Woolworths executives have been asked if they compete with rival Coles, or just price match and if the supermarket’s policy of holding undeveloped sites for “strategic reasons” is designed to lockout competitors.
A government-ordered inquiry into the supermarket sector turned its attention to Australia’s biggest supermarket on Monday amid concerns over the market power and pricing practises of the country’s major grocery retailers.
Here are four things we learned at the Australian Competition and Consumer Commission hearing.
Woolworths tries to ‘neutralise’ Coles
ACCC counsel, Naomi Sharp SC, used the opening minutes of Monday’s hearing to examine Woolworths’ claim that the sector is “fiercely competitive” after supermarket representatives told the inquiry it had up to 44 rivals.
The list, included in Woolworths’ submission to the inquiry, included highly specialised retailers like The Cheesecake Shop and Steve Costi’s Seafood.
Under questioning, Woolworths chief executive, Amanda Bardwell, conceded that only Coles offered an equivalent range of groceries for those conducting a “one-stop shop”.
“If you want to define it that way, then yes, you could say that,” Bardwell said.
Woolworths enjoys a 38% share of supermarket sector sales, while Coles generates 29%, representing a far more concentrated sector than in comparable economies.
Bardwell said many consumers shopped around for individual items that could be bought from multiple retailers.
“Sometimes they might be looking for a full weekly shop, but more often than not we’re seeing customers actually shop multiple times a week and so they’re looking for convenience when it comes to that,” Bardwell said.
One of Woolworths’ priorities is to “neutralise Coles and contain Aldi on pricing”, according to a 2015 investor presentation by the supermarket chain and referred to by the ACCC.
Bardwell was asked whether the supermarket’s strategy was to “beat Coles on price or match Coles on price”.
“I would say we compete on price every single day,” Bardwell said.
In its interim report released in September, the ACCC found that Australia’s two big supermarkets provide similar products, mirror-like prices and loyalty programs in an oligopolistic market that may limit incentives to compete vigorously.
Woolworths holds undeveloped ‘strategic’ sites
Woolworths executives denied suggestions the company engages in “land banking”; a practice where companies used their market power to buy or lease land to block rivals from expanding.
The ACCC referred to a Woolworths document that described some of its properties as “sites held for strategic reasons” with no plans for development.
“Isn’t this land banking?” Sharp said.
The Woolworths managing director of property, Ralph Kemmler, said Woolworths doesn’t hold on to undeveloped land to block competitors.
“Once again, there’s a number of individual sites in there and it’s a mix of different sites and different reasons,” Kemmler said.
Under questioning, Kemmler said that Woolworths did buy shopping centres “with the view of putting a Woolworths supermarket” into the acquired site, which could include a decision not to renew a rival retailer’s lease.
Woolworths asked to clarify supplier rebates
Woolworths executives were asked about profit margins generated by the supermarket chain, which have risen well above pre-pandemic levels.
Sharp asked how the business reconciles price complaints from suppliers with Woolworths’ rising margins and record net profit results.
Former chief executive Brad Banducci told the inquiry this was the “retailer’s challenge”.
“The retailer is always trying to balance delivering for the customer, which is where you’ve got to start, treating your suppliers fairly because they’ve also got to have a business that succeeds, doing the right thing for your employees … and then balancing that with a fair return to the shareholder,” Banducci said.
Bardwell said it was a “constant challenge” to get the balance right.
The National Farmers’ Federation has complained to the ACCC the major supermarkets use “exploitative” buying practices that take advantage of growers due to the perishable nature of their product.
The Woolworths executives were also asked to provide detail about any rebates they charge food suppliers, referring to payments they allegedly demand from producers on their final invoice.
The ACCC’s deputy chair, Mick Keogh, asked the executives to clarify their responses after a series of unclear answers.
“All our discussions with suppliers … highlight their understanding and expectation that they will be asked to fund rebates in the region of 3 to 5% routinely,” Keogh said.
“It seems your responses seem to indicate a lack of awareness of that.”
Woolworths representatives said they would clarify the issue on Tuesday.
Execs asked to explain yellow, red and pink tickets
Woolworths executives were questioned about the ticket colours placed throughout their stores, which often confuse shoppers according to surveys conducted by consumer group Choice.
Sharp asked why the supermarkets used the same colour tickets – yellow – on fresh produce items that weren’t on sale and for some of its grocery specials and whether that was confusing for shoppers.
Banducci said that yellow tickets indicated that the item was only available short term.
“People are looking for it, and it is a price that if you don’t buy it this week, it won’t be here next week, or if you don’t buy it today, it might not be here tomorrow,” he said.
Red tickets indicate the product will be at a “great price” over the long term, while pink is used for new products.
Woolworths representatives were asked why they didn’t just reduce the usual price of goods, rather than run promotions.
Bardwell said there was a long tradition of promotional pricing in Australia and that Woolworths offered low shelf prices for non-discounted items.
Woolworths executives will answer further questions on Tuesday, while Coles representatives are scheduled to make their first appearance on Thursday.
The regulator is preparing to provide its final report to the government by the end of February.
Separately, the ACCC is suing Coles and Woolworths over allegations they deceived customers with fake discounts.
