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The big bill you’re paying at the grocery checkout is because of higher price requests from suppliers and farmers, global supply chain costs that doubled during COVID, and soaring inflation in the cost of goods, Coles says, as its rival Aldi gains customers in the cost-of-living crisis.

In its 28-page submission to the Senate supermarket pricing inquiry, Coles – the nation’s second-largest grocery retailer – laid out factors behind the jump in food prices, saying its biggest operational cost was the $32.3 billion it pays for goods from suppliers.

“A key driver of supermarket price increases has been cost price increase requests from our suppliers and farmers,” Coles’ submission read.

In the first six months of 2021, Coles received roughly 42 requests a week from suppliers to raise prices, a figure that nearly doubled to 79 a week in the 2022 and 2023 financial years. This in turn was driven by inflation and increased packaging, freight, shipping, and utilities costs, Coles said.

Coles’ submission was one among nearly two dozen published by the Greens-chaired Senate inquiry to examine the pricing and market power of the dominant supermarket chains. Woolworths’ submission is not yet available, and more submissions are set to be published in the coming days and weeks.

Of every $100 of revenue that Coles made in the 2023 financial year, only $2.57 became profit, the grocery giant said.

The bulk of its operating revenue – $73.09 of every $100 – goes towards purchasing and stocking products in stores. A further $11.87 is spent on wages, $8.80 on administration costs like property, $2.71 on federal and state government taxes, and $0.97 on the interest on debt and lease-financing costs.

As cost-of-living pressures remain in the spotlight and input costs remain high, Coles argued it was keeping prices low for consumers by offering weekly specials and discounts, markdowns and seasonal promotions during Christmas and Easter, and by improving its private label offering.

However, the supermarket does not have a spotless record when it comes to price promises.

Last September, Coles blamed a ticketing error after this masthead inquired about items “on special” that were actually more expensive than the original listed price. In December, it was forced to apologise after prematurely raising prices on items that, according to its ads, had “locked-in” prices.

Woolworths has also come under fire by consumers and politicians for price gouging.

With the price of red meat in the spotlight over the Christmas and New Year period, particularly as the nation works through an oversupply of livestock, Coles outlined how it paid meat, and fresh fruit and vegetable suppliers.

“Coles buys feedlot and pasture-raised cattle on forward contracts, and we agree prices with our farmers at this time. These contracts provide security of demand for our suppliers and security of supply for Coles and our customers,” the submission stated.

With horticulture suppliers, Coles said it entered into “seasonal commitments” that are based on volume and vary according to season and region.

“From these commitments, both parties then negotiate on a per-order basis (with orders typically placed weekly over multiple days). Price is agreed by Coles and the supplier using a variety of factors from current market availability, and volumes needing to be moved within the time period of supply, along with promotional plans for the item.”

Coles also argued that despite the high market concentration (together with Woolworths it makes up a combined 65 per cent of the supermarket sector), the food retailing category was “highly competitive”, and pointed to a 2023 Productivity Commission document that noted “aggressive competition” between the two rivals.

For the 2023 financial year, the ASX-listed Coles reported $1.1 billion in net profits, while its larger rival Woolworths posted $1.6 billion.

Meanwhile, Aldi revealed in its own submission that it saw a 4 per cent gain in customers in 2023 as shoppers seek more value and switched to the German-headquartered chain.

Seeking to differentiate itself from the two dominant players, Aldi said its strategy was to stock a more limited product range (around 1800 items compared to 25,000) and to offer low prices year-round rather than a rotation of mark-ups and discounts.

“Aldi’s prices are more stable than at some of the other supermarkets,” its submission said.

“Permanently low prices across the majority of the Aldi range means more clarity and certainty for customers as well as more savings year-round for shoppers.”

The supermarket chain also touted its approach to working with suppliers, pointing to a 2022-23 independent review into the food and grocery code of conduct that found Aldi ranked the highest “across the board” compared to other signatories of the voluntary code, and “particularly outperformed” on supplier experience.

A series of inquiries have been launched into grocery competition and supermarket pricing power as Australians contend with sustained cost-of-living pressures.

The ACCC has been ordered to use its full legal force to conduct a year-long investigation, and former Labor competition policy and consumer affairs minister Craig Emerson has been appointed to review the food and grocery code of conduct.

On Wednesday, former consumer watchdog head Allan Fels released his report into price gouging, commissioned by the Australian Council of Trade Unions. It found Australians are being overcharged for everything from energy to groceries, childcare and airfares, and called for the government to step in.

The Senate inquiry, chaired by Greens Senator Nick McKim, has not yet announced any hearing dates.

Major supermarket chains Coles and Woolworths have come under fire from consumer advocacy group Choice for their complex pricing methodologies that lack transparency and accountability.

