Australia’s dominant supermarkets, Coles and Woolworths, argue the competition regulator has found no evidence of price-gouging. The claim undermines Labor’s first big election campaign policy pledge – that it will crack down on the process.
Are the supermarkets right?
Fat profit margins
In its year-long inquiry into the sector, the Australian Competition and Consumer Commission (ACCC) found the major chains increased their profit margins during a period marked by rapidly rising household costs.
It also found that amid subdued competitive pressures, the big chains, along with discount rival Aldi, are among the most profitable supermarkets in the world.
There is nuance in the report, which runs for 441 pages. For example, it found that while grocery prices have risen sharply over the past five years, most of the increases can be attributed to higher business costs.
But Coles, Woolworths and Aldi kept “at least some” of the price increases to expand their profit margins, the report found.
Woolworths reacted to the report by claiming “no evidence of price-gouging was found”. Coles said “neither the government nor the ACCC found evidence of price-gouging”.
‘Taking the piss’
The ACCC specifically said in its report that it had “not sought to determine whether the prices or margins of these supermarkets are excessive”.
The phrase “price-gouging” did not appear. But it also did not appear in the ministerial direction given to the ACCC.
There is no formal definition in Australia of what constitutes “price-gouging” or at what point a price is “excessive”. Charging very high prices is not illegal, nor is using market power to generate fatter profit margins at the expense of customers.
These are the very things Labor’s new election policy could start to define, regulate and, when necessary, ban.
The prime minister, Anthony Albanese, described “price-gouging” in the vernacular as “taking the piss”, understandably a difficult benchmark for the regulator to measure supermarket practices against.
Former competition watchdog Allan Fels puts it this way: “The term ‘price-gouging’ does not belong in the economic lexicon or textbooks, so the ACCC didn’t make a definitive finding one way or the other.”
Finding a concrete example
One of the report’s limitations was that the ACCC did not include comments or findings regarding its decision to sue Coles and Woolworths over allegations they misled shoppers by offering “illusory” discounts on hundreds of common supermarket products.
In the litigation, which the supermarkets are defending, Coles and Woolworths are accused of briefly increasing prices on hundreds of items before advertising them as discounts.
For example, Woolworths sold Maggi beef noodles in a discount promotion for 30% more than its regular price, according to the regulator.
The court documents contain details of 276 promotional items at Woolworths and 255 at Coles the regulator believes were misleading.
Fels says a successful court action would represent a definitive finding, almost regardless of how you define the level at which a price becomes excessive.
“That would be price-gouging, in my book, and I have long favoured having a general provision prohibiting excessive prices in Australia’s competition law,” Fels says.
The ACCC was contacted for comment, but is bound by pre-election conventions preventing it from discussing policy issues.
Separately, Guardian Australia has reported on examples of huge unit price rises at the major supermarkets, such as a stick of deodorant doubling in cost, and home brand gluten-free bread rising 38%.
A Coles spokesperson said consumers would benefit from “measures that tackle the real factors driving higher grocery prices, which are rising costs such as energy, fuel, labour, insurance, production, freight and distribution”.
A Woolworths spokesperson said the supermarket had already taken action on many of the recommendations in the ACCC report to improve the experience and transparency for customers and suppliers.
The US experience
The Albanese government, which promised to implement the ACCC’s reforms, also pledged to confront price-gouging if re-elected by introducing laws to protect consumers from companies abusing their market power.
A taskforce led by Treasury, the ACCC and other regulatory experts would design the new laws after a six-month consultation period.
The government has pointed to laws around excessive pricing in the European Union, UK and more than 30 states in the US, and said it wants Australians “to have these protections”.
In the US, there are laws against price-gouging in 37 states and the District of Columbia. Writing in the Guardian, former senator Bob Casey said the laws gave state attorneys general the power to investigate and prosecute companies that excessively raised prices during emergencies.
The Albanese government said it wanted to crack down on excessive pricing in Australia by giving the ACCC the power to investigate a broader range of “concerning pricing practices”.
Sanjoy Paul, an associate professor in the UTS Business School who works on supply chain risk and resilience, says that based on supermarket profit and revenue margins, “excessive pricing” is clearly occurring.
He says Australia should follow the lead of overseas jurisdictions that have implemented pricing protections while focusing on increasing competition in the grocery sector.
“My question is why we haven’t done it yet here,” he says.
