It has been a big week in the media for the two major supermarkets – and not in a good way.

The chairman of the Australian Consumer and Competition Commission spoke publicly about the two year investigation that resulted in Coles being prosecuted for bullying of suppliers.

The ACCC alleged that Coles demanded $16 million in ‘rebate’ payments from 200 small and medium suppliers and threatened ‘commercial consequences’ for those that refused to pay up. The only way the ACCC could get evidence to support this case was by promising suppliers secrecy, because they were worried that being seen to complain would have adverse impacts on their livelihoods.

The Federal Court also found Coles guilty of misleading consumers with claims of ‘fresh baked’ when in fact their products were partially baked overseas months in advance, and only thawed and finished off in-store.

Earlier this month, this newspaper printed an apology on behalf of Coles after falsely claiming its “Coles Roasting Mixed Vegetables” were “Australian grown” rather than “Australian made”. It is impossible for for consumers to know where their food comes from if they can’t rely on the accuracy of the labels.

Coles was not alone in the naughty corner, though.

Woolworths felt the full brunt of social media outrage over revelations that it is expecting Australian producers to fund the current advertising campaign featuring Jamie Oliver.

This grower contribution, which amounts to about 40 cents per crate or box of vegetables, might not seem much; but, if profit is only $1 a box, that’s a fair whack.

Woolworths says that the levy is voluntary. The counter-argument is that refusing to pay a voluntary levy would be career limiting for growers.

Some reports have Oliver earning $160 million this year. Woolworths declared a profit of $2.3 billion last year, up 24% on the previous year. You’d reckon between them they shouldn’t have needed to put their hands in farmers’ pockets, wouldn’t you?

But wait – there’s more.

In February, the ACCC prosecuted both major supermarkets over shopper docket discounts. The Federal Court cleared Coles, but ruled Woolworths had breached a previous undertaking about the dockets. This breach was rectified soon after.

In March, Coles agreed to publish corrective advertisements after farmers successfully complained to the ACCC about a YouTube video that made false claims about the prices they were paid for their milk.

Industry analysts estimate that Woolworths holds a 41.4% share of the $87 billion pa Australian grocery market; with Coles taking up another 32.5%. IGA has a market share of 19%; and Aldi has less than 5%. Put another way, that means that for every $100 Australians spend on groceries, around $74 ends up in a cash register at either a Coles or Woolworths store.

That’s just the tip of the iceberg, though. The parent companies of both major supermarket chains have extensive holdings that dominate the Australian retail landscape.

Wesfarmers own 756 Coles supermarkets; 810 bottle shops; 636 petrol stations and convenience stores; 92 hotels; 313 Bunnings stores; 150 Officeworks stores; 190 Kmart stores; 308 Target stores; and 263 tyre and car service centres. Woolworths Ltd owns 897 supermarkets; 181 Big W stores; 1355 bottle shops; 323 hotels; 31 hardware stores; 613 petrol stations; and 50 optometry outlets. Both companies also now offer insurance products.

So an Australian family can buy the groceries, insure the house, fill up the car, clothe the kids, landscape the backyard and then relax with a cold drink on the deck – all from outlets owned by one or other of the two majors.

Around 25% of all products on the shelves of the two majors are now private label – up from 15% a decade ago. Furthermore, a recent study estimated that $1 in every $4 earned by suppliers is being handed back to retailers to pay for promotions, discounts and rebates.

These strategies seem to be working. Both retailers had revenues of more than $59 billion and both made profits of more than $2.25 billion in 2012/2013.

The retailers argue that consumers are benefitting too, from lower prices. Over the last five years, increases in prices for food and non-alcoholic drinks have averaged half that of general price increases which means real food prices have fallen over that period.

Our retail market is the most concentrated in the world. The “big four” UK retailers (Tesco, Asda, Sainsbury’s and Morrisons) have a combined market share of 73.6%. The biggest US retailer (Walmart) has a market share of 25%, with the next three players holding a further 30%. In China, the top five retailers account for 38% of the market.

According to Senator Nick Xenophon, ‘the fight to the death between Coles and Woolies is like two big gorillas fighting in a room’.

When gorillas fight, others get trampled. While in the short-term prices may well be lower, in the long-term there are real concerns about the impacts of undue market power on local producers and, inevitably, on captive Australian consumers.

That should be food for serious thought.
TFGA chief executive Jan Davis