ACCC Deputy Chair, Mick Keogh, says improving competition is still the best way to bring down prices.
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00:00It's quite a complex issue, because as you would realise, supermarkets typically carry
00:08anywhere between 25 and 30,000 different product lines, and the margins on those vary anything
00:16from 10% for some of the essentials, through to 40 or 50% for some of the luxury items
00:25that they might carry.
00:27And so in a typical basket, you can understand that there's a range of those products, and
00:33getting to the bottom of whether those margins are excessive or not is a very complicated
00:38piece.
00:40We focused on finding ways to improve competition, because of course that's the best preventative,
00:48if you like, to make sure margins aren't excessive, and that's where our focus has been in this
00:53inquiry.
00:54To pick up on your point about the margins of, they're between 10% and 50%, what is a
01:00fair margin?
01:03Well that's exactly the challenge.
01:06That's a very difficult question to answer, and if you want to go down the track of price
01:12regulation then it becomes a very complex issue.
01:15So we don't think that's the way to go, we think a better way to go is to enhance competition,
01:22because that means allowing consumers to better understand pricing, to look at true
01:28value and understand where the best bang for their bucks is, and get some of that confusion
01:35that exists at the moment out of the system, is the best way to make sure those margins
01:40aren't excessive, because they will have to compete to attract that consumer dollar more.
01:45And in terms of those margins, your report found that they've increased over the past
01:50five financial years, so is there price gouging for some items?
01:57Price gouging is very much an issue that people talk about, but is ill-defined.
02:05What we found is that the supermarkets have been able to steadily increase their margins
02:10over the last five years, and that's a reflection of their power in the market.
02:15They have such strong presence in the market that they can, for example, require their
02:20suppliers to fund promotions, to fund a whole range of things, and supermarkets retain their
02:27margins even when prices are increasing.
02:31That's where our focus has been, and finding ways to address that and make that more transparent,
02:36we think will help.
02:38And just one more on the margins point, when those items have a margin of 50%, what sort
02:44of items are we talking about here?
02:49You're probably talking more about things like luxury items, discretionary spending
02:53on chocolate bars, on those sorts of products where those margins can prevail because consumers
03:04are making impulsive decisions about them, and also the pricing of those tends to change
03:11almost on a weekly basis, so it's very difficult, for example, chocolate bars, we saw examples
03:17where chocolate bars double and then halve in price week in, week out, and so consumers
03:22find it very difficult to know what the actual price should be and where the value lies,
03:27and therefore they make impulsive purchasing decisions, and that's where those margins
03:32come into play.
03:33Commissioner, there's definitely a sentiment in the community that there is a duopoly when
03:37it comes to the major supermarkets, yet that's not a term that you've used, instead looking
03:43for other terms.
03:44I'm just curious about why that is.
03:48Well we certainly recognise the importance of Aldi as the third player in the marketplace,
03:55albeit Aldi has a limited range, around 2,000 product lines, and most of them are home brand
04:01products rather than competition directly for the major branded products that consumers
04:06are most familiar with.
04:08They're also limited in terms of their geographic extent, they're mainly in the major population
04:13centres, so it's not strictly a duopoly, there is competition there, there is also some competition
04:19from specialist retailers, butchers, greengrocers, and also some of the other retail chains,
04:25for example, chemist warehouse, bunnings, etc, are starting to carry some of the products
04:30that supermarkets also carry.
04:33So there is some competition at the margins, but consumers told us very strongly that the
04:38number one factor they consider in making their purchasing decisions is convenience.
04:43In other words, the location of the nearest supermarket, and the ability to do their shopping
04:48all in one go, and that's the particular strength that the two majors have.
04:55So we recognise that it's an oligopoly rather than a duopoly, but there is still significant
05:02market power held by the two major players.
05:06When it comes to shrinkflation, this is something that you've focused on and has come up regularly
05:11and including in political discussions in recent years, why is it so hard just to define
05:16exactly what shrinkflation is and what it looks like?
05:22It's not hard to define it, it's where the product size changes adversely for the consumer
05:29without a resulting change in price.
05:32What we think is important is that consumers are alerted to that, and that's the recommendation
05:39we've made here, that there's a requirement to actually indicate on the shelf where a
05:44product has gone through that shrinkflation and therefore is less valued for consumers.
05:51We think that's the best way to address that issue.
05:53And tell me what do you think needs to happen around pricing data, and how would that work
05:58in practicality, are there parallels to petrol pricing for example?
06:04There are.
06:06We've recommended that Woolworths and Coles in particular, but eventually Aldi as well,
06:10be required to make that pricing available in real time via application programming interfaces,
06:17by APIs.
06:19That would enable third party comparators for example, to provide consumers with an
06:25app that would allow them to compare prices in real times between the two major supermarkets
06:31for example, and also look at how that price has changed historically.
06:36And that would give much more information to consumers to be able to make sensible purchasing
06:42decisions even when there's all the confusion created by all the promotions, all the specials,
06:48all the different coloured tickets as they walk down the aisles.