Coles and Woolworths have shifted the blame for rising grocery prices onto their large multinational suppliers, with the duopoly saying they have been inundated over the past year with requests to increase the price of thousands of products by more than 10 per cent.
The under-fire supermarket giants appeared before the Senate’s cost of living committee on Friday, the latest in a series of political hearings scrutinising the cause of the 18 per cent increase in grocery prices over the past three years.
The supermarkets were unable to commit to lowering prices before Christmas, pointing to an influx of price rise requests from their large multinational suppliers, who they said were grappling with a range of cost pressures.
Woolworths chief commercial officer Paul Harker said about 1000 suppliers had asked to raise the price of 12,500 items by more than 10 per cent on average since he previously appeared before the Senate in February last year.
He said 70 per cent of Woolworths’ sales were from goods supplied by large multinational corporations, which had asked the supermarket to push through double-digit price rises on their products.
“One of the things when it comes to bargaining power, which the ACCC is going to spend some time on, is actually the extent to which there is bargaining power for supermarkets against businesses who are many times our size,” Mr Harker said.
Neither Coles nor Woolworths named any multinational suppliers but Australian supermarket shelves are stocked with products from leading global food and household goods companies including Nestlé, Unilever, PepsiCo, Kraft Heinz, Mars and Mondelez. They supply everything from ice-cream to baby food, shampoo and washing powder.
Supermarkets in the firing line
The sharp increase in grocery bills has put Coles and Woolworths in the firing line of both Labor and the Coalition, as the major parties try to convince voters they are best placed to manage cost-of-living pressures in the lead-up to the next federal election, due by May.
Treasurer Jim Chalmers on Thursday explicitly carved out the supermarket sector from an overhaul of the nation’s merger laws, ensuring any tie-up in the grocery industry was subject to review by the Australian Competition and Consumer Commission.
The competition watchdog last month launched a legal case against Coles and Woolworths, alleging the supermarkets misled shoppers by claiming they were dropping prices when they were actually increasing them.
The ACCC wants the Federal Court to force Woolworths and Coles to pay penalties, which could be as much as $50 million for each breach or 30 per cent of the turnover during the time the breaches occurred.
Mr Harker said the Reserve Bank of Australia’s 13 interest rate rises since May 2022 had not only put pressure on households, but also suppliers.
Rising shipping costs, an increase in fertiliser and energy prices caused by the war in Ukraine, as well as higher rents and insurance premiums were also adding to cost pressures faced by Woolworths’ suppliers.
Coles head of public affairs Adam Fitzgibbons said supplier cost-increase requests for packaged goods had doubled between the 2021-22 and 2022-23 financial years. He said Coles had an obligation to consider all price-increase requests as part of the federal government’s Food and Grocery code of conduct, which prescribes standards of behaviour between supermarkets and their suppliers.
“Inflation is the enemy of keeping prices low,” Mr Fitzgibbons said.
Liberal senator Jane Hume, the chairwoman of the cost of living committee, said multinational suppliers such as Mondelez and Nestlé had previously told the committee that one of the greatest drivers of price rises was higher packaging costs.
“Now getting to the bottom of what it is that’s pushing up prices always seems to come down to the same things. When inflation is high, it affects all businesses along the supply chain,” she said.
Price requests are tapering off from their peaks, but both supermarkets indicated they remained above pre-pandemic average in terms of frequency and size.
A spokesman for Woolworths said suppliers were still facing an array of input cost increases including global shipping prices and commodities such as the base price of cocoa.
Coles flagged in August that grocery inflation moderated, in line with a reduction in supplier cost price increase requests. The supermarket’s chief commercial officer, Anna Croft, said the two areas to watch were cocoa, a key ingredient in chocolate, and rising shipping costs.
Both Coles and Woolworths said they had experienced a significant change in customer behaviour on the back of cost-of-living pressures.
In affluent areas, Mr Harker said, customers were cutting back on dining out and instead buying high-end products from Woolworths, “treating themselves” at home with products such as premium ice-cream.
Consumers, regardless of their socioeconomic status, are seeking savings and certainly altering the way they shop.
— Adam Fitzgibbons, Coles head of public affairs
In mortgage-belt suburbs, consumers were increasingly buying cheaper Woolworths-branded products and cross-shopping, purchasing staples from discount retailers rather than the supermarket.
Mr Fitzgibbons said customers were also more willing to drive long distances if it meant they could buy a cheaper product from a discount retailer instead of going to Coles.
“Consumers, regardless of their socioeconomic status, are seeking savings and certainly altering the way they shop,” Mr Fitzgibbons said.
“The most prevalent change that we’ve seen over the past couple of years has certainly been the prevalence of cross shopping, where customers … seek out value. They consider our catalogues, they research before they go shopping, and they actually do make very targeted choices as to where they shop.”
The duopoly rejected suggestions they had been price gouging consumers.
Woolworths said its profit was 3¢ for every dollar spent in store, while Coles said its profit was more like 2.6¢ per dollar spent.
“This is a very small margin. This margin has remained consistent over the last six years. It did not increase with the rise in inflation, and is consistent with profit margins made by supermarkets overseas,” Mr Fitzgibbons said.
