A report published by the nation’s competition watchdog has determined that Australia’s major supermarket chains are some of the most profitable in the world, with Coles (ASX: COL) and Woolworths (ASX: WOW) found to have limited incentive to ‘compete vigorously on price’.

The Australian Competition and Consumer Commission’s (ACCC) report, which outlined 20 recommendations to improve the sector, also found that the oligopolistic market structure is set to continue, with significant changes to drive competition unlikely to happen in the near future.

According to the findings, Woolworths holds approximately 38 per cent of national supermarket retail sales, followed by Coles at 29 per cent and ALDI at 9 per cent, while Metcash – a proxy for independent supermarkets it supplies – holds 7 per cent.

Recommendations from the watchdog include forcing supermarkets to publish all prices on their websites, allowing online comparison tools to access the data to inform shoppers, publishing notifications to inform shoppers when package size changes occur, and adopting measures to address government planning and zoning issues.

Another recommendation in the 441-page report includes that the major retailers be subject to mandatory market reporting obligations, giving fresh produce suppliers a better understanding of market conditions when in supply negotiations.  

“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,” ACCC deputy chair Mick Keogh said.

“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.

“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.”

Coles, Woolworths and ALDI’s profit margins were found to be amongst the highest when compared to global peers between 2019-20 and 2022-23. With all three hovering at a margin of about 2.5 per cent, the grocers were only outperformed by Canadian supermarket Loblaw, while UK-based chains Sainsbury’s and Tesco had profit margins less than half of Woolworths'.

Despite these high-profit margins, the report also found that grocery price inflation in Australia was lower than in many OECD countries, with New Zealand, Canada, the UK, and the US all reporting greater price increases.

In response, Coles said the ACCC’s analysis shows grocery price increases have been significantly impacted by the rising cost of doing business, with the chain and its suppliers facing growing in costs like electricity, rent, insurances, wages, transport and more.

“Our net profit margin has also not changed. Coles' NPAT – the only true measure of a company’s profits – has remained at around 2.6 per cent as a percentage of sales throughout the last five years, including through COVID-19 and the height of inflation. This means we earn around $2.60 for every $100 a customer spends in our stores – less than 3c in the dollar,” the company said in a statement.

“Coles NPAT margins are comparable to global peers including countries like Canada, United States and United Kingdom.”

The Australian Retailers Association (ARA) has also come out today in support of the ACCC recommendations that improve transparency for suppliers and customers, also noting that the report did not find any evidence of price gouging.

“We believe the Australian grocery sector remains highly competitive, with a growing number of physical and online shopping alternatives. New entrants are gaining market share, and cross-shopping behaviour among consumers is at an all-time high, ensuring strong competition within the industry,” ARA chief industry officer Fleur Brown said.

“Our supermarkets operate one of the longest supply chains in the world, with low population density so these businesses must be profitable and operate efficiently to operate and serve millions of Australians across the nation.”

Coles also noted that it has been competing not only with Woolworths and IGA, but also multinational players like ALDI, Costco and Amazon, which has introduced more than 6,000 product lines that overlap with its offering.

Woolworths CEO Amanda Bardwell supports the call to improve transparency for fresh food suppliers and other recommendations that don’t have unintended consequences or increase costs.

“We fully understand that customers want us to make it easier to find value, especially as the cost of living remains their major concern,” she added.

“We recognise they have experienced several years of significant inflation, with an escalation in the cost of mortgages, rent, transport, insurance, energy, food and many other household essentials.

“Having fully cooperated with this inquiry, we will review the report and its recommendations to identify any insights to make us a better business for our customers, suppliers and communities in which we operate.”

Help us deliver quality journalism to you.As a free and independent news site providing daily updates during a period of unprecedented challenges for businesses everywherewe call on your support