with a lot of data, so that they can, get an outcome from that, that, that everyone can look at and work with.

But I suspect that more worry at this point about what has been, elevated background chatter, I guess, which is, that the ACCC, the Australian Competition and Consumer Commission is getting ready to pull the trigger on an inquiry, a price set, an inquiry into Australian supermarkets and that, I suspect, would be a huge deal because it would be the first full scale inquiry into how supermarkets operate in a competitive environment with, you know, setting prices in Australia in almost two decades. The last one was in 2008.

ANGE:

Yeah, right. And in terms of inquiries and reviews, the ACCC inquiry is the one that's actually on the much more serious and right. Like if you're a business, you don't want the ACCC looking into what you do as a business. That's generally a bad sign.

What could be revealed in an ACCC inquiry? How unflattering could this be for Coles and Woolies?

RICK:

So I think this is the most important point to understand, because there's been a bit of commentary that it's all just a political stunt. And Labor, of course, wants to call it because they're copping a lot of hate over the cost of living. And let's just do an inquiry in supermarkets of the bad guys, and it's easy to blame them.

I think about the ACCC, they get to completely disregard the public spin and compel from you the supermarket. Confidential information that would never be disclosed to the market, that would never be disclosed for commercial reasons publicly, but which they can have regard to when they're assessing questions like how do you set this price and is this price increase because of inflation? Or is it because you've clamped down on costs with the supplier?

And the thing about the ACCC powers is that they've got enforcement powers, of course, and they've also separately threatened that, you know, if the supermarkets have been doing the dodgy on what they call was now pricing. So when they put a promo on a promotion or a special, what they do immediately before starting that special is they hike the price. So pasta goes from $4 to $5 for a month before the promotion, but then the promotion starts and they say, what's $5 now $4.50? And so it looks like you're saving $0.50, but actually you're still paying more than you were before it was on special.

It's just like, so that kind of duplicity is something that the ACCC has actual existing powers to sue over.

And that's something that Gina Cass-Gottlieb, the chair, has actually said, and they're looking into forensically right now as to whether they should bring litigation in that front.

If they're going to do that, they need evidence and a great way of getting evidence about the behaviour and the conduct of the supermarket giants is through an inquiry and we've got that chance now. In fact, it's imminent that the ACCC is going to do exactly that. And I think the supermarkets are a little bit worried.

ANGE:

After the break - Why 2024 could be a year of reckoning for Coles and Woolworths?

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ANGE:

Rick, we’re talking about supermarkets in Australia and the series of inquiries that are gonna be held this year, but this problem has been around for a long time…and in 2008 there was an ACCC inquiry set up to look at it… but that obviously didn’t fix these problems. Why will it be different this time round?

RICK:

Well, I think the media environment is very different for a start. Social media for it is huge. It was kind of in its infancy in 2008, certainly for Australia anyway. So there's like a line of sight that just wasn't there before. And that's, you know, created many problems in the current political world. But it's also solved quite a few by allowing people direct access to issues and advocacy, I guess. And Dr Andrew Leigh told me, you know, these are enormous employers of Australians, these two supermarket chains.

Audio excerpt – Rick Morton:

“I mean, you've written about them before, right? From an economic, from your in your own kind of academic professional career about oligopolies and market concentration yourself, haven't you?”

Audio excerpt – Dr. Andrew Leigh:

“Absolutely. Yeah. Well, now I've written a ton of papers on it.”

RICK:

And it's where people interface with cost of living the most. It is extremely important to Coles and Woolworths, from a reputation point of view, to be seen to be doing the right thing.

Audio excerpt – Dr. Andrew Leigh:

“Their firms that Australians interact with. And so their reputations, uh, matter enormously. Uh, so they've got a lot riding on this.”

RICK:

They know that from a business point of view, it's just that, do they think they can get away with doing certain things before we notice? That's the calculus that needs to change, and that's what this inquiry could do.

Also, he was sort of caught on the hop, but the Prime Minister, Anthony Albanese, was asked about whether he thought the ACCC had the right powers to actually solve this problem. And he, in a very political kind of way, said, “well, if they need more powers, my government's very open to giving those to them.” he said. They do have existing powers and he suspects they would want to use them.

And they're very explicit powers. I mean, the ACCC Chair, Gina Cass-Gottlieb and the organisation itself have said that they've got a very specific proposal for merger law reform in Australia because Coles and Woolworths are constantly getting bigger. They're constantly trying to expand their merging into new markets, snapping up other supermarkets.

And the current regime is among the worst in the developed world, we don't have line of sight. Companies can merge right now and they don't have to tell the ACCC, even if there's a competitive impact. It's only after the fact that the ACCC really gets in whenever there's an issue, then they can try and do something about it. But even that's not guaranteed. Our merger laws are absolutely useless.

ANGE:

And Rick, the thing consumers care about most is getting prices down and making groceries cheaper. And the consumer sentiment or kind of backlash around that is getting really hated now, as we've been talking about. Woolies and Coles would have to be worried in some way by this impending ACCC scrutiny.

But at the end of the day, I wonder, will public pressure mean more to them than any kind of inquiry, no matter how big and scary it is could?

RICK:

Absolutely. You know, when the language is money, you've got to talk in that language. But the ACCC inquiry and this other the Senate inquiry, that is public pressure now they can wear a fine. They don't care so much about the fine, but they do care about its share price and customers finding some other way to do life without them.

Now, at the moment they've got market power and that has always been in their favour, but they might not always have that. If merger law reform gets through and they can't just buy up and hoover up these companies, which is how they've sort of worked, then that's a problem. And their shareholders know that and their shareholders want them to be sorting this stuff out, because bad press makes them nervous.

And I think whatever else happens between now and December, by the end of this year, we're going to have a substantially different outlook for the operating market for supermarkets in Australia.

Because we've got, you know, if you take all of them together, you've got the Senate inquiry, we've got the ACCC inquiry, you've got the code of conduct review, which will probably become mandatory with penalties. Suppliers will have more protections in the market. Consumers will have more visibility over exactly how supermarkets are setting their prices.

By the end of this year, if you combine all of those things and all of the information we're going to learn with this kind of background of simmering public pressure, I'm not willing to say that we're going to have to fix everything by the end of the year.

But what we will have is people who know much more about what's going on, and a very kind of angry public who have been suffering not just at the supermarket, but everywhere else. And supermarkets have become a lightning rod for some of this frustration. But we will be able to see where the cost increases are coming from much more clearly. And I think that sets the scene for change behaviour.

ANGE:

Rick, thanks so much for your time.

RICK:

Thanks, Ange, I appreciate it.

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ANGE:

Also in the news today,

Israel’s Prime Minister Benjamin Netanyahu has reiterated his opposition to there ever being a Palestinian state, in a televised press conference and on a phone call with US President Joe Biden.

In both, Netanyahu said he intended on Israel having security control over all of Gaza and the West Bank — which would ultimately not allow for a sovereign Palestinian state.

Support for a two state solution has been a condition of US support for Israel, but over the weekend Biden insisted Netanyahu would accept a Palestinian state under the right model.

And

The Bureau of Meteorology has warned that far North Queensland could be battered by another tropical cyclone in the coming days — with the predicted cyclone making landfall south of Cairns, but north of Mackay, just a month after Cyclone Jasper caused devastating flooding in the region.

I’m Ange McCormack, this is 7am. We’ll be back again tomorrow.

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