The government’s motherhood move on groceries will be tested

Prime Minister Anthony Albanese has declared a victory for consumers with the announcement of an inquiry into supermarket prices. Whether that declaration was premature is another thing entirely.

It is a wonderful motherhood move that resonates with cash strapped-shoppers who are hurting from the inflation-induced cost of living crisis. And it’s a sweet distraction away from a policy backdown on elements of the government’s tax package.

Woolworths and Coles will come under the ACCC’s microscope.
Woolworths and Coles will come under the ACCC’s microscope.Credit: Getty

The risk for Albanese is that by bringing in the Australian Competition and Consumer Commission, and presumably giving them wide powers to get extensive information from the large supermarket groups, his allegations of price gouging might prove wide of the mark.

The supermarkets, as expected, have trotted out the line that they welcome the ACCC’s investigation, but I wonder whether this time they actually mean it.

It could be that for the supermarkets, the ACCC represents the adults taking charge, rather than endless political inquiries that have not solved any problems but allowed lawmakers to crowd-pleasingly publicly flog chief executives.

This is not to suggest that supermarket bosses shouldn’t be subject to a degree of interrogation, but only if it ends up with finding solutions.

The good news about the ACCC involvement is that the supermarkets will be forced to divulge how the (metaphorical) sausage is made – what goes into their pricing decisions.

Albanese’s evidence for supermarket gouging is based seemingly on one fact, which is that the price some beef farmers are getting at the saleyards is falling faster than the price we are paying for steak and mincemeat at the checkout.

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And he’s probably right about that.

Maybe supermarkets are making a good margin on meat right now (even though Woolworths and Coles have recently announced discounts on red meat).

The good news about the ACCC involvement is that the supermarkets will be forced to divulge how the (metaphorical) sausage is made – what goes into their pricing decisions.

But the overall margins that supermarkets have made in 2023 didn’t suggest they were over-earning, and they were mostly in line with supermarket margins around the world.

With all those powers the ACCC has to gather information, it will be able to examine how the sausage actually IS made.

At the end of each reporting period, we just get to see the blended margin that each supermarket gets, not the margin on each product on their shelves. So even if Coles or Woolworths is paying less to the farmers, they might receive a lower margin on other groceries.

To back up claims of price gouging, the ACCC – with a bit of help now from CHOICE – will tell consumers how the prices for a basket of groceries is moving.

The competition regulator will also get the real story on the movement of supermarkets’ costs – and how inflation has impacted areas such as electricity, fuel, labour, insurance and leasing.

Such an exercise was undertaken in 2008, and while the ACCC found there was room for improvement, the competition scorecard was alright. But it wasn’t perfect. For example, following that inquiry, Coles and Woolworths provided enforceable undertakings to remove restrictive tenancy provisions that may have prevented shopping centres from leasing space to competing supermarkets.

But the ACCC’s conclusion in 2008 was not damning of supermarkets, and since that time the spread of Aldi has arguably made the industry more competitive.

And, in theory, if the two big supermarket groups were over-earning, it would present an opportunity for a new overseas entrant into this lucrative space.

The competition regulator will also get the real story on the movement of supermarkets’ costs.
The competition regulator will also get the real story on the movement of supermarkets’ costs.

Since 2008, three big overseas supermarket giants – Lidl, Kaufland and Carrefour – have looked at opening in Australia, but none have hit the go button.

That said, there is a gaping problem with the government’s Thursday announcement on supermarkets – how would it respond if they were found to be price gouging?

Would this lead to forcing the big supermarket groups to sell some of their stores? Could it lead to price caps on certain consumer essentials?

That would be a big swing for any government.

Better for the government to use its large public relations stick to force a few more specials on the shelves. Maybe that’s what they are aiming for.

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Source: Thanks smh.com