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Coles, Woolworths warn more red tape will lead to higher prices after ACCC report

Headshot of Cheyanne Enciso
Cheyanne Enciso
The Nightly
Coles and Woolworths have responded to the consumer watchdog’s report.
Coles and Woolworths have responded to the consumer watchdog’s report. Credit: The Nightly/The West Australian

Coles claims its profit margins have been inflated in a damning consumer watchdog report that found the supermarket, along with rival Woolworths, hiked prices to boost earnings and used promotions that made it hard for shoppers to judge a good deal.

In response to the 441-page report, Coles and Woolworths on Friday cautioned that any more regulation or measures brought in after the inquiry could lead to increased red tape and drive up costs.

The Australian Competition and Consumer Commission’s report found Coles and Woolworths were some of the most profitable supermarkets in the world and their margins had increased over the past five financial years.

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It confirmed Australia’s supermarket sector was highly concentrated with an oligopoly structure, dominated by the two grocers.

The regulator found Coles and Woolworths’ earnings margins were between 5 and 6 per cent in the past five years, well above IGA supplier Metcash.

In response, the duopoly pointed to the ACCC’s analysis that found soaring costs of doing business had led to higher grocery prices.

Coles said net profit was the “only true measure of a company’s profit” and that had remained at about 2.6 per cent as a percentage of sales over the past five years.

“This means we earn around $2.60 for every $100 a customer spends in our stores — less than 3¢ in the dollar,” it said.

“The ACCC’s analysis of these margins excludes the other significant costs like energy, rent, wages which have all increased.”

Among the regulator’s list of recommendations, supermarkets should be required to inform customers when product sizes have changed and this information should be in close proximity to shelf tickets and on relevant websites.

Woolworths chief executive Amanda Bardwell said she welcomed recommendations that improved price transparency for shoppers “where they don’t have unintended consequences or increase costs”.

Ms Bardwell added prices at Woolies had declined for four consecutive quarters.

Woolworths said the ACCC had included many recommendations the supermarket had already taken action on to improve the experience and transparency for customers and suppliers.

In the past 18 months, it said it had improved price transparency in the horticulture sector, simplified promotional programs and supported the introduction of a mandatory food and grocery code of conduct.

“We have worked constructively with the ACCC to help it understand our business, the sectors in which we operate, our suppliers and supply chains, and the considerable competition we face,” Ms Bardwell said.

The ACCC did not support divestiture powers proposed by the Opposition or the claim that breaking up supermarkets would help customers.

Shares in the supermarket giants rallied on Friday, with Woolworths up 6.3 per cent to $29.93 and Coles up 4.8 per cent to $19.46.

IGA parent Metcash said it was pleased the ACCC recognised the competitive role independents played in local communities.

“We support the ACCC in its view that despite the progress independents have made on better prices, there are other significant barriers for independent retailers to compete with the major chains,” it said.

“We too are concerned with the growing dominance of the major supermarket chains in Australia and their ability to continue to grow through creeping acquisitions of independents and land banking.”

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