Opinion Australia's largest supermarkets have green light to act as a cartel: we need limits on this power

Other stakeholders need a seat at this table to decide matters of social equity and competitive significance.

Empty super market shelves

Panic buying during the COVID-19 pandemic has left supermarket shelves empty.

This week Australia's competition watchdog authorised Coles, Woolworths, Aldi and IGA to work together to ensure customers have “reliable and fair access to groceries” during the Covid-19 pandemic.

This kind of cooperation could normally amount to cartel conduct attracting hefty fines and even criminal penalties in serious cases – a recognition that we don't usually trust businesses to agree to act together instead of competing with each other.

The Australian Competition and Consumer Commission (ACCC) at first granted interim authorisation for these grocery chains and other retailers who wished to join to cooperate on supply matters, excluding retail prices, following an application by Coles (on behalf of Woolworths, Aldi and Metcash) last Friday.

Yesterday it revoked and replaced its interim authorisation. The ACCC now requires retailers other than these four to apply to the ACCC before they can join. ACCC Chair Rod Sims said the Commission worked “very swiftly” to consider the application by Coles, appreciating “the urgency of the situation, and its impact on Australian consumers”.

For the moment, we are trusting Australia’s largest grocery retailers to cooperate to produce better outcomes for those most in need under a very broadly worded authorisation.

Any continuation of this authorisation should significantly limit its scope, bearing in mind the additional power the grocery giants could wield over consumers, suppliers and rivals by joining forces.

The problem is panic buying, not supply

In the past month, there has been great frustration directed at major grocery chains as anxious customers stare down aisles emptied of toilet paper, paper towels, pasta, flour, soap and hand sanitiser.

While it should not be surprising that many customers began stockpiling groceries in the past weeks, ACCC Chair Rod Sims said the shortages did not reflect supply issues:

“This is essentially due to unnecessary panic buying, and the logistics challenge this presents, rather than an underlying supply problem.”

To date, the grocery chains have not managed to address the effects of extraordinary demand acting alone.

Woolworths announced special shopping hours for the elderly and those with a disability, then took the heat when elderly and disadvantaged shoppers arrived early in the morning to find empty shelves. At-home shoppers meticulously filled their online carts only to be met with a no-can-do at the online checkout.

What does the ACCC’s authorisation mean for us?

The ACCC has allowed Coles, Woolworths, Aldi and Metcash to begin working together immediately to give customers “reliable and fair access to groceries”.

Other retailers who wish to participate must make a separate application to the ACCC, which it may grant or refuse at its discretion.

The interim authorisation permits the four supermarket chains to discuss the supply of fresh food, groceries, household products and liquor, including agreeing to make arrangements with manufacturers, suppliers, transport and logistic providers. 

This authorisation is cast very broadly. It allows the participating supermarkets to enter into arrangements or engage in conduct that has the purpose of:

  • facilitating or ensuring acquisition and/or supply of groceries
  • ensuring fairer access to groceries to the general public
  • providing greater access to the elderly, disadvantaged and those too unwell to travel
  • facilitating access in remote and rural areas.

The authorisation does not spell out the specific measures. But it could mean they will agree on:

  • how supplies will be distributed between different regions and stores
  • which disadvantaged customers will receive priority in shopping hours or online deliveries
  • how in-store customers will be managed to comply with distancing rules
  • how the stores monitor what products customers have bought.

The goal is to restore normality – to encourage consumers to return to usual shopping patterns, and help grocery stores meet unprecedented demand for online deliveries as more people are forced to self-isolate.

Why couldn’t the grocery stores cooperate before now?

Without authorisation, this cooperation between competitors could amount to prohibited cartel conduct under Australia’s Competition and Consumer Act.

Our law recognises that it’s usually a bad idea for competitors to get together and agree on how they will serve customers. Human nature being what it is, this usually results in competitors working out how to give their customers less, charge them more and divide the spoils between themselves, while ensuring consumers can’t get a better offer elsewhere.

The ACCC’s decision recognises the current emergency demands that we put our usual scepticism about this kind of cooperation on hold so retailers can work together for good. But the suspension of our scepticism should be temporary.

How will this affect rivals and suppliers of the grocery giants?

Following the ACCC’s amendment to the original authorisation yesterday, other grocery retailers will not be able to join the cooperative efforts under the authorisation unless and until the ACCC grants that retailer approval.

Even if others receive the ACCC’s approval to participate, there is the question of how the cooperation will affect newer or smaller rivals, during the pandemic and beyond. How will smaller retailers get a fair share with larger supermarkets calling the shots? What if Amazon, eBay or other online retailers could have offered more efficient delivery than Coles and Woolies, helping to increase rivalry?

Coles and Woolworths have previously been under intense scrutiny by the ACCC for their treatment of suppliers, which led the ACCC to bring (ultimately unsuccessful) actions for unconscionable conduct. We can hope the earlier scrutiny and potential for reputational harm will prevent large supermarkets using this as a chance to put the screws on their suppliers.

While the authorisation does not permit the retailers to discuss or agree on retail prices, it makes no mention of wholesale prices. It's unlikely the supermarkets would attempt to collectively negotiate lower wholesale prices, but we could see pressure on manufacturers to absorb cost increases during the crisis. If that happens, it could make supply constraints worse.

Who do we trust with our basic necessities?

The ACCC will now hold a public consultation process to decide whether to extend its interim authorisation.

This raises questions about who we trust with the supply of essential retail products, and how this will be controlled for the duration of the pandemic. Commentators are increasingly pointing to the need for central planning measures and empowering government intervention.

The interim authorisation instead gives private corporations power to join forces to make decisions on social equity - determining what constitutes “fairer access” to groceries “among the general public”; or greater access “among those most in need”; or how to facilitate access in rural areas. 

These questions should not be left to private corporations alone if supply issues recur through a lengthy crisis.

While the authorisation specifies that permitted conduct includes arrangements or conduct recommended by the 'Supermarket Taskforce' convened by the Department of Home Affairs, it does not limit the authorisation to these recommendations.

We should expect the Taskforce to be involved in determining questions of priority and any monitoring or limitation of consumer purchases during this interim authorisation period.

The Taskforce includes representatives from government departments, supermarkets, grocery supply chain and the ACCC in the longer term. It should also receive, and take into account, input from consumer advocates and civil society.

Dr Katharine Kemp is a senior lecturer in UNSW Law and Academic Lead on the UNSW Grand Challenge on Trust.