1 Comment
PAYWALL:
Coles and Woolworths have shifted the blame for rising grocery prices onto their large multinational suppliers, with the duopoly saying they have been inundated over the past year with requests to increase the price of thousands of products by more than 10 per cent.
The under-fire supermarket giants appeared before the Senate’s cost of living committee on Friday, the latest in a series of political hearings scrutinising the cause of the 18 per cent increase in grocery prices over the past three years.
The supermarkets were unable to commit to lowering prices before Christmas, pointing to an influx of price rise requests from their large multinational suppliers, who they said were grappling with a range of cost pressures.
Woolworths chief commercial officer Paul Harker said about 1000 suppliers had asked to raise the price of 12,500 items by more than 10 per cent on average since he previously appeared before the Senate in February last year.
He said 70 per cent of Woolworths’ sales were from goods supplied by large multinational corporations, which had asked the supermarket to push through double-digit price rises on their products.
“One of the things when it comes to bargaining power, which the ACCC is going to spend some time on, is actually the extent to which there is bargaining power for supermarkets against businesses who are many times our size,” Mr Harker said.
Neither Coles nor Woolworths named any multinational suppliers but Australian supermarket shelves are stocked with products from leading global food and household goods companies including Nestlé, Unilever, PepsiCo, Kraft Heinz, Mars and Mondelez. They supply everything from ice-cream to baby food, shampoo and washing powder.
Supermarkets in the firing line
The sharp increase in grocery bills has put Coles and Woolworths in the firing line of both Labor and the Coalition, as the major parties try to convince voters they are best placed to manage cost-of-living pressures in the lead-up to the next federal election, due by May.
Treasurer Jim Chalmers on Thursday explicitly carved out the supermarket sector from an overhaul of the nation’s merger laws, ensuring any tie-up in the grocery industry was subject to review by the Australian Competition and Consumer Commission.
The competition watchdog last month launched a legal case against Coles and Woolworths, alleging the supermarkets misled shoppers by claiming they were dropping prices when they were actually increasing them.
The ACCC wants the Federal Court to force Woolworths and Coles to pay penalties, which could be as much as $50 million for each breach or 30 per cent of the turnover during the time the breaches occurred.
Mr Harker said the Reserve Bank of Australia’s 13 interest rate rises since May 2022 had not only put pressure on households, but also suppliers.
Rising shipping costs, an increase in fertiliser and energy prices caused by the war in Ukraine, as well as higher rents and insurance premiums were also adding to cost pressures faced by Woolworths’ suppliers.
Coles head of public affairs Adam Fitzgibbons said supplier cost-increase requests for packaged goods had doubled between the 2021-22 and 2022-23 financial years. He said Coles had an obligation to consider all price-increase requests as part of the federal government’s Food and Grocery code of conduct, which prescribes standards of behaviour between supermarkets and their suppliers.
“Inflation is the enemy of keeping prices low,” Mr Fitzgibbons said.
Liberal senator Jane Hume, the chairwoman of the cost of living committee, said multinational suppliers such as Mondelez and Nestlé had previously told the committee that one of the greatest drivers of price rises was higher packaging costs.
“Now getting to the bottom of what it is that’s pushing up prices always seems to come down to the same things. When inflation is high, it affects all businesses along the supply chain,” she said.
Price requests are tapering off from their peaks, but both supermarkets indicated they remained above pre-pandemic average in terms of frequency and size.
A spokesman for Woolworths said suppliers were still facing an array of input cost increases including global shipping prices and commodities such as the base price of cocoa.
Coles flagged in August that grocery inflation moderated, in line with a reduction in supplier cost price increase requests. The supermarket’s chief commercial officer, Anna Croft, said the two areas to watch were cocoa, a key ingredient in chocolate, and rising shipping costs.
Both Coles and Woolworths said they had experienced a significant change in customer behaviour on the back of cost-of-living pressures.
In affluent areas, Mr Harker said, customers were cutting back on dining out and instead buying high-end products from Woolworths, “treating themselves” at home with products such as premium ice-cream.
Consumers, regardless of their socioeconomic status, are seeking savings and certainly altering the way they shop.
— Adam Fitzgibbons, Coles head of public affairs
In mortgage-belt suburbs, consumers were increasingly buying cheaper Woolworths-branded products and cross-shopping, purchasing staples from discount retailers rather than the supermarket.
Mr Fitzgibbons said customers were also more willing to drive long distances if it meant they could buy a cheaper product from a discount retailer instead of going to Coles.
“Consumers, regardless of their socioeconomic status, are seeking savings and certainly altering the way they shop,” Mr Fitzgibbons said.
“The most prevalent change that we’ve seen over the past couple of years has certainly been the prevalence of cross shopping, where customers … seek out value. They consider our catalogues, they research before they go shopping, and they actually do make very targeted choices as to where they shop.”
The duopoly rejected suggestions they had been price gouging consumers.
Woolworths said its profit was 3¢ for every dollar spent in store, while Coles said its profit was more like 2.6¢ per dollar spent.
“This is a very small margin. This margin has remained consistent over the last six years. It did not increase with the rise in inflation, and is consistent with profit margins made by supermarkets overseas,” Mr Fitzgibbons said.