Supermarket suppliers are under scrutiny in Australia – do your pricing decisions stack up?

Against the backdrop of a string of reviews into the supermarket sector both in Australia and overseas, pressure continues to build on the supermarkets to justify their pricing practices and their record profits amidst the cost-of-living crisis. Australia’s top competition and consumer regulator, the ACCC, is now interrogating the price gouging allegations being levelled at the supermarkets as part of its 12-month inquiry into pricing practices and competition in the supermarket sector. The ACCC will also do this by looking at the role suppliers may have played in driving up grocery prices for Australian consumers.

Local and multinational suppliers, especially those with “must-have” or “traffic builder” products or whose products dominate their category, should ready themselves in case the ACCC comes calling. Read on to see what this means for you as a supplier and how you can get prepared.

Supermarkets, supermarkets, supermarkets!

With cost-of-living pressures remaining at an all-time high, there has been a spate of inquiries into the supermarket sector, especially pricing practices, in Australia. Three of these are significant for suppliers, namely:

  • Senate Inquiry into Supermarket Prices: In December 2023, led by a push from the Green’s, the Senate established the Select Committee on Supermarket Prices to look at the price setting practices and market power of major supermarkets. The terms of reference for the inquiry promised a great deal in its scope, including that it would consider the role of multinational food companies in supermarket price inflation. The Senate Committee has promised it will turn its attention to the multinational food companies but to date has not done so. With the final report due on 7 May 2024, it remains to be seen how the practices of suppliers will be factored into the Committee’s findings.
  • Independent review of Grocery Code: In January 2024, the Federal Government appointed Dr Craig Emerson to lead a six-month review of the 2015 Food and Grocery Code of Conduct, to examine its effectiveness. An interim report was issued on 8 April 2024. Emerson found the Code to be ineffective due to a lack of fines and the heavy imbalance in market power between supermarkets and suppliers. Emerson has recommended the Code be made mandatory, apply automatically to all supermarkets with annual revenue of A$5bn, and that civil penalties apply for serious breaches (up to a maximum of $10 million, 10% the corporation’s turnover or three times the benefit gained from the breach). Emerson’s final report will be provided to the Government on 30 June 2024 with the Government having already expressed its support for most of its recommendations.
  • ACCC Supermarkets Inquiry: In February 2024, the Federal Government directed the ACCC to conduct a comprehensive, 12-month inquiry into supermarket pricing and structural issues in related markets. The ACCC’s inquiry will be far deeper and broader than the other two inquiries on foot and will be backed up by the ACCC’s far reaching investigative tool kit. The ACCC will deliver an interim report of its findings by 31 August 2024, with a final report due on 25 February 2025.

What does the ACCC Supermarkets Inquiry mean for supermarket suppliers in 2024-25?

The ACCC has flagged that it will use its compulsory information gathering powers to obtain documents and other information from industry participants like suppliers as it seeks to understand whether the supermarkets are price gouging, and the relationship between wholesale/farmgate prices of suppliers and the retail prices of supermarkets. So, what might this mean for you?

What are the ACCC’s compulsory information gathering powers?

The ACCC has broad statutory powers to compel a person to provide information/documents relating to that person’s affairs if the ACCC has reason to believe that they are capable of assisting in a market inquiry. It is an offence to refuse or fail to comply with the notice without a reasonable excuse, which may attract a significant fine (A$31,300 for companies; A$6,260 for individuals). The ACCC tends to set a reasonably quick deadline to respond to these notices, and whilst requests for extensions are possible, they are only granted at the ACCC’s discretion.

What will the ACCC’s likely focus be with suppliers?

The ACCC has advised that its investigations regarding suppliers will focus on how prices are set at different levels of the supply chain and associated margins. That means lifting the hood on end-to-end costs of production and distribution, prices, and related margins.

The ACCC has also indicated that it will be particularly keen to understand the extent to which such costs and pricing practices may have changed over the past 5 to 10 years.

Can you withhold confidential information from a response to a compulsory notice?

No. Information can only be withheld where it is subject to legal professional privilege, and you are able to explain why this privilege applies.

Top tips for suppliers

Suppliers (and the supermarkets) will be squarely in the ACCC’s sights over the next few months so don’t be caught unprepared. If you supply a “must-have” or “traffic builder” product or your product dominates its category, you are especially likely to be in the spotlight. Here are some tips for you:

  • Make it a priority to get your pricing records and your trading terms/commercial agreements with supermarkets (if any) in order so you can access them quickly.
  • Start thinking about how, if required to do so, you would clearly identify and explain any major price increases which you have put through, to your supermarket customers over the past 5 to 10 years.
  • Think about the following key pricing issues: to what extent have your profitability and margins been affected by volatile input prices on the global market? Do you have bargaining power to pass on higher costs of production or input costs to your supermarket customers? To what extent are your costs reflected in the final retail price charged by supermarkets at the till?
  • If you receive a compulsory notice from the ACCC, don’t delay dealing with it. Get prompt legal advice on the best way to respond. Time is of the essence with these notices and being quick to act can make a big difference to how well you present your response.

Need help working out what all this means for your business? Contact the Addisons Competition, Consumer & Antitrust team.

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