A Senate inquiry into the pricing strategies of supermarket giants Coles and Woolworths continued this week. It was initiated following mounting accusations of price gouging during a cost-of-living crisis and data indicating that food and drink costs have risen by 14% over two years.
The inquiry was set up to examine whether the dominance of Coles and Woolworths in the market is detrimental to consumers, with Senate Select Committee on Cost of Living sessions probing how these corporations set their prices.
This inquiry coincides with the release of January's inflation data, which remains a critical indicator of the economic pressures facing Australians.
Tidy underlying earnings
The consternation comes in the wake of Coles reporting pretty tidy underlying earnings of A$589 million for the six months ending in December, an 8.4% decrease from the previous year but still substantial enough to stir public and political sentiment over rising grocery costs.
Coles CEO Leah Weckert defended the profits, saying they were vital for sustaining business operations and delivering value across the board but critics argue that not only are the profits excessive, they’re not being sufficiently reinvested into the business, thereby exacerbating the financial strain on households.
According to The Australia Institute’s Dr Jim Stanford, Coles' business model leverages its significant market share to achieve a high return on equity, around 34%, which he claims is unjustifiably high for a low-risk, predictable business.
Others contend that there is no clear evidence of systematic overcharging by Coles and that the company’s profit margins are not unreasonable.
Of course, the other, some would say only other, big name in Australian supermarkets, Woolworths, is also under fire.
The two companies were grilled during the Senate committee hearing when outgoing Woolies CEO Brad Banducci was warned that he could face contempt charges for his initial refusal to answer questions.
Banducci did not wish to discuss return on equity, a standard measure of profitability, which has only served to fan the flames of speculation that what the supermarkets are doing is underhand.
PM's concerns
Back in February, following a report on the ABC’s Four Corners on aggressive pricing tactics, Prime Minister Anthony Albanese expressed concerns about the market dominance of the two grocery chains.
He acknowledged the disparity between the prices paid to farmers and the high costs faced by consumers at the checkout but resisted the pressure to employ divestiture powers to forcibly dismantle the duopoly, saying that Australia should not adopt what he termed as extreme Soviet-style interventions.
"The government would take a common sense approach and maintain Australia's market-based economy with appropriate regulation," Albanese said.
He also pointed to the need for more international competition in the Australian supermarket sector, where Coles and Woolworths currently hold a 65% market share.
The question is, how do we create a more competitive grocery market landscape in the face of the combined market power and concentration of ‘Coleworths’ – and will the inquiry have the teeth to enforce changes in their practices?