Contributed by Joe Montero

It doesn’t exactly come as a shock that the Australian Competition & Consumer Commission (ACCC) last week revealed it found that the supermarket giants have increased their profit margins in recent years and done so, by applying questionable measures to do so. This is hardly news to anyone who happens to rely on these supermarkets to buy their groceries.

The ACCC’s 441-page report points out that the dominant supermarkets happen to be among the most profitable in the world. See the graph below, which shows the profit margin of the dominant supermarkets in Australia compared to well-known overseas counterparts.

What it forgets to mention is that Woolworths and Coles together are a monopoly cartel that has the capacity to squeeze more out of consumers because it has the power to avoid competition and manipulate the market. This makes the shareholders happy but imposes the cost on everyone else.

Woolworths accounts for 38 per cent of all grocery sales nationally, while Coles accounts for 29 per cent. This is a monopoly whichever way you cut it.

By failing to consider this, the ACCC was rendered incapable of coming to grips with what is fundamental and therefore producing effective recommendations. The terms of reference under which it conducted its investigation were made by politicians not interested in touching inconvenient issues.

Despite this handicap, the report still found that the two chains have increased their earnings margins in recent years. These earning calculated as the ratio between earnings before interest and tax, and revenue turnover. This is misleading because the nominal 25 percent tax rate on paper is not what us actually paid, and tax is on net earnings and not gross earnings. Woolworth’s only paid 5 percent on profit in 2020-21 and Coles only 3.5 percent. This suggests that the real margin is even higher than the ACCC report says.

The report justified some of the extraordinary price rises of recent times in terms of increasing costs. Given that prices for basic groceries have been found to have risen on average from 15 to 43 percent, these rises are far more than the rise in the costs of doing business.

Image by David Rowe: Cass Gottlied ACCC boss. The ACCC’s underwhelming report conceded that the supermarket market domination would continue for the foreseeable future

Despite this, the ACCC says there is no evidence that the supermarkets practiced price gouging. It came to this conclusion because a failure to admit to the reality of monopoly power, even when the report contains evidence that there is collusion to limit price differences between Woolworths and Coles. The report noted that the supermarket industry in Australia exhibits far less competition than its equivalents overseas.

Acknowledgement is given to the cost cutting practices of the supermarkets. The only criticism is a failure to pass on some of the savings to consumers. The fact that these savings were made through the illimitation of jobs and services, and squeezing suppliers, is overlooked.

Allegations of promoting fake discounts were not considered because the ACCC isa taking the supermarkets to court over this. The absence of this is the present report does not mean that there is no evidence of it.

It was found that the supermarkets do impose lower prices paid to suppliers, and most of all, those providing fresh produce like fruit and vegetables. The report notes that suppliers fear retribution if they raise concerns over unfair practices.

There is no evidence of price gouging according to the report. This is extraordinary. The term refers to unreasonable prices imposed on consumers. Given that price rises have been far bigger than the rate of inflation, and what can be accounted for by increased costs, the reality is different to what has been said.

A need for further investigation of the practice of aggressively buying and hoarding strategic blocks of land to keep competitors out is admitted.

A total of 20 measures to increase pricing transparency, improve the bargaining position of suppliers, reform of planning and zoning laws to encourage more competition, and a better deal for remote areas.

The glaring omission is the failure to admit that there is a lack of competition because of the existence of a monopoly cartel.

If the object is to ensure a better deal for consumers, the answer must involve the breaking up of this cartel. The ACCC report explicitly opposes this course of action and prefers measures to repair the reputation of the supermarkets. By doing this, the ACCC becomes a vehicle for a whitewash, pretending to answer to public demand for meaningful action.

 The government has so far failed to commit to even to the weak recommendations put before it. Woolworths and Coles will continue to apply their monopoly practices without accountability.