Australians grappling with the rising cost of living have a new target: supermarkets. Accusations of “record profits” and “price gouging” have intensified, prompting a closer look at the grocery giants and their role in the current economic landscape.
Australia’s grocery aisles have become battlegrounds. On one side, shoppers grapple with rising prices, feeling squeezed by every trip to Coles or Woolworths. On the other side, the supermarket giants stand tall, reporting record profits and touting the benefits of their own-brand products, emblazoned with generic labels and promising lower prices. But is this private label push a win for wallets, or are we being subtly exploited in a game rigged for supermarket profit?
It seems embedded into the fabric of the Australian DNA in trying times; we look for someone to blame: a corporation, the government or an entity. And as someone with a young family and a big mortgage, I know how expensive things have become in the past 18 months.
Profit Margins Under the Microscope
While headlines often scream about “record profits,” a deeper analysis reveals a more nuanced picture. Coles, for instance, boasts a relatively stable profit margin of around 2.6% for the past four years despite fluctuations in gross profit. This indicates while their revenue is rising due to inflation, their costs are also climbing, limiting their profit growth. You can see these figures quite clearly in the Coles 2023 investor report.
Woolworths presents a more complex case. Their current profit margin of 6% exceeds their historical average, but their net profit in 2023 falls significantly short of the peak in 2015, and gross profit has dipped compared to 2022. This points to a trade-off: while they might be extracting more profit per sale, their overall profitability has declined. Once again, Woolworths’ 2023 investor report provides these figures for us.
The numbers tell a complex story. Private labels, like Coles’ “Essentials” and Woolworths’ “Select,” have undoubtedly carved a significant space on our shelves. In 2023, they accounted for roughly 18% of supermarket sales, and the trend shows no signs of slowing down. Coles, in particular, boasts a private label market share exceeding 30%. This rapid growth might seem like a boon for consumers, offering budget-friendly alternatives to familiar brands. But a closer look reveals a web of factors that make the picture unclear.
Firstly, pricing isn’t always as straightforward as it seems. While some private label items undoubtedly undercut their branded counterparts, the gap isn’t always consistent. A recent CHOICE investigation found instances where Coles’ private label products were actually more expensive than cheaper branded options. In other cases, the price difference might be negligible, raising questions about the true value proposition.
Stable Margins, Rising Revenue:
Attributing the current situation solely to profit margins would be oversimplifying the issue. Several factors contribute to the complex web of supermarket profitability.
- Revenue: While margins may be stable, fluctuations in revenue due to inflation and changing consumer behaviour can impact overall profits.
- Costs: Rising operational costs for fuel, wages, and logistics can eat into profits, even if margins remain stable.
- Expenses: Changes in expenses like marketing, technology investments, and store expansion can also affect overall profitability.
- Inflationary Pricing: Food prices rise due to global supply chain disruptions and other inflationary pressures. This impacts both revenue and costs for supermarkets, creating a misleading picture of profit growth.
A Senate Probe: Seeking Answers and Transparency
Given these complexities, the Australian Senate is launching a much-anticipated inquiry into supermarkets. This investigation aims to shed light on the industry’s practices, including:
- Examining the duopoly of Coles and Woolworths and its potential impact on competition and pricing.
- Investigating the use of automation and its impact on jobs and supplier relationships.
- Evaluating the effectiveness of the current grocery code of conduct and its ability to protect consumers from unfair pricing practices.
The findings of this inquiry will be crucial in understanding the true extent of supermarket influence on the cost of living. It will also provide valuable insights for potentially implementing policy changes to promote fairer pricing and a more competitive supermarket landscape.
But given that it’s just an enquiry, it will be too slow and probably not impact consumers in the short term. The ACCC are better positioned for this kind of thing but has thus far been mostly silent on the issue.
While the data doesn’t offer a definitive answer to the “price gouging” question, it’s undeniable that Australians are struggling to make ends meet. As essential players in the food supply chain, supermarkets have a responsibility to operate ethically and transparently.
One thing that is clear though is the media narrative that Coles and Woolies are taking consumers for a ride and making obscene profits is an accurate portrayal of what is really happening.
