Greedflation

Australia’s grocery market is one of the most concentrated in the developed world. Woolworths holds 38 per cent of supermarket grocery sales. Coles holds 29 per cent. Together they account for two-thirds of the market. ALDI, after more than 20 years of operation in Australia, holds approximately 9 per cent.

The ACCC described the structural consequence of this concentration precisely: an oligopolistic market structure in which Coles and Woolworths have limited incentive to compete vigorously with each other on price. The two companies provide broadly similar supermarket offerings and appear to price at similar levels, reinforcing each other’s pricing rather than undercutting it.

ALDI provides a partial competitive constraint — but does not compete head-to-head with Coles and Woolworths across their full product range. Consumers who want the full range of branded products, fresh produce, and specialty items must choose between Coles and Woolworths. For those consumers, the 67 per cent duopoly is effectively 100 per cent.

The ACCC found that substantial pro-competitive departures from the status quo are unlikely in the foreseeable future. Entry barriers are high: it took ALDI more than 20 years to achieve 9 per cent. The ACCC said it was unlikely that a new major supermarket chain would enter the market.

The ACCC’s analysis of what happened to supermarket margins during the 2022–23 inflation peak is the core finding of the inquiry. Between late 2022 and early 2023 — the period when inflation peaked at 7.8 per cent and the RBA was raising rates most aggressively — grocery prices were rising at more than twice the rate of wages.

The ACCC found that Coles and Woolworths had the apparent ability to increase retail margins for packaged grocery products by more than is necessary to accommodate a wholesale price increase. This is the margin expansion finding: when their input costs rose, the supermarkets raised retail prices by more than their costs required. The additional price increase became profit.

The Australia Institute described this dynamic as corporations abusing market power to raise prices in ways that drove the inflation the RBA was then raising rates to address. The logic: supply-side inflation provides cover for margin expansion; oligopolistic companies use the inflationary environment to raise prices beyond cost increases; the RBA raises rates to suppress the resulting inflation; borrowers bear the cost.

The most concrete evidence of supermarket conduct during the inflation peak came not from the inquiry but from the ACCC’s separate legal action, announced in September 2024.

The ACCC alleged that Woolworths and Coles had misled consumers through promotional pricing practices. Specifically: products were placed on ‘was/now’ promotional tickets that implied a discount from a previous higher price — but in many cases, the ‘was’ price had been artificially elevated shortly before the promotion, or the ‘special’ price was actually higher than the product had recently sold for.

The period covered by the legal action: Woolworths — 266 products over 20 months; Coles — 245 products over 15 months. These 15 to 20 months were precisely the period when Australian inflation peaked at 7.8 per cent and the Reserve Bank raised rates most aggressively.

Today’s announcement reinforces our research that has shown the inflation that led to the Reserve Bank raising interest rates was caused overwhelmingly by companies abusing market power to raise prices.Australia Institute, September 2024

The ACCC’s final report did not find price gouging. It could not: the legal standard for price gouging requires evidence of prices above a level that could be sustained in a competitive market, applied across a complex product portfolio. The ACCC found it was unable to conclusively say whether Woolworths and Coles were actively price gouging.

What it did find: margins expanded during the inflation period. The sector was not working well for consumers or suppliers. Woolworths and Coles are among the most profitable supermarket businesses among their global peers. ALDI provides only a partial competitive constraint. Entry of a new major competitor is unlikely. Suppliers lack bargaining power and fear retribution for raising concerns.

Twenty recommendations were made. The most significant: mandatory price transparency, stronger protections for suppliers, planning and zoning reform to make it easier to establish new supermarkets. No price controls. No divestiture powers. No structural remedy.