9. Retail markets

Supermarkets: a highly concentrated sector

9.1Competition in the supermarket sector was a key issue throughout the course of the inquiry. The Committee heard from the two supermarkets that dominate the retail food and grocery sector in Australia, Coles and Woolworths, as well as from Aldi Australia and Metcash Food—rising players seeking to build their presence further.

9.2The Committee also heard from the National Farmers’ Federation (NFF) and the Australian Food and Grocery Council (AFGC) about the downstream effects on suppliers from high concentration in the supermarket sector.

9.3The AFGC described Australia’s retail market as one of the world’s most highly concentrated.[1]

9.4Nationally, Coles and Woolworths account for about two-thirds of the supermarket sector. According to evidence given to the 2024 Fels inquiry into price gouging and unfair pricing practices, in the UK, its top 4 grocers account for 65 per cent of the market.

9.5Metcash Food told the Committee that in some areas of Australia the combined market share of Coles and Woolworths was more than 90 per cent and that the major supermarkets were continuing to grow their market share, particularly by acquiring independent stores.[2]

9.6Aldi has a 10 per cent market share, while Metcash Food (including its Independent Grocers of Australia and Foodland brands, among others) has about 7 per cent.[3]

9.7Metcash Food told the Committee that the entry of large international players − Aldi (2001) and Costco (2009)—initially changed the supermarket sector’s competitive dynamics. However, there was now a renewed stability that does not translate into active competition, and that ‘in local areas it's not uncommon for there to be only one or two players in that market’.[4]

9.8The two largest players acknowledged there was debate about competition but ultimately disputed claims that the supermarket sector was not competitive. The Coles Group described the grocery market as intensely competitive and no less competitive than overseas sectors.[5] Woolworths told the Committee that customers had substantial choice among the major food retailers, specialty retailers and online retailers, and that customers moved around and made choices based on the best offer at the time.[6]

9.9As the Fels inquiry has noted, ‘High prices, including coordinated high prices, are not prohibited by competition law except where there is an unlawful communication or agreement between the parties. With that exception, duopolies are free to charge high prices’.[7]

Supermarket profits

9.10In the December 2022 quarter, the Australian Bureau of Statistics (ABS) reported strong price rices across the food and grocery sector, with the weighted average change from the December 2021 to December 2022 quarter reaching 9.2 per cent.[8] In the September 2023 quarter, annual food inflation eased to 4.8 per cent, down from 7.5 per cent in the June quarter and the peak of 9.2 per cent in December 2022.[9]

9.11There has been considerable speculation about whether supermarkets have engaged in price gouging during this inflationary period and used it to increase their profits.[10]

Drivers of food and grocery price rises: Supermarket views

9.12Woolworths told the Committee that the higher than usual food inflation had been caused by shocks that disrupted global and local supply chains—including COVID, the war in Ukraine, and natural disasters affecting local agricultural regions.[11] The accumulated impact had resulted in a fivefold increase in the number of requests for cost increases from suppliers in recent years.[12]

9.13Similarly, Aldi highlighted a record increase in the number of requests it had received for cost increases from suppliers over the previous twelve months, with Aldi accepting 2,322 of 2,571 requests during that time.[13]

Is price gouging driving food and grocery prices?

9.14Metcash Food told the Committee that the capacity of Coles and Woolworths to increase prices was substantially related to the level of competition they faced and that over time higher market concentration would lead to higher prices.[14]

It's hard for me to comment on their mark-ups versus other competitors because I clearly don't have visibility of their margins product by product. But I would say that over time, yes, we believe it would lead to higher prices. As cost increases have come through from suppliers over the last year and a half and prices have risen across the market, the nature of their ability to increase prices is substantially related to the competition they face.[15]

9.15The Consumers Federation of Australia (CFA) similarly highlighted in their submission that a lack of competition was likely contributing to higher prices for goods and services, including in the supermarket sector.[16]

As an example, Australia has one of the most highly concentrated supermarket sectors in the world. While people are struggling to put food on the table, supermarkets have been increasing their profit margins. Sellers’ inflation may be a possible cause of the recent profit announcements by Coles and Woolworths. Despite heightened cost of living pressures, Coles Group earnings increased 17.1% in the six months to December 30, 2022. Woolworths had a 14% increase in earnings over the same time period. Both supermarkets increased their gross margins, which indicates they are earning more profit from each customer.[17]

9.16The major supermarkets’ strong financial results for the full 2022-23 financial year have further heightened speculation that they are price gouging. Coles, Woolworths and Metcash Food all reported increased profits, while Woolworths and Metcash Food also reported increases to their EBIT (earnings before interest and taxes) margins for the financial year.

9.17In the 2022-23 financial year, Woolworths’ earnings from its Australian food division increased by 19.1 per cent to around $2.87 billion, while its operating margin rose from 5.3 per cent to 6 per cent.[18] This compares with a pre-pandemic operating margin of only 4.7 per cent, as reported in Woolworths’ 2019 annual report.[19]

9.18In the same period, the Coles Group’s sales revenue from its supermarkets increased by 6.1 per cent to $36.7 billion.[20] However, Coles recorded a small decrease in its operating margins for its supermarket division from 5.0 per cent to 4.8 per cent,[21] albeit still well above its pre-pandemic operating margin of only 3.8 per cent for its supermarket division in its 2019 annual report.[22]

9.19Metcash Food recorded total food sales of $9.6 billion normalised (adjusted to remove the effects of seasonality), up 2.8 per cent, and a 3.8 per cent rise in its EBIT.[23]

9.20Aldi does not publicly disclose its earnings but told the Committee that in 2022 it had recorded sales of around $10.5 billion and recorded an EBIT of 2.7 per cent.[24]

9.21The margins of Coles and Woolworths are noticeably higher than the equivalent profit margins of the grocery divisions of the major chains in the UK—Tesco and Sainsbury’s are at 3.8 per cent and 3 per cent respectively.[25]

Is there a profit-price spiral?

