Politicians making a meal out of big supermarket pricing

Australia’s largest supermarkets have a problem – they are perceived to be profiteering at a time when their customers are struggling with a cost-of-living crisis.

They are becoming the economy’s corporate culprits, a title held by the big banks in years gone by. And there is only one way to blunt what has become intense scrutiny into supermarket prices – discounting some of the product pain points and, in particular, red meat.

Supermarkets have been widely accused of price gouging.
Supermarkets have been widely accused of price gouging.

Banking and supermarkets are especially sensitive for consumers – we have an inescapable relationship with both – and this renders them vulnerable to politicisation.

It is also no coincidence that both these sectors are highly concentrated, with a few companies wielding significant market power.

Despite being hit with accusations of price gouging, Australia’s two largest supermarket brands feature among the top of companies that consumers most trust.

But all that’s needed is a few farmers appearing on morning television and lamenting that the poor prices they receive for their cattle or zucchinis are not reflected in the inflated prices being charged by supermarkets and politicians will have a platform to strut their bona fides as consumer advocates.

Furthermore, it provides Canberra with the opportunity to pin down some chief executives at an inquiry and hurl anecdotal-based accusations – always a crowd-pleasing moment.

Over the past few days, we have seen Treasurer Jim Chalmers warning supermarkets that he is talking to the Australian Competition and Consumer Commission, while Nationals leader David Littleproud has come out accusing the government of failing to act on price gouging.

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The trouble is: there’s limited transparency on whether these claims of excessive profit extraction are based on fact.

There is no doubt that some companies (not necessarily supermarkets) are guilty of this and have used the inflationary period to mask price increases that are well in excess of the rise in their cost of buying from producers or manufacturers.

In other words, their profit margins have gone up. Supermarkets have experienced mixed profit results over the past year but neither of the two behemoths have been booming.

Supermarkets will rightly argue that they experience cost inputs such as labour and transport that are elevated and that gets reflected in shelf prices.

That said, on the face of it, supermarkets certainly seem to have been slow in passing on the lower costs of red meat, and farmers have been particularly vocal about this.

Even though many of these farmers don’t actually supply Coles or Woolworths, the fact that producer prices have tanked over the past year and the shelf prices have fallen far less suggests that the big supermarkets are not passing on the diminished prices to their customers.

But in general, both Coles and Woolworths increased shelf prices more slowly in their most recent results compared with the same period a year earlier.

The trouble is: there’s limited transparency on whether these claims of excessive profit extraction are based on fact.

The latest consumer price index (CPI) figures from the Australian Bureau of Statistics (for October last year versus a year earlier) show prices in the meat and fish category growing by 1.8 per cent. But the real price pain, according to the ABS, was in bread and cereals, where prices ballooned by 8.5 per cent and dairy-related products that were 7.8 per cent higher than a year earlier.

For Coles, its margin of earnings to sales actually declined in the second half of the 2023 financial year against the first half.

Indeed, it was lower in the financial year 2023 than it was in the previous four years, and the share price reflected this, falling 3 per cent in that calendar year.

Woolworths had a better 2023 financial year, in which it expanded its profit margin over 2022, and during calendar year 2023 its share price grew by around 10 per cent – which was slightly ahead of the broader stock market performance of an 8.1 per cent gain.

Woolworths’ performance could be best described as solid rather than spectacular. Regardless, the chief executives of Coles and Woolworths will soon face off against a Senate committee to justify their profits and once again deny claims of profiteering.

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Source: Thanks smh.com