Australia’s peak organisation for food and grocery producers asserts that supermarkets exert significant power in price negotiations, often demanding sensitive business details, including invoices, as proof of rising costs.
In its recent submission to the competition regulator’s interim report on supermarket pricing, published in September, the Australian Food and Grocery Council highlighted that supermarkets hold a dominant position in price-setting discussions.
The Albanese government has tasked the Australian Competition and Consumer Commission (ACCC) with investigating supermarket pricing and profitability. In a separate action, the ACCC is taking legal steps against Coles and Woolworths, alleging that the two biggest supermarket chains have used misleading discounting tactics.
Suppliers report that getting a price increase approved on shelves can take up to 12 weeks, involving a lengthy, seven-stage process that begins with the supplier’s request and includes negotiations over wholesale and promotional pricing.
“Suppliers frequently face rigorous questioning from supermarkets, who often demand justifications for price hikes and request sensitive documents, such as invoices, to verify which costs have increased and by how much,” the Council noted.
This level of information-sharing raises concerns among suppliers, who fear that the details could be exploited by retailers in discussions with competing suppliers or used to benefit the supermarket’s own-brand products.
“This situation highlights a troubling information imbalance in the industry,” the Council continued, “where retailers have deeper insight into suppliers’ operations, giving them an edge in negotiations and further tipping the scales of power in their favour.”
According to the Council, suppliers rarely see the full wholesale price for their goods. Supermarkets often take deductions for promotional activities, with discounts sometimes fully funded by the supplier. Additionally, suppliers bear costs for securing display space, inclusion in catalogues, in-store marketing, and various incentives.
“The supermarket alone knows the margin on every product within each category,” the Council’s submission pointed out.
Between 2020 and 2023, the average annual rate of food inflation has climbed to 4.4%, far surpassing the 1.6% average of the previous decade.
Tanya Barden, chief executive of the Australian Food and Grocery Council, stated: “Manufacturers in Australia are facing unprecedented challenges.”
In recent years, core costs have soared: energy and gas by over 50%, sugar by 46%, and packaging by 30%, Barden reported.
Producers now face tough choices: to raise prices, reduce product sizes (a tactic known as “shrinkflation”), compromise on quality, or even exit the Australian market altogether.
This week, the ACCC is commencing public hearings involving senior leaders from Aldi, Coles, Metcash, Woolworths, and other stakeholders to gain further insight into the sector’s critical issues and its supply chains.
A Woolworths spokesperson commented that the retailer strongly supports Australian producers and recognises the pressures of rising costs. “When suppliers negotiate price increases, it’s standard for retailers to seek clarification on the reasons for these adjustments,” he explained. He noted that the Food and Grocery Code of Conduct restricts retailers from demanding commercially sensitive information from suppliers.
A Coles representative added: “We strive to provide value for our customers while fostering collaborative relationships with our suppliers. When reviewing any proposed price increases, we evaluate their validity to maintain fair grocery prices for Australian families while also respecting rising costs within our supply chains.”
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