Supermarket shake-up: A need for stronger regulation to benefit consumers and producers

Long overdue changes to the supermarket and corporate sectors need to be made to ensure a fairer and more equitable economy.

The interim report of the Food and Grocery Code review sheds light on the significant power imbalances within Australia’s supermarket sector, focusing particularly on the disparities between large supermarket chains such as Coles, Woolworths, and Aldi, and the smaller suppliers, farmers and producers they dominate. These large players currently operate under a voluntary code that lacks the enforcement teeth necessary to deter breaches. This gap in regulatory oversight has facilitated an environment where supermarket giants can, without fear of meaningful penalties, disregard the code, perpetuating practices that harm smaller producers and inflate consumer prices.

The financial figures are significant: Coles and Woolworths reported substantial profits in the 2023 financial year—$1.1 billion and $1.6 billion respectively—highlighting a market condition skewed heavily in favour of these large corporations at the expense of a competitive marketplace. Aldi’s exact figures remain undisclosed—as a private company—but market analysts suggest that their profit margins are similarly high. This disparity not only underscores the disproportionate financial clout these corporations wield but also casts doubt on the effectiveness of current regulatory frameworks to foster fair competition and protect consumer interests.

Treasurer Jim Chalmers has advocated for transitioning from a voluntary to a mandatory code as soon as possible, equipped with stringent penalties and enhanced dispute resolution processes and such changes aim to rebalance the scales, ensuring that breaches of the code are met with substantial consequences. The author of the report, Dr. Craig Emerson, made the key point that current voluntary code is akin to having speed limits on the roads without penalties for violations—so why would anyone take any notice of the code—and it’s a scenario that starkly illustrates the ineffectiveness of the existing system.

The need for reform is urgent—the lack of competition not only stifles market dynamics but also directly impacts consumers, who are currently face high prices amidst rising living costs. This critique extends to the broader economic model, where the natural trajectory of unchecked capitalism leads monopoly or duopoly conditions—which Australia has an abundance of in its corporate sector—diminishing the very competition that is essential for a healthy market economy.

In this context, the government faces substantial pressure to act decisively. The full report, due in late June, will likely lead to further discussions about competition policy in Australia and should become the catalyst for legislative changes in the near future. The effectiveness of these changes will ultimately be judged by their ability to bring about tangible improvements in market practices and consumer protections. This requires a careful, robust approach to regulatory overhaul that not only addresses the symptoms of the current market dysfunctions but also the structural inequities at their root.

A balancing act: Australia’s complex intersection of politics, economy, and social priorities

This current debate in Australia transcends simple market mechanics, venturing deeply into the realm of political priorities and societal values. The government’s approach to addressing these issues is not only a matter of regulatory intervention; it is also a reflection of what our society aims to prioritise: is it consumer affordability? Or fair prices for farmers and producers? Or is it the economic welfare of the workforce within the supermarket and retail sector? The massive profits that that been made by the supermarket giants have been built on the back of the low wages that many of their retail and support staff receive. Surely all these factors need to be taken into account when deciding what the results of new competition policy and legislation should be.

Within this complex picture, there are many priorities that are layered and intersect with each other. The most immediate concern for most politicians revolves around consumer prices—every voter is a consumer, and the sheer number of consumers makes this a significant political issue. However, ensuring lower prices for consumers without harming other stakeholders involves a delicate balance. Producers and suppliers, who are fewer in number but crucial to the economic ecosystem, need fair prices to sustain their operations and livelihoods. This is not just an economic issue but a matter of equitable market practices, ensuring that large supermarkets do not use their dominant position to unfairly squeeze suppliers’ profit margins.

Further complicating this are the concerns regarding wages and working conditions within these supermarket chains. The substantial profits reported by the giants in the industry suggest that they have the capability to improve pay and conditions for their staff, many of whom earn minimal wages despite the significant role they play in the companies’ successes. Yet, there is a persistent resistance to wage increases within the business community and conservative politics, often coupled by the argument that higher wages could lead to economic ruin—a refrain that is rarely substantiated by any meaningful economic data or evidence.

This resistance overlooks the potential economic benefits of wage increases. Higher wages leads to increased disposable income, which in turn stimulates demand for goods and services, benefiting the economy at large—including the supermarkets themselves. This cycle of wage increase and spending boost is often ignored by those who fear the immediate implications of increased labour costs.

