At Australia’s annual Christmas lunch the biggest slice of pie will again go to Coles and Woolworths, and while a new inquiry looks set to examine their profit margins, New Zealand offers a lesson in just how difficult it is to disrupt a duopoly.
The companies that own Australia’s major supermarkets posted billion-dollar profits this year, prompting calls for a Christmas boycott. Grassroots activists even launched a guerilla campaign inside some of their stores.
Now, the Greens look to have won support for a Senate inquiry into whether the two major supermarkets are engaging in price gouging, ultimately examining whether the situation is fair for consumers.
Across the ditch, New Zealand has an even tighter grocery sector, with no Aldi or IGA, and the duopoly there has also faced allegations of price gouging.
The New Zealand competition watchdog has already held a market study into why food costs so much in Aotearoa and established a grocery commissioner to help implement its recommendations.
But 18 months down the line, Kiwis are still reporting their grocery bill as a major financial concern — for the first time, some families are struggling with the cost of putting food on the table.
Based on this experience, advocacy group Consumer NZ said an inquiry could be helpful to establish the facts around whether or not supermarket giants were making more than what was fair.
But they warned the process was slow, and ultimately if it did not lead to bold changes, the business of selling food to Australians was likely to continue being a very closed, and expensive, shop.
Senator calls for price freeze on ham
Australia’s Agriculture Minister Murray Watt attempted to address the cost-of-eating crisis by calling for a price freeze on Christmas ham.
“Hands off our ham. We know many Australians look forward to a Christmas ham and I want to make sure they’re not paying too much at the check out,” he said.
“Presents for the kids, fuel to get to the other side of town to see your parents, fresh seafood as well as drinks — the cost of Christmas can really add up.”
But a leg of ham is a luxury item for many families. Presents and fresh seafood? Beyond reach.
The cost of living — and the cost of the food required to live well — is not a Christmas issue.
It is an ongoing crisis that, according to Foodbank, is the number one reason why 23 per cent of Australian households cannot send every member to bed with a full stomach all year round.
Mr Watt told the ABC that by telling the supermarkets ‘hands off our ham’ he was sending a message “that they should not profiteer off Australians during this time, particularly as cost-of-living pressures are hitting home”.
“I’ve been making clear for a couple of months now that the retailers should start dropping their prices, to reflect the reduction in prices farmers are getting at the farmgate.
“And I’m really pleased to see that some retailers have begun to cut the price of red meat, but we need to see more.”
Coles and Woolworths have both insisted prices will not rise as Christmas approaches, and both have said ham will hold at $8 a kilo.
Over the past quarter, there has been some reprieve both in Australia and New Zealand. The cost of food is still going up, but it has been increasing at a slower rate.
Coles and Woolworths have said higher shelf prices felt throughout the year have been affected by wholesale market forces, including supply chain costs.
But the Greens allege Coles and Woolworths “are making billions in profits by price gouging”.
In New Zealand, there were similar allegations — that the supermarkets were making too much profit when there were very few other places for people to shop.
So the government of the day commissioned a market study to establish if that was true.
NZ grocery giants making ‘excess returns’
Food security statistics are even worse in New Zealand.
The country produces enough food to feed 40 million people, but among its population of 5 million, 40 per cent of households do not have enough to eat.
The supermarket options boil down to two main players: Countdown, which is owned by Woolworths and will soon be rebranded to the Australian version, and Foodstuffs.
In 2020, the then-Labour government asked the competition commission to conduct a thorough market study into the grocery sector.
When the report was handed down in March 2022, it included a controversial finding that the two giants were making “excess returns” in the order of hundreds of millions of dollars a year.
Foodstuffs has previously told the ABC it vehemently denies this, noting the commission’s benchmark for “normal returns” was too low.
Head of research and advocacy at Consumer NZ Gemma Rasmussen said at the very least, this type of market study helped to define the problem.
“If you can definitively say ‘there are excessive profits going on here and they need to be addressed’, I think that’s really important,” she said.
“From our supermarkets, we never had them setting up and sheepishly saying, ‘OK, yes, you’re right, we have been charging too much’.
“They have not accepted or agreed [with] that, but if a regulator and a government comes out and says it then the public can agree with that.”
The study found New Zealand’s grocery sector was dominated by a duopoly and those conditions led to “muted” competition, which was a “key driver of the prices, quality and range” of products available to shoppers.
Ms Rasmussen said with those facts established, the hard work of increasing competition in the sector and stamping out “bad behaviour” across the sector began.
No ‘earth-shattering effects’ on duopoly
So far, New Zealand has seen some recommendations implemented.
The two grocery giants in New Zealand were once allowed to sign exclusive leases, effectively preventing competitors from opening a retail store in the same complex.
Woolworths and Foodstuffs also largely control the wholesale market, so they could prevent a farmer — or supplier — from selling to another store.
That meant it was very hard for new retailers to enter the market at all.
Among a raft of other changes, the mandatory code of conduct now prohibits these commercial tactics and a grocery commissioner has been installed as the sector’s watchdog.
There had been hope that regulating the grocery sector and opening the wholesale market would have an immediate impact on competition, and in turn, prices.
But so far, “this doesn’t seem to have had any major earth-shattering effects on competition in New Zealand”, Ms Rasmussen said.
In fact, it was just more than a month ago that one of New Zealand’s newest supermarkets, Supie — an online store determined to disrupt the big two — went into voluntary receivership.
Under the new wholesale rules, Supie was able to access new suppliers, but that didn’t mean “they were immediately able to access the same prices that the duopoly is accessing”, Ms Rasmussen said.
In a response to the ABC, Foodstuffs said the ongoing, albeit reduced, food price inflation “is being driven by a range of global and domestic factors, including geopolitics, commodity prices and wage growth”.
The Commerce Commission and the Office of the Grocery Commissioner is due to release another report next year, this time recommending next steps.
All the while, the cost of food remains the second highest financial concern in New Zealand households after making mortgage repayments or paying rent.
Could a government run a supermarket?
Before the government changed in New Zealand, there were some “extreme” solutions being discussed within the regulatory space about how to dramatically shift the grocery market.
“Pressure [was] put upon the supermarkets to say, ‘if you’re not going to play ball then the government is not afraid to look at more extreme options’,” Ms Rasmussen said.
Those options included forcing Woolworths and Foodstuffs to partially divest from the market, effectively reducing their dominance.
Another was to split the retail and wholesale sides of the businesses, meaning a company like Woolworths could not control the wholesale supply of groceries while also being the retailer.
And lastly, something that is not a suggestion from the regulator but a “heavy handed” solution that has been discussed in the advocacy space — a government-run supermarket business.
“[That] would be setting up a sort of government Kiwi supermarket that would compete with the duopoly and provide wholesale access to independent supermarkets,” Ms Rasmussen said.
“These are all really quite extreme and tense solutions to break up this problem.
“From where I’m sitting, I don’t see this happening under a National or Labour government anytime soon.”
In Australia, the Senate inquiry into Coles and Woolworths looks set to begin next year. Both majors have said their CEOs will be happy to appear.
“We have worked collaboratively with previous inquiries and are ready to work with the committee and engage in an informed discussion on the factors that influence supermarket pricing,” Coles CEO Leah Weckert said.
Woolworths boss Brad Banducci said: “We welcome the opportunity to explain to the Senate how we are working to balance the needs of our customers, our team and our suppliers in the context of economy-wide inflationary pressure.”
The Australian government is already conducting a review into the Australian Competition and Consumer Commission’s grocery code of conduct.
Mr Watt said the government would “use this — along with a new Senate Inquiry — [to] apply pressure to the big supermarkets.”