According to a recent survey conducted by Choice, nearly 83 per cent of respondents found it difficult to determine if they were getting a genuine discount or value for money from the supermarkets’ ‘specials’ or promotions.

With Coles and Woolworths controlling an estimated 65 per cent of the food and grocery market in the country, Choice remarked that the lack of competition means consumers are “at their mercy” and have little choice but to spend their money on these two chains.

In a submission to the government’s inquiry into supermarket pricing, Choice argued that both supermarkets routinely manipulate prices to the detriment of consumers.

“The kind of behaviour from the major supermarkets is unacceptable and harmful in a cost-of-living crisis,” said Bea Sherwood, senior policy and campaigns adviser for Choice. 

“People are sick of feeling tricked by specials that aren’t specials and feeling pushed into membership programs and multi-buy deals where they buy more than they need.”

Pricing trickery

Choice said supermarkets often engage in various “pricing trickery”, boosting their profits amid a cost-of-living crisis.

In late 2023, the group lodged a complaint with the Australian Competition and Consumer Commission (ACCC) about Coles’ “locked prices” promotion. The supermarket apologised and refunded customers for mistakenly increasing prices on several products.

However, Choice stated that this was just one of many tactics used by supermarkets. While claiming to support consumers during a cost-of-living crisis, they did the opposite. Essential food items got more expensive across the board; pack sizes shrunk while prices increased.

“You look down an aisle with tickets of different colours, which are so confusing,” a consumer told Choice. “All I want to know is if the price is acceptably discounted. The original prices shown on discount tickets are so small you often have to examine the ticket with a magnifying glass.”

Another example the group shared was the “Was/Now'” pricing. It’s when supermarkets drop the price from an artificial high point and call the new price a sale even if the products were already available at lower prices.

Products on “special” that cost the same as before the promotion is yet another example.

“We have seen lots of ‘special’ prices stuck over regular prices, which are the same. There’s nothing special about the new price,” another consumer told Choice.

Step in and step up

As consumers continue to feel the pinch, Choice calls on the government to step in and force supermarkets to make their grocery pricing clear and fair. Some of its recommendations to level the playing field for shoppers include:

• Compelling major supermarkets to publish historical pricing information allows consumers to track price changes.
• A ban on misleading promotional tactics.
• Strengthening and enforcing unit pricing requirements so consumers know what they’re getting for their money.
• Mandatory standards for clear and consistent pricing information.
• Requiring supermarkets to disclose a product’s price or size change prominently.

“Choice is calling on the government to step in and force supermarkets to make their grocery pricing clear and fair,” added Sherwood. “Consumers deserve fair and transparent pricing to be sure they’re getting a good deal when they do their shopping.”

Coles has asked some of its suppliers to cut their prices to reflect cooling inflation, with those savings likely to fund a discounting blitz just as the supermarkets face political and community heat over food and grocery prices.

Suppliers have told The Australian they have been asked to prepare for price reduction requests of as much as 14 per cent – especially in the non-food area – on some products.

Coles has pointed to the improving inflationary outlook, especially in key cost pressure points such as freight, shipping and raw materials, to justify unwinding years of price hikes.

Winning price cuts from suppliers will allow Coles to pass on some of the savings to shoppers – and potentially pocket some for the benefit of its 440,000 shareholders – and comes as Coles and Woolworths face public inquiries over prices and market power.

Some suppliers have been contacted about a new Down, Down campaign that will see a fresh round of price cuts. These are currently designed as 13-week campaigns for autumn, winter and spring, and will see prices squeezed across a range of food and grocery categories.

Suppliers have been asked to help fund the reductions by taking price cuts themselves.

The supermarket shelf-price falls are ­between 5 and 20 per cent.

The supermarket giants face an uncertain year with a raft of high-profile political probes and inquiries piling pressure on the retail ­behemoths to explain elevated ­prices and earnings amid accusations of profit gouging.

The political heat around Woolworths and Coles ratcheted up late last year.

A Greens-led Senate inquiry into supermarkets was announced, followed by an inquiry by the competition regulator and a gouging report from the ACTU. The supermarket chains responded by spruiking their discounting and promotions campaigns, and slashing prices on key food and grocery items.

Coles began a sales campaign in January centred around meat and Woolworths has also cut meat prices.

Suppliers are, however, likely to push back against the request for price cuts from Coles, citing labour and energy costs, which are still rising, even if freight and shipping is getting cheaper.

A Coles spokesman declined to comment on its communications with its suppliers and negotiations around prices, but stressed the supermarket was squarely focused on lowering prices for its shoppers.

“We are working hard to keep grocery prices affordable for ­customers, particularly as they face escalating living costs with higher mortgages and rents, and increasing expenses like energy and fuel.

“We are always looking for ways to lower the cost of groceries and invest in value through campaigns like Down, Down and thousands of weekly specials.

“Coles has kept price inflation in its supermarkets below the rate reported by the ABS for the past 16 quarters.”

