Former ACCC Leader Allan Fels Urges for a Stronger Grocery Code to Safeguard Consumers

Allan Fels

Australia’s food manufacturing industry, worth over $100 billion, is threatened by the high concentration of supermarkets. This situation not only puts the industry at risk but also allows for the exploitation of consumers, a Senate inquiry has heard.

Allan Fels, a former leader of the consumer protection agency, pointed out that such concentration in the market allows for pricing strategies that exploit customers. He noted that if the acquisition of the Victorian-based, US-backed Safeway by Woolworths in the 1980s had not happened, the retail sector would have been much more competitive.

Professor Allan Fels, who headed both the Australian Competition and Consumer Commission and its predecessor, the Trade Practices Commission, from 1991 to 2003, spoke to the Senate inquiry about supermarket prices on Monday. He criticized the voluntary code that governs how grocery retailers interact with suppliers, calling it “tokenistic and very weak.”

“When everything is optional, they’ll only agree to it if the terms of the code are favorable to them,” he said. “And even then, if a decision is made under the code, they’re not obligated to follow it.”

Professor Allan Fels also advocated for more government action to deregulate the market to allow easier entry for new businesses, highlighting that the practice of holding onto land as an investment was a significant barrier.

“The best way to enhance competition in the supermarket sector is to eliminate entry barriers,” he mentioned, supporting similar suggestions from the Food and Grocery Council. The council’s CEO, Tanya Barden, noted that large multinational companies were now facing restrictions in controlling their wholesale prices.

Ms. Barden expressed deep concerns about retailers increasingly controlling both retail and wholesale prices. She noted that over the decade before the pandemic, profits in the food manufacturing sector dropped from $8 billion to $5 billion, and capital investment had not grown.

She explained that many manufacturers are struggling to maintain prices over time and reinvest in their operations, leading multinationals to contemplate whether to continue investing in Australia or relocate abroad. Meanwhile, domestic manufacturers are at risk of failing.

Ms. Barden highlighted that food manufacturing provides jobs for 275,000 people across the country, with 40% of these jobs located in regional and rural areas. She called on the Federal Government to offer investment incentives to manufacturers, especially as the industry moves towards more automation, to help sustain strong employment levels.

“Suppliers shouldn’t have to suffer because of retail competition,” she stated.

She further emphasized that retailers are responsible for their own profit margins and should not impose excessive pressure on suppliers to absorb the cost of price cuts.

Allan Fels noted the significant influence of Aldi in the market. In regions where Aldi operates, competitors tend to lower their prices more than in areas without Aldi. However, he acknowledged that Aldi operates differently and isn’t exactly a full-scale competitor. Meanwhile, IGA distributor Metcash does a commendable job but generally has higher prices.

“The more competitors there are, the more difficult it is to raise prices,” he explained, highlighting that attempts to control supermarket prices often do not succeed.

Professor Fels supported the creation of divestiture laws for businesses, which would be subject to court approval, but he typically did not favor using these laws for supermarkets.

He pointed out that any modifications to competition laws would lead to long-term benefits for consumers rather than immediate changes.

“The immediate impact of dismantling a cartel can be substantial, yet decisions on mergers and abuse of dominance usually bring about significant effects, although these are not instantaneous,” he explained.

Allan Fels believes that the recent updates suggested in the Food and Grocery code review — like making the code compulsory, increasing penalties for violations, and focusing on protecting suppliers from retaliation — might “probably” lead to quick changes in how Coles and Woolworths operate, as they want to avoid legal issues.

He mentioned, “There are no simple, fast solutions in retail, but the retailers really care about their public image, and being under close watch will likely cause them to be more cautious with their pricing strategies in the near future.”

Ms. Barden argued that the code should be obligatory and that retailers should commit to independent arbitration instead of using their internal dispute resolution systems. She also stated that the code should include provisions that allow for compensation payments by retailers when needed.

In contrast, during the inquiry, Bunnings executives stated that the conduct discussed on Thursday regarding their supply and sourcing practices did not align with their normal standards.

Belinda Rakers, the Greenlife category manager at Bunnings, explained that their price match guarantee offers a 10 percent discount if a lower price is found elsewhere, but this only applies to comparable products.

Suppliers at the hearings reported being pressured to develop unique products exclusive to Bunnings, which would be ineligible for the price match guarantee. Ms. Rakers responded by clarifying that this was not a standard practice of the company.

Meanwhile, Treasury officials testified that the practice of landbanking by major supermarkets was decreasing over time. They also discussed recent revisions to the country’s merger laws, set to be implemented in 2026. These changes are designed to address concerns about gradual acquisitions that have particularly affected independent supermarkets.

The updated legislation will require the Australian Competition and Consumer Commission (ACCC) to review any acquisitions in the sector made over the previous three years. Additionally, companies will be obligated to inform the ACCC about any merger activities.

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