There is also the political and public challenge for the Labor government of managing expectations. Even if the government implements all the recommended changes to enforce a stricter regulatory environment and potentially lower grocery prices, the actual impact on cost of living might not be immediately noticeable to the average consumer. Public perception of economic pressure and the “cost-of-living” crisis pushed forward by the media is now deeply ingrained and difficult to shift, and unless there is a visible, significant reduction in grocery prices, dissatisfaction with the government may persist.

This underscores the multifaceted nature of the issue at hand. The government’s response needs to be equally comprehensive, targeting not just the symptoms—high prices at the checkout—but also the underlying causes: lack of competition, unfair pricing strategies, and inadequate wages. The success of any legislative or regulatory changes will be measured not just by the balance sheets of big supermarkets or the price tags in store aisles, but by the real improvements in the lives of all stakeholders involved, from the smallest supplier to the everyday consumer.

Will the concentration of the market be finally broken?

It is becoming increasingly clear that the issues of concern within the supermarket sector are deeply entrenched within broader economic and political contexts, and other sectors within the economy. Australia’s history of protecting certain sectors through legislation, effectively granting favourable conditions to big players, is not unique to supermarkets but is a recurring theme across many other industries, including telephony, the whitegoods and electronics retail market, and the mainstream media. This pattern has resulted in duopolies and low competition environments that invariably lead to inflated consumer prices, as large corporations leverage their market dominance.

The forthcoming reforms in merger approval and competition laws, slated for implementation in January 2026, signal the Labor government’s recognition of the need for a more robust framework to ensure fair competition. However, the delay in these reforms taking effect indicates that significant relief in grocery prices—or any other prices in other sectors—may not be immediate. This delay is typical in political landscapes where substantial policy shifts require time for legislation, implementation, and to start showing effects.

Political responses to these issues also reflect broader ideological divides. Criticisms from the leader of the opposition, Peter Dutton, who dismissed the supermarket report as inconsequential and ineffective in controlling prices—claiming they were “Mickey Mouse”—underscore the challenges in achieving consensus on the approach to regulating key markets. His comments also highlight a common political tactic for the conservative politician: focusing on short-term headlines rather than long-term solutions. But this is who Dutton is—more interested in amplifying a perceived problem, than seeking a consensus; we shouldn’t really expect anything better. Dutton was in government between 2013 to 2022, yet there was not one act from the Coalition to bring supermarket prices down, and to keep them down. The current system of corporate self-regulation was instigated by the Coalition, yet here they are arguing how terrible the system is, hoping that no-one in the electorate will remember that they are the ones with responsibility for the current calamity.

The necessity for regulation in the free market, particularly in sectors as vital as grocery retail, is evident. While proponents of a laissez-faire economy argue that the market self-regulates and will always arrive at a solution, the reality observed in protected sectors like supermarkets suggests otherwise. Without effective regulation, monopolistic and duopolistic tendencies develop, stifling competition and harming both consumers and smaller businesses.

The argument that substantial government intervention in markets equates to socialism—in February, the Prime Minister Anthony Albanese suggested that “we are not the Soviet Union” in response to a question about possibility of breaking down the supermarket duopoly—is a misrepresentation of the role of government in a capitalist society. That is true: we are not the Soviet Union, but neither do we exist in a land where free market capital and the law of the jungle prevails. Governments have a responsibility to ensure that markets operate fairly, that businesses adhere to ethical practices, and that consumers are protected from predatory practices. This responsibility justifies and necessitates a degree of regulation and oversight, particularly in sectors where the potential for abuse is substantial due to lack of competition.

Ultimately, the trajectory for supermarket competition in Australia and its regulation will be a balancing act between fostering an environment conducive to free market operations and implementing safeguards to protect consumers and ensure fair play. This balance is crucial not only for the economic health of the country but also for the welfare of its citizens. As the government navigates these complex issues, the outcomes will likely influence public opinion, potentially reshaping political landscapes and consumer expectations in the process. It remains to be seen how effective these changes will be and whether they can indeed usher in an era of more competitive pricing and fairer market practices in the supermarket sector.