For years suppliers fought for and won price rises in the face of rocketing inflation and higher input costs to manufacture groceries, such as raw materials, energy and labour.

In its submission to the ­Senate inquiry Coles reported that in the first six months of 2021 it received 1101 requests from suppliers for cost increases, equivalent to around 42 per week, and that almost doubled to 79 per week in fiscal 2022 and 73 per week in fiscal 2023, ­largely driven by inflation and increases in global commodity prices.

Any price reductions it can now win back from suppliers will involve a fresh round of negotiations but Coles will point to falls in costs – although labour bills continue to grow – to justify the move.

Many of the suppliers fought to get price rises through Covid and the recent inflation spike, but will likely play hardball and resist a reversal of that, citing a range of input costs that remain elevated.

Even if these lower shelf prices for shoppers trigger a lift in sales volumes, many suppliers believe it won’t be enough to cover the ­reduced prices they get from the ­supermarkets and the funding they need to put towards ­specials and promotions such as the Down, Down campaign run by Coles.

The challenge for Coles chief executive Leah Weckert and her board will then be dividing those savings between consumers (in the form of lower shelf prices) and its investors (through better profits and dividends).

In its submission to the Senate inquiry, Coles underlined the importance of returning profits to shareholders, but that this also needed to be balanced with providing a competitive offer to shoppers.

“Of our more than 440,000 shareholders, 88 per cent hold less than 2000 shares,” Coles said in its submission.

“They include mums, dads, families and retirees who not only shop with us, they invest in us and rely on our long-term sustainability.”

In its Senate submission, the Australian Food and Grocery Council said it supported the ­aspiration of keeping consumer prices low, but this should be shared by the supermarkets.

“It should not be suppliers who disproportionately shoulder risks and costs, but a contribution balanced between retailers and suppliers,” the AFGC said.

“Since 2021, Australia’s major supermarkets have maintained profit margins of between 5 and 6 per cent, compared to between 3 and 4 per cent for Tesco and Sainsbury’s in the more competitive British market.”

The AFGC said between 2011 and 2021, input costs for food manufacturing rose at double the rate of output prices.

Woolworths Group MD and CEO Brad Banducci is set to retire in September, coinciding with the supermarket chain’s 100th anniversary.

Banducci will retire after serving the company for 13 years, with eight and a half of those as CEO.

Woolworths has named current MD of WooliesX Amanda Bardwell as MD and CEO, effective September 1, following the release of the company’s annual financial results.

“It has been a privilege to be a member of the Woolies team and one I have never taken for granted. We have a wonderfully talented and passionate team at Woolworths Group as personified in Amanda Bardwell and I look forward to working with Amanda and our team over the next few months as we set ourselves up for the next chapter,” said Banducci.

“Amanda is a proven leader, business builder and modern retailer. Most recently, under her leadership, WooliesX has gone from infancy in 2015 to a $7bn market leading business. Amanda is highly respected throughout the organisation and I know, like Brad, will live our purpose and work hard to achieve Woolworths Group’s full potential,” said Woolworths Group chair Scott Perkins.

The announcement comes as Woolworths faces pressure over its price-setting practices along with its rival Coles, and the market power of major supermarkets in Australia.

A Senate Inquiry is underway, with a report due to be released in May. In addition, the Albanese Government has launched an ACCC inquiry into supermarket prices.

In a LinkedIn post, Banducci wrote that his decision to retire is not related to the upcoming price inquiries.

“This is a decision I have been contemplating for a while especially given it is literally 8 years since my appointment and as we go into the Woolworths Centenary and the timing felt right,” he wrote. “Not because I am tired or burnt out (I am as energised by our business and our potential as I have ever been) or [a]m worried about the various upcoming price inquiries (I am looking forward to effectively representing Woolworths at these important forums) but because I think a leader should go before they need to and, more importantly, because I believe passionately in the amazing talent in our Group and it is time to pass on the baton.”

Quadrant Private Equity is nearing a sale of Superior Food Group, the food services distribution business that it placed on the market in December.

The private equity firm is in advanced discussions with a buyer for Superior Food, pitched last year as a defensive opportunity to big-name sponsors like Bain Capital and Blackstone. But Street Talk can reveal another party is in pole position – ASX-listed grocery wholesaler Metcash.

The Doug Jones-led group flagged in its December half-year results that it had a “significant pipeline of strategic growth opportunities” and “M&A”. Of note, it was in talks to acquire Superior Food alongside Coles in 2022 but bowed out of the sale process.

Metcash is understood to be advised by Barrenjoey Capital Partners and Herbert Smith Freehills. Stanton Road Partners tended to Quadrant. A deal has not yet been signed but is “well advanced,” sources said.