9.22The Fels inquiry into price gouging and unfair pricing practices has said that prices in Australia are often too high, reflecting the many markets where there is less than fully effective competition. It concludes that many consumers are overcharged continuously and that ‘profit push’ pricing has added significantly to inflation in recent times. The report argues that:

‘Profit push’ or ‘sellers inflation’ has occurred against a background of high corporate concentration and is reflected in the surge of corporate profits and the rise in the profit share of Gross Domestic Product. There is much support for the view that prices have added much to inflation. This is to be found in research from the OECD, the International Monetary Fund, the Bank of International Settlements, the European Commission, the European Central Bank, the US Federal Reserve Bank, the Bank of England and many think tanks globally and locally and many detailed research studies. Claims that the rise in profit share in Australia is explained by mining do not hold up. The profits share excluding mining has risen and energy and other prices associated with mining have been a very significant contributor to Australian inflation.[26]

9.23Separately, the Australia Institute’s Centre for Future Work report Profit-Price Spiral: The Truth Behind Australia’s Inflation, released in February 2023, stated that the main driver of inflation in Australia was the profit price spiral, when businesses obtain excess profits through increasing prices above their higher expenses and growth in real economic output.

9.24Both Treasury and the Reserve Bank of Australia, however, have criticised elements of the Australia Institute’s analysis.[27]

9.25Treasury found the report overstated the role of profits in inflation and failed to account for the major role played by high commodity prices.[28] And an RBA briefing note found the report methodology was not an appropriate way of identifying whether higher profits were actually a determinant of inflation, and that the report contained significant scope, coverage and conceptual issues.[29]

9.26The Productivity Commission, in contrast to the Fels inquiry and the Australia Institute, dismissed the notion of ‘greedflation’. It told the Committee that it did not see firms using recent increases in inflation to increase profits by unfairly marking up prices over costs:

Some have gone further and claimed that 'greedflation' abounds at the aggregate level in Australia—the idea that firms across the economy are using recent increases in inflation to unfairly mark up prices over costs and increase their profits. The commission doesn't agree with this claim. As our submission notes, overall, aggregate evidence does not suggest that high price margins associated with the exploitation of market power have played a significant role in accentuating the higher input costs and supply constraints that precipitated the current inflation episode.[30]

National Pricing Strategies

9.27The ACCC’s 2008 Inquiry into the competitiveness of retail prices for standard groceries found that consumers shopping at a major supermarket chain paid lower prices on average when there was a competing major supermarket chain or Aldi store within 1 km—as opposed to when there was no major supermarket chain or Aldi store within 5 km.[31]

9.28A national pricing strategy, where key products are priced at the same level across stores, can ameliorate the localised impact of price differences in major supermarkets that don’t have a local competitor.

9.29The Coles Group, Woolworths, and Aldi all told the Committee that they have national pricing strategies.[32]

9.30Woolworths said that ‘when a customer comes into a Woolworths store, no matter where they are, whether they're in a remote part of Australia or in a metropolitan area, they would be paying the same price’.[33] However, Woolworths added, there were some exceptions in each state, typically fresh foods where there is more state-based pricing.[34]

9.31Aldi advised that while it used a national strategy for the bulk of its goods and ambient products, where there were differences in pricing often this was for locally sourced fresh produce—similar to Woolworths.[35]

Downstream impacts of market concentration

Power imbalances between supermarkets and suppliers

9.32The Committee heard that high concentration in the supermarket sector had led to a power imbalance between suppliers and the major supermarkets. The impact differed depending on the food sector and supplier location.

9.33The NFF told the Committee that because more than 70 per cent of Australian produce was exported, producers that were solely reliant on the domestic market were more vulnerable to high market concentration.[36] Additionally, growers were increasingly dealing directly with supermarkets, which is changing the dynamics within those industries.[37] Expanding on the importance of choice for suppliers in the supermarket sector, the NFF said:

It's about choice. When a producer has more choice, the impact of greater market concentration is lower on their business because they can go between options. …. When there is more choice, when the farmers are less beholden to one or two retailers, they are more able to deal with these issues for their farm businesses.[38]

9.34Echoing the NFF’s views, the AFGC highlighted that the disruption to a relationship between a supplier and a supermarket would likely affect the supplier more. This is because supermarkets had access to thousands of suppliers while some suppliers may only supply the one supermarket.

