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The battle over the power of Australia’s largest supermarkets has boiled over in Canberra, as a senator threatened the chief executive of the country’s largest retailer with jail after he repeatedly refused to answer a question over the company’s profitability.
Australia’s two largest supermarket chains — Woolworths and Coles, controlling about 65 per cent of the grocery market — have come under intense scrutiny in recent months over allegations of price gouging during a cost of living crisis, and using their market power to squeeze suppliers.
The Australian government has launched a consultation on updating regulations to introduce stiffer penalties on supermarkets engaging in anti-competitive behaviour.
A separate Senate inquiry that began on Monday was transformed into a pitched battle between Nick McKim, a Tasmanian Greens senator who is chairing the committee into supermarket pricing, and Brad Banducci, the outgoing chief executive of A$39bn (US$25bn) retailer Woolworths, over what financial metric should be used to determine how profitable the country’s retailers were.
Banducci repeatedly refused to answer McKim’s request to state Woolworths’ return on equity. The retail veteran held firm and insisted that his company used return on investment and total shareholder return to assess its profitability.
The senator then accused the chief executive of “bullshitting” and trying to obscure a financial metric that would show Australia’s largest supermarkets were more than twice as profitable as the country’s banks. He accused them of “making off like bandits”.
He threatened that Banducci could be held in contempt — potentially leading to a six-month prison sentence — before Woolworths’ chief said he did not know the return on equity number and would take the question on notice.
Leah Weckert, chief executive of supermarket chain Coles, was next to appear in front of the Senate committee and was able to provide a return on equity figure, which she said was 31 per cent on a net profit of just over A$1bn in the year to June 2023. However, she also stressed the metric was not widely used in the supermarket sector.
McKim levelled accusations at Weckert that customers were skipping meals, eating less healthy food and “dumpster diving” for wasted food because they could not afford to pay the steep prices being charged by the supermarkets.
Weckert countered that the Australian market was “very competitive” as retailers including Aldi and Costco have expanded in Australia, while specialist retailers including Chemist Warehouse and Amazon have rapidly grown in specific markets.
She said food inflation had come down sharply in recent months and that Coles was working with suppliers to ensure changes in input costs, such as shipping and energy, were reflected in the shelf price.
Andy Schmulow, an associate professor at the University of Wollongong, told the Senate committee that the Australian supermarkets reported similar gross margins to comparable retailers in the US and Europe but those metrics were much higher on both a net margin and return on equity basis.
On average, US supermarkets recorded return on equity of about 14 per cent and the number was 5 per cent in Europe, compared to 31 per cent for Coles and 27 per cent for Woolworths, according to Schmulow. “These guys are making a killing,” he said. “That’s where the problem lies and the solution is competition.”
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