ACCC supermarket inquiry recommends 20 reforms to support consumers and suppliers

The Australian Competition and Consumer Commission (ACCC) has finalised its inquiry into the Australian supermarket sector and made 20 recommendations to provide better outcomes for consumers and suppliers.

The chief competition regulator of the government of Australia, said it found Aldi, Coles and Woolworths are some of the most profitable supermarket businesses among global peers and their average product margins have increased over the past five financial years.

The recommendations, which include clearer pricing practices, greater transparency for suppliers and reforms to planning and zoning laws, are designed to improve competition in the supermarket sector, are aimed at making a difference for consumers and give suppliers fairer bargaining conditions.

“In the past 12 months the ACCC has heard from more than 20,000 consumers who responded to our consumer survey, received more than 100 public submissions, held eight supplier roundtables, reviewed tens of thousands of internal documents, conducted private hearings and ten days of public hearings, and analysed billions of points of supermarket data,” ACCC deputy chair Mick Keogh said.

“Based on this extensive analysis we have recommended a range of measures to improve conditions for competition in the sector and deliver better outcomes for consumers and suppliers.

“There is no ‘silver bullet’ that will address all the issues we have identified in the supermarket sector, but we are confident that our recommendations will make a difference for consumers, will equip suppliers to make more informed business and investment decisions while bearing a more appropriate level of risk, and will boost competition in the sector.”

The ACCC said its inquiry found that there is a significant bargaining power imbalance between Coles and Woolworths and some suppliers, and Coles and Woolworths exercise their buyer power through their trading terms and business processes and practices.

It said there is substantial information asymmetry between fresh produce suppliers and supermarket chains when they participate in weekly tendering process.

The ACCC recommended Aldi, Coles and Woolworths be required to provide fresh produce suppliers with greater transparency about the weekly tendering processes they use to negotiate price and volumes with suppliers. The implementation of this recommendation would involve further consultation which should be undertaken by the ACCC.

“We are proposing to hold a consultation process with relevant stakeholders to develop reform recommendations for supermarket fresh produce weekly tendering arrangements,” Keogh said.

The ACCC recommended Aldi, Coles and Woolworths should not be able to unilaterally reduce the price or volume agreed in purchase orders confirmed through their weekly tendering processes other than in the case of a force majeure event.

Further, supermarkets should be required to provide fresh produce suppliers with more detailed information about the basis for seasonal forecasts to allow suppliers greater ability to predict and forecast future demand.

“Improving transparency for demand forecasts will give suppliers greater certainty and greater ability to assess their risk exposure in the supply of fresh produce,” Keogh said.

“We received detailed information in confidential submissions and roundtables with suppliers who placed significant trust in the ACCC to hear their views. Many suppliers fear retribution from raising concerns directly with the major supermarkets. We found that suppliers need more information and protections to be able to make more informed investment decisions.”

The ACCC recommended major retailers be subject to mandatory market reporting obligations, so that suppliers of fresh produce can obtain a much better understanding of market conditions and will be better able to engage in informed supply negotiations with supermarkets.

To improve the current bargaining power imbalance and enhance protections for suppliers, the ACCC is also recommended that the Food and Grocery Code be amended to prohibit grocery retailers from being able to negotiate out of core protections in the Code.

Peak industry body for vegetable growers Ausveg welcomed the final report and the government’s in principle support of its recommendations.

It said the report had a strong focus on the fresh produce category and contains a range of recommendations aimed at securing a fairer go for suppliers, validating the experiences of vegetable grower-suppliers to the big supermarkets. Ausveg said grower-suppliers continue to express concerns about the power imbalance which leads to growers shouldering disproportionate risk, uncertainty and financial burden and threatens their viability.

“While a range of measures recommended by the ACCC have the potential to provide growers with greater certainty and transparency, and improve their bargaining position, more detail still needs to be fleshed out about how these will work in practice. As always, whether or not these recommendations will improve business conditions for grower-suppliers to the retailers will be seen in their implementation, which also must include consideration of avoiding additional red tape and compliance consequences,” said Ausveg chief executive Michael Coote.

“Throughout our regular engagements with the many inquiries into the supermarkets during the past 18 months, AUSVEG has continued to emphasise the fundamental point – growers need to be paid fair and sustainable prices that allow them to stay viable, and continue supplying Australian consumers with fresh, healthy and affordable vegetables.”