A supplier may have 80 per cent—sometimes higher, almost up to 100 per cent—of their business split across those couple of supermarkets, whereas a supermarket has thousands of suppliers. So disruption to a relationship or a commercial trading arrangement for a retailer overall has significantly less impact than it does for a supplier. A supplier can have their whole business go under if they lose one of their major customers.[39]

9.35The Committee also heard from the Australian Competition and Consumer Commission (ACCC) that there were several ways the bargaining imbalance in the supermarket sector was reflected commercially for upstream producers.[40] Metrics around concentration in the sector as a whole may even understate the risks for particular producers who are more reliant on one of the big entities.[41]

The ACCC has seen examples where, for instance, a small group of independent stores in a particular area have actually fostered and grown a local producer. If they're acquired, they just will not be part of the SKU [stock keeping units] range that's going to be on the shelves of the larger acquirer because they offer a particular range. They have contracts near exclusive or they are the underlying producer of their own brand product, and that agreement is an important contributor to them meeting their costs in order to be able to produce their own branded products. As you indicated, Chair, there are quite a number of different ways commercially in which the bargaining imbalance is reflected for the upstream producers.[42]

Declining capital investment and productivity

9.36Both the NFF and the AFGC told the Committee that upstream market concentration was decreasing the willingness of growers to invest in long-term productivity improvements.

9.37The NFF explained that whenever a grower was dealing with more market power upstream, this would increase the risk for the grower and raise the potential, at least from the grower’s perception, of imbalanced dealings. This in turn diminished a grower’s willingness to invest in their long-term capability.

It does have an impact on their ability and their desire to impact on the long-term improvement of their farm. We are coming off three seasons of record production in Australia. A lot of farmers are in a good position. It's really about looking at it from the margins. We have farmers who are getting a return, but what additional capital would they have to invest in their property if they were receiving the proper return for their product, if they had a lower risk on their production.[43]

9.38And the AFGC agreed that buyer power could adversely affect a business’s profitability and therefore its ability to invest.[44] In this light, the AFGC pointed the Committee to its Sustaining Australia: Food and Grocery Manufacturing 2030 report. This found that Australia’s food and grocery manufacturing sector was under pressure from declining profitability due to a highly concentrated retail marketplace—resulting in a decade of stagnant capital investment and low innovation.[45]

Open-book pricing

9.39The Committee heard from the NFF that market concentration in the agricultural supply chain provided wholesalers and retailers with a significant information advantage, through broad access to data on price and volume. By contrast, growers only had access to their own data, which represents a data asymmetry.[46]

9.40Businesses with significant market share, the NFF added, would leverage this lack of market price transparency to pay farmers and agricultural firms less for their produce than they would otherwise receive in a free market.[47] The greatest impact is felt in the perishable goods industry, where produce must be sold within a specific period before it spoils or degrades in value.[48]

9.41Adding to the risk for producers, the NFF continued, the increased market concentration of buyers within the supply chain created a potential situation where growers face potential retribution from supermarkets and wholesalers for their commercial decisions in relation to accepting or rejecting the market price’.[49]

9.42The information disparity between retailers and producers was so serious, the NFF advised, that it was undermining the long-term productivity of producers and hurting the wages of their employees.

The reduced pricing through asymmetric information is a key contributor to increased fragility within the agricultural supply chain. Farmers are often not able to receive a significant return for their product, increasing their susceptibility to disruption through market changes, natural disasters, and other unexpected changes. Increasing this fragility and associated risk undermines the long-term productivity of industry, reduces wages paid to employees and reduces the overall market signals that support supply and demand.[50]

Non-price components

9.43Adding to the strain on producers caused by market concentration in the supermarket sector, the NFF told the Committee, were additional compliance costs borne by farmers. This is because supermarkets and other purchasers were able to dictate terms and conditions beyond the price paid for goods.[51] These ‘cosmetic conditions, regulatory compliance and certification schemes, are often a baseline condition required to sell produce into major outlets’, which increases the burden on farmers.[52] Farmers do not receive any commensurate increase in price to offset these compliance costs.[53]

Views of the supermarkets and wholesalers

9.44The Committee sought responses from the supermarkets about the economic challenges facing producers who sole-supply to one supermarket, such as the higher level of risk they carry and their reduced willingness to invest.

9.45In reply, the Coles Group stressed that Australia’s supermarket sector was no less competitive than overseas markets and that suppliers work with Coles because they choose to, noting also that suppliers had a broad choice as to where they sell their product.[54] The Coles Group added that it did not know ‘why we would look elsewhere if we have a good relationship with a supplier, our customers like the product, and they want the product’.[55]

9.46Woolworths told the Committee that it was in its own interest to be a good partner to suppliers, to address any perceived or real imbalances with them, and to ensure that producers’ businesses were viable in the long-term:

We take our relationship with our suppliers very, very seriously. We will try to work with them to make sure that we're a good partner and that they have a long-term, sustainable, viable business. It's not in our interests for that to not be the case. It's in our interests, and most of our supply relationships are quite longstanding.[56]

9.47Aldi explained that it had an interdependent relationship with suppliers—one cannot succeed without the other—and that it had a reputation as a ‘fair and reasonable partner’.[57]

9.48Finally, Metcash Food advised that it always operated on the basis that customers and suppliers had a choice about their route to market:

Metcash's objective is to provide the most effective and efficient route to market to enable small businesses to compete with large businesses and for suppliers to be able to interact effectively with our network of stores. That's the key value that we add in the value chain. But, because they have choices, they are always able to deal one to one as well. That means there are always opportunities available for suppliers, and particularly fresh suppliers.[58]

The Food and Grocery Code of Conduct

9.49Coles, Woolworths, Aldi and Metcash Food are all signatories to the Food and Grocery Code of Conduct (the ‘Code’), a voluntary code of conduct that is enforced and supported by the ACCC. Signatories are required to act in good faith towards suppliers and to establish a dispute resolution process to raise and resolve complaints.[59]

9.50The Committee received different views from the NFF and the AFGC about the future of the Code.

9.51The NFF’s submission recommended the Code be strengthened and made mandatory.[60]

9.52The AFGC’s submission stated the Code had ‘mitigated some of the more egregious retailer behaviours since its introduction in 2015. … the FGCC [Food and Grocery Code of Conduct] represents the most significant safeguard against poor behaviour in the food and grocery sector’.[61] However, the AFGC did not support making the Code mandatory.[62]

9.53Separately, the Fels inquiry into price gouging and unfair pricing practices supports a mandatory Code, with regulations that are legally enforceable by the ACCC and that makes Code membership compulsory for large retailers.[63]

9.54The Code has been subject to a series of reviews since 2018, with the Government announcing in January 2024 a culminating review as to whether the code remains fit for purpose. This review will be led by the Hon Dr Craig Emerson, with a reporting deadline of 30 June 2024. The full review process, including the terms of reference, is outlined in the Box 9.1 below.

Committee comment

9.55The Committee received consistent evidence that the supermarket sector in Australia was highly concentrated. It recognises the potential for the major supermarkets to exploit their market power through higher pricing or by dictating terms to suppliers. The Committee is deeply concerned about the implications of this for consumers at a time of intense cost-of-living pressures. It is also troubled by the information disparity between the major supermarkets and food producers, and the risks this poses to the viability and productivity of those producers.

Beer Industry

A concentrated market

9.56The beer industry may be an example of a downstream market in which the bargaining power lies predominantly with the producer and not the retailer.

9.57Australia has one of the most restricted beer sectors in the world, with two large foreign-owned companies dominating beer supply, and two large companies dominating the retail beer sector.

9.58The committee heard several pieces of evidence which suggest that the beer market in Australia lacks competition:

• The beer market in Australia is regularly described as a duopoly, with around 85 per cent market share held by the largest two brewers
• The two major brewers also maintain very high profit margins
• Australian beer consumers pay among the world’s highest prices
• The brewers exert market power over the retailers, evidenced by retail margins in beer being significantly below margins in other categories such as wine and spirits.
  59. Competition in this restrictive beer market was a key issue for the Committee. Throughout the course of the inquiry, the Committee received evidence from the major brewers—Lion, and Carlton & United Breweries (CUB)—as well as from Coopers Brewery (Coopers) and the Independent Brewers Association (IBA), the peak national body representing Australia’s approximately 600 independent brewers, about competition issues facing the beer sector.
  60. The Committee heard that the market power of Lion and CUB greatly limits the access of Coopers and other independent brewers to key distribution networks, taps and retail.
  61. The long-term decline in beer consumption in Australia and the beer excise were highlighted by all witnesses as key concerns affecting the sector.

Breakdown of market share

9.62Between 80 to 85 per cent of the beer market is in the hands of CUB, wholly owned by Asahi Group Holdings since 2020, and Lion, wholly owned by Kirin Holdings Company Ltd since 2009. CUB is estimated to have more than 50 per cent market share while Lion is estimated to have around 34 per cent market share.[64]

9.63Coopers holds a 5 per cent market share, independent brewers have a combined 5.5 per cent market share, and private label brands owned by the two largest alcohol retailers, Coles and the Endeavour Group (formerly part of Woolworths), account for around 5 per cent,while distributors of international products make up the remainder.[65]

9.64Around 65 per cent of the retail alcohol market is also in the hands of just two companies, Coles and the Endeavour Group.[66]

Market Power of Lion and CUB

Margins

9.65The Committee heard that Australian beer drinkers are paying some of the highest prices in the world.

9.66Unpacking the profitability of Lion and CUB can be difficult as both are foreign-owned companies,[67] and the Committee did not have access to detailed financial information. Brewer margins differ depending on the beer product and pack size. Cases of beer tend to be at a lower margin than six packs of beer,[68] while craft beer has the potential to be at a higher margin than other beer.[69]

9.67In the course of the inquiry, the Committee heard that the margins for brewers of beer were greater than the margins for alcohol retailers in general. Responding to a question on whether the retail margins on a case of beer in a major chain were on average lower than 10 per cent, Lion said: ‘In the realms, but you can't be as specific as that’.[70] The Committee then asked Lion whether their margins were healthier than the retailer margins and Lion responded, ‘They are more than that, yes’.[71]

9.68In 2019, when Asahi bought CUB for $16 billion, CUB’s sales were reported at about $2.5 billion, and its profit about $1 billion, which implies a profit margin of about 40 per cent.[72]

9.69No witness was able to explain to the Committee why there was a difference between brewer margins and those of the major alcohol retailers. The Australian Competition and Consumer Commission (ACCC) told the Committee that ‘it is a great example of where further detailed work would best be done’.[73]

A restricted market

9.70With market power in the beer supply sector in the hands of two brewers and market power in the retail sector in the hands of two major retailers, the Committee heard Australia’s beer market was restrictive and anti-competitive.[74]

9.71The IBA told the Committee: ‘These conditions make it very challenging for independently owned small businesses to access key distribution channels and respond to consumer demand. This restrictive and anticompetitive marketplace, coupled with the challenging market conditions in the brewer space…threatens the existence of many independent brewers’.[75]

9.72Coopers said: “The beer market has become what is colloquially known as 'pay to play', with publicans accustomed to rebates for keg sales and retailers accustomed to promotional discounting, cooperative marketing and trading terms for packaged beer’.[76] Despite having around 5 per cent market share, one of Coopers’ biggest growth challenges is its lack of ‘market power or resources to be able to compete aggressively in this market’.[77]

A duopolistic market?

9.73With Lion and CUB sharing between 80 and 85 per cent of the beer market, and with their profit margins larger than the major retailers, the Committee asked both companies whether Australia’s beer market could be described as a duopoly. Both Lion and CUB disagreed with this proposition, claiming that from a customer perspective it was certainly not a duopoly.[78]

9.74Lion said that a customer in a bottle shop sees ‘a whole range of beer products, and hundreds of different brands’[79] and in pubs ‘there's typically choice of different brands, typically from different manufacturers’.[80] CUB stated: ‘You just need to walk into a retail venue to see, in store, the number of craft and other brands available for sale throughout a retail landscape’.[81]

9.75CUB also put to the Committee that more than 600 brewers now operated in Australia, compared to 130 only 15 years ago, which suggested the beer sector was highly competitive.[82]

Competition in taps

9.76Tap beer, also referred to as draught beer, is, along with packaged beer, one of the two pillars of the beer market.[83] As with the overall beer market, the tap beer market is highly concentrated, with Lion and CUB having just over 80 per cent combined market share of national draught beer volumes.[84] The Committee heard that Coopers has around 3 per cent,[85] while independent brewers have around 16 per cent.[86]

Locked out: Coopers and the IBA’s views on taps

9.77The Committee heard that the rebates offered by the two largest brewers to publicans, as well as the tap contracts agreed between the two largest brewers and publicans, were limiting access to taps for Coopers and independent brewers. Coopers told the Committee these conditions meant ‘craft brewers are often unable to compete, with 80 per cent having their own tap rooms instead and gaining 50 per cent of their revenue from the same’.[87]

9.78Coopers added that ‘our keg-share volume of the market is significantly lower than our retail volume’ and that, similar to a craft brewer, in the eastern states, it [Coopers] may only get one or two products on tap or access to rotational taps.[88] Further, the key rebates offered by the large brewers were locking out other brewers from accessing taps, with the contracts of the large brewers designed specifically to exclude Coopers. Over the past 35 years:

…keg rebates have transitioned from being simple discounts off keg prices to now including significant up-front payments made by the large breweries in exchange for signing long-term exclusivity arrangements that often lock out other brewers by brand name or beer style. In South Australia, given our history in this state, we're often able to secure more taps, especially as consumers expect to see us on tap. Outside South Australia, CUB and Lion have a tendency to specifically exclude Coopers or its products in their contracts with publicans.[89]

9.79The IBA highlighted the same issue—that the large brewers’ tap contracts are limiting access to taps for independent brewers and the rebate schemes offered by the large brewers are artificially restricting sales for independent brewers:

It's commonplace for the large brewers to have a tap contract with a pub, and it would be either one of them. It may be that 100 per cent of the taps are contracted to that brewery…. It could go down even to, say, 51 per cent of the taps being contracted as well.

If an independent brewer is lucky enough to get one of those free taps in a majority tap contract, what we are often seeing is that these rebate schemes, which have been put in place as an incentive to increase volume, restrict access to sales. The pub will actually short-order the kegs from an independent brewery, just to restrict how much is sold through as a percentage of the overall volume of beer they sell, in order to meet their contracted tap rebate. Having that sort of mechanism in place is artificially restricting how much beer an independent brewer can sell through that outlet. It's also depriving the consumer of access to those products.[90]

9.80In 2017, the ACCC investigated the contracts of CUB and Lion following allegations from craft brewers that exclusivity provisions and volume requirements were locking them out of taps.[91] However, the ACCC did not progress the issue to enforcement. It told the Committee that:

We saw some submissions and evidence to you [the Committee] relating to their access to taps in on-premises sales. That was something that the ACCC did investigate some time ago. But the ACCC did not take that investigation through to an enforcement step, but we did look carefully at it. However, we are conscious of the capacity, and the situation is that a reasonable proportion of taps in hotels are going to sit under the ownership of the two largest brewers.[92]

9.81The IBA told the Committee that the ACCC’s finding ‘was met with bewilderment by most of our members’.[93]

CUB and Lion incentive structure

9.82The Committee questioned the major brewers on whether the incentives they offer venues had changed, and whether they were locking out independent brewers from being able to access taps.

9.83The Committee heard from CUB and Lion that they do enter into contracts with venues, which offer rebates and other incentives, but that these arrangements had been in place for many years.

9.84CUB told the Committee that it ‘enters into formal contracts with some of our on-premises customers. These formal contracts offer a mix of rebates, up-front incentives or other support for providing a specified minimum tap representation for our products. In the great majority of our customer venues, it is a fact that there is flexibility to range small brewers' craft beers on tap’.[94] In response to whether these contracts have changed over the past decade, CUB told the Committee: ‘Not significantly or materially at all’.[95]

9.85Lion, on the same issue, told the Committee that the ‘biggest thing we do is obviously market our brands’.[96] Related to this, Lion offers discounts based on volume, and investments in infrastructure in pubs, such as putting in beer systems.[97] In response to a question about whether the incentive structure in the tap market had changed, Lion advised that its rebates based on volume ‘have been in the market for a very long time’.[98]

9.86Both Lion and CUB disagreed with the claim by Coopers that the beer market had become ‘pay-to-play’ and the claim by the IBA that venues were short-ordering kegs to artificially restrict the volume of sales by independent brewers.

9.87Lion added that it had a policy of not getting ‘in the way’ of taps for independents:

I don't know whether anyone on the Committee has ever been into a pub and asked for a beer and they said, 'Sorry. We don't have that beer because we're trying to sell more of this beer because we get a better rebate.’ These are sophisticated retailers we're talking about that are passionate about their consumers/customers and want to give them what they come in and order.[99]

…

There are a lot of independents looking for taps as well and that comes down to whether the publican thinks the consumer is going to buy their brands or not.[100]

9.88Similarly, CUB disputed that Coopers and independent brewers faced barriers in the tap beer market.

I would disagree with them. They are not terms I am familiar with. The majority of our customer venues are free to range smaller brewers and craft beer products. It is for the publicans to determine what they range in their venues, based on consumer demand.[101]

Retail concentration and packaged beer

Retail concentration

9.89The retail beer market is highly concentrated with the two largest retailers, the Endeavour Group and Coles, holding the majority market share. Craft beer takes up 60 per cent of shelf space in retail outlets.

9.90The Committee heard varying estimates of the combined market share of the Endeavour Group and Coles—the IBA estimated it to be 65 per cent,[102] Lion estimated it at about 52 per cent,[103] and Coopers estimated it at 60 per cent.[104]

9.91The ACCC told the Committee that independent bottle shops were a ‘more competitive force than you would expect’.[105] For this reason, the ACCC monitors closely purchases of independent bottle shops by the Endeavour Group and Coles.

Being squeezed out

9.92The success of the craft beer industry has seen both major retailers develop private-label beer brands. Despite being almost non-existent 20 years ago, the major retailers’ private-label brands are now estimated to account for 5 per cent of the beer market.[106]

9.93The remaining package beer market reflects the overall beer market. Lion and CUB have a combined 80 per cent market share,[107] Coopers has a 5 per cent share, and the IBA told the Committee that the independent brewers are at around 5.5 per cent.[108]

9.94The Committee heard that independent brewers and Coopers were being ‘squeezed out’ of major retail shelf space by the market power of the major brewers and their prioritisation of their own private-label beer brands.

Views of Coopers and the IBA

9.95The Committee heard from Coopers that its market share with the major retailers was lower than its share with independent retailers. This is a consequence of the major brewers’ market power, which allows them to negotiate more favourable selling arrangements with the major retailers than Coopers can. Adding to Coopers’ difficulties, the major retailers then self-preference their private-label beer brands for sale. Coopers told the Committee that:

Our second biggest issue is retail concentration. Our market share means that we have less market power to negotiate with the two major retailers, who have just under a 60 per cent market share of the packaged beer market. By way of illustration, our market share in independent retailers is approximately seven to eight per cent, whereas our market share in the national retailers sits at approximately four to five per cent… Our argument has always been that our performance is much stronger in markets where consumer preference dictates what is on the shelves, which is more the case in the independent market.

The major brewers, especially Asahi post-merger, have been able to negotiate more favourable trading terms with the major retailers. These terms dictate ambient floor space; chilled space in fridges and cool rooms; and requirements for ranging, including any new products. We have also found that we're getting further squeezed by retailers preferencing private label products after they have met the terms of the majors. For example, in South Australia, four independent bottle shops were recently bought by EDG and converted to BWS stores; Coopers' sales went down by approximately 50 per cent, as we are unable to secure the same ranging and floor space as when they were independently owned.[109]

9.96The IBA raised similar concerns that independent brewers were being squeezed out by the major retailers self-preferencing their private-label beer brands:

Anecdotally, we're seeing that one in five to one in four shelf spaces for beer are now one of their private-label brands, so we are getting squeezed out of the major retailers' shelf space at the same time.[110]

9.97Additionally, the IBA was concerned that the expansion of private-label beer brands in the retail beer market could increase further. Recent European experience has shown in some quarters that ‘privately-owned brand space for beer is around 50 per cent of the market’.[111]

Views of CUB and Lion

9.98CUB insisted that competition in packaged beer and the retail space, as it is in the general beer market, was ‘intense’:

With more than 600 brewers and thousands of beers available for sale, competition for packaged beer sales and retail space is intense. Major liquor outlets have all dedicated sections and space for craft beers and have done so for several years. This competition is good for the category; it provides many opportunities for smaller brewers to secure ranging. Competition for packaged beer sales is also heightened by the private label beer offerings of major retailers.[112]

9.99Lion told the Committee that while the retail market it engages with was reasonably concentrated, there ‘are obviously a lot of independent customers as well’.[113] It also highlighted the high number of number of products and brands a consumer would see in a bottle shop as evidence of competition.[114]

Long-term trends in the beer industry

Declining beer consumption

9.100Both alcohol consumption and beer consumption (as a proportion of total pure alcohol consumption, compared to wine and spirits) have been in long-term decline in Australia. All witnesses highlighted declining beer consumption as a commercial challenge.[115]

9.101There has also been a shift within the beer market towards higher-end products, with independent brewers growing their industry through a ‘premiumisation’ of beer, particularly before COVID.[116]

The beer excise

9.102The differential tax treatment of beer compared to other alcohol was also raised by all witnesses as a challenge.[117] The Committee heard that Australia’s beer excise taxes—which are raised in line with the consumer price index twice a year—are now the third highest in the world, whereas the wine equalisation tax percentage hadn't increased since its introduction in 2000. Such unfavourable excise arrangements were put forward as a key reason for beer’s declining consumption relative to wine.[118]

Committee comment

9.103The Committee notes that Lion and CUB exercise enormous market power in the beer sector, with a combined 85 per cent market share and margins higher than in the alcohol retail sector.

9.104The Committee acknowledges too that it is difficult to determine the profitability of Lion and CUB as both are foreign-owned. However, the financial information reported at the time CUB was sold to Asahi in 2019 implies an enormous profit margin of about 40 per cent.

9.105The Committee is troubled by the difference in profitability between the major brewers and the retail sector—it suggests excessive product pricing, and an uneven playing field for competitors of Lion and CUB or potential market entrants.

Footnotes

[1]Australian Food and Grocery Council, Submission 48, p. 2.

[2]Mr Grant Ramage, Chief Executive Officer, Metcash Food, Committee Hansard, 25 July 2023, p. 42.

[3]Hunt Export Advice, Australia Market Overview 2023, www.huntexportadvice.com/post/australia-market-overview-2021, viewed 8 November 2023.

[4]Mr Grant Ramage, Chief Executive Officer, Metcash Food, Committee Hansard, 25 July 2023, p. 44.

[5]Ms Vittoria Bon, Government and Industry Relations Manager, Coles Group, Committee Hansard, 25 July 2023, p. 7.

[6]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 8.

[7]Professor Allan Fels AO, ‘Inquiry into Price Gouging and Unfair Pricing Practices – Final report’, February 2024, p. 53.

[8]Australian Bureau of Statistics, Consumer Price Index, Australia, 25 January 2023www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/dec-quarter-2022, viewed 29 February 2024.

[9]Australian Bureau of Statistics, Consumer Price Index, Australia, 25 October 2023, www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/sep-quarter-2023, viewed 29 February 2024.

[10]J Barrett, Woolworths posts $1.62bn profit with dramatic lift in margins despite cost-of-living crisis, The Guardian, 23 August 2023,www.theguardian.com/business/2023/aug/23/woolworths-posts-162bn-profit-with-dramatic-lift-in-margins-despite-cost-of-living-crisis.

[11]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 8.

[12]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023 p. 9.

[13]Mr Adrian Christie, Director, Corporate Affairs, Aldi Stores Australia, Committee Hansard, 28 August 2023, p.33.

[14]Mr Grant Ramage, Chief Executive Officer, Metcash Food, Committee Hansard, 25 July 2023, p. 44.

[15]Mr Grant Ramage, Chief Executive Officer, Metcash Food, Committee Hansard, 25 July 2023, p. 44.

[16]Consumers Federation of Australia, Submission 18, p. 2.

[17]Consumers Federation of Australia, Submission to the Senate Select Committee on Cost of Living, Submission 62, p. 3.

[18]Woolworths Group, 2023 Annual Report, August 2023, p. 31.

[19]Woolworths Group, 2019 Annual Report, August 2019, p. 20.

[20]Coles Group, 2023 Annual Report, September 2023, p. 30.

[21]Coles Group, 2023 Annual Report, September 2023, p. 30.

[22]Coles Group, 2019 Annual Report, September 2019, p. 25.

[23]Metcash, 2023 Annual Report, August 2023, p. 13.

[24]Mr Adrian Christie, Director, Corporate Affairs, Aldi Stores Australia, Committee Hansard, 28 August 2023, p.29.

[25]J Barrett, Australian food giants making more profit from grocery sales than overseas peers, The Guardian, 27 July 2023, www.theguardian.com/australia-news/2023/jul/27/australian-supermarket-profits-rise-woolworths-coles.

[26]Professor Allan Fels AO, ‘Inquiry into Price Gouging and Unfair Pricing Practices – Final report’, February2024, p. 5.

[27]R Mizen, Australia Institute urged to retract ‘flawed’ profit-inflation report, Australian Financial Review, 25May 2023, www.afr.com/policy/economy/australia-institute-urged-to-retract-flawed-profit-inflation-report-20230513-p5d84j.

[28]R Mizen, Australia Institute urged to retract ‘flawed’ profit-inflation report, Australian Financial Review, 25May 2023, www.afr.com/policy/economy/australia-institute-urged-to-retract-flawed-profit-inflation-report-20230513-p5d84j.

[29]R Mizen, Australia Institute urged to retract ‘flawed’ profit-inflation report, Australian Financial Review, 25May 2023, www.afr.com/policy/economy/australia-institute-urged-to-retract-flawed-profit-inflation-report-20230513-p5d84j.

[30]Dr Alex Robson, Deputy Chair, Productivity Commission, Committee Hansard, 15 September 2023, p. 55.

[31]Australian Competition and Consumer Commission, ‘Inquiry into the competitiveness of retail prices for standard groceries’, 5 August 2008, p. 97, www.accc.gov.au/about-us/publications/report-of-the-accc-inquiry-into-the-competitiveness-of-retail-prices-for-standard-groceries.

[32]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 9; Mr Adrian Christie, Director, Corporate Affairs, Aldi Stores Australia, Committee Hansard, 28 August 2023, p. 33; Ms Vittoria Bon, Government and Industry Relations Manager, Coles Group, Committee Hansard, 25 July 2023, p. 2.

[33]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 9.

[34]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 9.

[35]Mr Adrian Christie, Director, Corporate Affairs, Aldi Stores Australia, Committee Hansard, 28 August 2023, p.33.

[36]National Farmers’ Federation, Submission 23, p. 29

[37]Mr Kade Denton, General Manager, Trade and Economics, National Farmers’ Federation, Committee Hansard, 25 July 2023, p. 17.

[38]Mr Kade Denton, General Manager, Trade and Economics, National Farmers’ Federation, Committee Hansard, 25 July 2023, p. 18.

[39]Ms Tanya Barden, Chief Executive Officer, Australian Food and Grocery Council, Committee Hansard, 25 July 2023, p. 37.

[40]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 15 September 2023, p. 51.

[41]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 15 September 2023, p. 51.

[42]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 15 September 2023, p. 51.

[43]Mr Kade Denton, General Manager, Trade and Economics, National Farmers Federation, Committee Hansard, 25 July 2023, pages 17–18.

[44]Ms Tanya Barden, Chief Executive Officer, Australian Food and Grocery Council, Committee Hansard, 25 July 2023, pages 37–38.

[45]Australian Food and Grocery Council, ‘Sustaining Australia: Food and Grocery Manufacturing 2030’, www.afgc.org.au/industry-resources/sustaining-australia-food-and-grocery-manufacturing-2030.

[46]National Farmers’ Federation, Submission 23, p. 21.

[47]National Farmers’ Federation, Submission 23, p. 21.

[48]National Farmers’ Federation, Submission 23, p. 21.

[49]National Farmers’ Federation, Submission 23, p. 21.

[50]National Farmers’ Federation, Submission 23, p. 21.

[51]National Farmers’ Federation, Submission 23, pages 23-24.

[52]National Farmers’ Federation, Submission 23, pages 23-24.

[53]National Farmers’ Federation, Submission 23, pages 23-24.

[54]Ms Vittoria Bon, Government and Industry Relations Manager, Coles Group, Committee Hansard, 25 July 2023, p. 2.

[55]Ms Vittoria Bon, Government and Industry Relations Manager, Coles Group, Committee Hansard, 25 July 2023, p. 7.

[56]Mr Paul Harker, Chief Commercial Officer, Woolworths Supermarkets and Metro, Woolworths, Committee Hansard, 25 July 2023, p. 8.

[57]Mr Adrian Christie, Director, Corporate Affairs, Aldi Stores Australia, Committee Hansard, 28 August 2023, p. 28.

[58]Mr Grant Ramage, Chief Executive Officer, Metcash Food, Committee Hansard, 25 July 2023, p. 45.

[59]Competition and Consumer (Industry Codes—Food and Grocery) Regulation 2015.

[60]National Farmers’ Federation, Submission 23, p. 24.

[61]Australian Food and Grocery Council, Submission 48, p. 4.

[62]Australian Food and Grocery Council, Submission 48, p .4.

[63]Professor Allan Fels AO, ‘Inquiry into Price Gouging and Unfair Pricing Practices – Final report’, February 2024, p. 8.

[64]Brauwelt International, Are Australia’s Brewers and retailers abusing their market power?, https://brauwelt.com/en/international-report/asia-australia/646068, viewed 5 December.

[65]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[66]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[67]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 32.

[68]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 3.

[69]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 6.

[70]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 2.

[71]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 2.

[72]J Kehoe, ‘‘Ridiculously profitable’: Why Aussie beer is so expensive’, Australian Financial Review, 21 September 2023, www.afr.com/policy/economy/ridiculously-profitable-why-aussie-beer-is-so-expensive-20230915-p5e52f#, viewed 5 December 2023.

[73]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 17 March 2023, p. 50.

[74]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[75]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[76]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[77]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[78]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 31.

[79]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, pages 2-3.

[80]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, pages 2-3.

[81]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 33.

[82]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, pages 32-33.

[83]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 31.

[84]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 31.

[85]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[86]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 31.

[87]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[88]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[89]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[90]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, pages 37-38.

[91]Australian Competition and Consumer Commission, ‘ACCC releases findings of beer taps investigation’, Media Release, 13 July 2017.

[92]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 15 September 2023, p. 50.

[93]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[94]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, pages 31-32.

[95]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, pages 31-32.

[96]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 5.

[97]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 5.

[98]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 5.

[99]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 7.

[100]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 6.

[101]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 33.

[102]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[103]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 3.

[104]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[105]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 15 September 2023, p. 50.

[106]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[107]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 33.

[108]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 37.

[109]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.

[110]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 38.

[111]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 38.

[112]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 32.

[113]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 4.

[114]Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, pages 2-3.

[115]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 32; Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30; Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, pages 5-6; Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 36.

[116]Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, pages 38–39.

[117]Ms Amanda Sellers, Group Chief Executive Officer, Asahi Beverages, representing Carlton & United

Breweries, Committee Hansard, 29 August 2023, p. 32; Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30; Mr David Smith, Managing Director, Lion Australia, Committee Hansard, 28 August 2023, p. 4; Mr Richard Adamson, Board Representative, Independent Brewers Association, Committee Hansard, 26 July 2023, p. 38.

[118]Dr Timothy Cooper, Managing Director, Coopers Brewery Ltd, Committee Hansard, 25 July 2023, p. 30.