This is the third time Quadrant has shopped Superior Food around – the first in 2021 after the competition regulator decided to approve Woolworths’ entry into the sector via PFD Food Services and again in 2022, asking banks to pitch for a potential initial public offering. However, both processes were interrupted by the COVID-19 pandemic and associated lockdowns and then Russia’s invasion of Ukraine, which froze markets.

Prospective buyers have been told Superior Food, which supplies ingredients, packaging and cleaning items to restaurants, cafes and aged care homes, is on track to make EBITDA in the 2025 financial year of around $55 million. That would imply a sale price north of $500 million, based on recent transaction multiples.

Woolworths took a $552 million chunk of PFD in 2020 about 11-times PFD’s pre-pandemic earnings of $57 million. The other big player in the space is Bidfood Australia.

An exit would end Quadrant’s eight-year association with Melbourne-based business. The buyout firm invested in August 2015, swiftly merging it with Sydney’s NFD Food Services to create the third-biggest food services group in Australia. Its clients include fast-food restaurants like Domino’s, Hungry Jack’s and Subway and corporates like the Royal Automobile Club of Victoria and Health Purchasing Victoria.

Quadrant executive chairman Chris Hadley and managing director Alex Eady sit on Superior Food’s board. A spokesperson for Metcash declined to comment. Metcash has a market capitalisation of $3.45 billion and last traded at $3.64.

Australia’s wholesale food service sector has provided rich pickings for private equity. Adamantem, which owns Boost Juice and Betty’s Burgers, has invested in wholesale food packaging supplier PAC Trading while PAG Asia Capital, best known in Australia for owning Oporto and Red Rooster parent Craveable Brands, acquired Patties Foods and Vesco Foods just over 18-months ago.

Burger brand Grill’d is partnering with former tennis World Number 1 and three-time Grand Slam champion

Ash Barty to launch a limited-edition range of Barty Burgers.

The burger chain will also donate $100,000 to the newly launched Ash Barty Foundation, through its Local Matters program.

The goal is to make a positive impact on the lives of young Aussies through sport and education initiatives.

Ash Barty said “Promoting physical activity and wellbeing amongst young people is incredibly important to me. I’ve been given some amazing opportunities in my tennis career so to help create pathways for kids to participate and enjoy sport is invaluable.

“I’m grateful to Grill’d for supporting my foundation and hope that together we will be able to make a difference to many young Australians.”

Grill’d founder and managing director, Simon Crowe, said “We are honoured to be collaborating with one of Australia’s most accomplished athletes on this initiative. As a role model to millions of Aussie kids and actively involved in community work, having Ash front this campaign is a perfect match to Grill’d’s local community and charitable efforts.”

Grill’d customers also have a chance to win an exclusive Ash Barty tennis experience for two in Queensland.

The Barty Burgers range features a choice of chicken or beef patties, a mini pack including chips and a drink, and two meal packs.

Skincare brand Sukin has been acquired by PNB Consolidated, a company headed by former BWX Group CEO John Humble.

Greenhill launched a comprehensive sales process for the assets, which include BWX Group’s manufacturing facility in Victoria.

PNB Consolidated is believed to have paid $70 million for the assets, The Australian reported. Sought for confirmation, a KPMG representative said he “cannot disclose the actual value but yes, that figure is in the ballpark.”

BWX collapsed and entered voluntary administration in April last year, with KPMG Australia subsequently appointed receiver.

Meanwhile, KPMG Australia’s restructuring services partner David Hardy said that PNB Consolidated will provide the ideal platform for Sukin to thrive moving forward.

“We are delighted to announce the sale of the Sukin brand. Importantly, we have been able to reach an outcome that keeps both this wonderful brand and high-end manufacturing operations together,” said Hardy.

“PNB Consolidated brings a strong pedigree in the manufacturing and distribution of health and wellness brands.”

Greenhill and Norton Rose Fulbright served as advisers of KPMG for the sale of Sukin.

The pricing practices of Australia’s supermarket near-duopoly are about to the the focus of a year-long enquiry by the government’s competition regulator, the Australian Competition and Consumer Commission (ACCC).

The investigation will include the pricing practices of the supermarkets and the relationship between wholesale – including farmgate and retail prices.

The ACCC will examine competition in the supermarket sector and how it has evolved since the previous inquiry in 2008. 

Moreover, the inquiry will also explore emerging issues such as online shopping, technological advancements, and loyalty programs.

“We know grocery prices have become a major concern for the millions of Australians experiencing cost of living pressures,” says ACCC chair Gina Cass-Gottlieb.

“When it comes to fresh produce, we understand that many farmers are concerned about the weak correlation between the price they receive for their produce and the price consumers pay at the checkout.”

She said the group will use all of its legal powers to conduct a detailed examination of the supermarket sector and identify opportunities for improvement. 

“We will carefully consider what recommendations we can make to the Government,” added Cass-Gottlieb.  

Following the ACCC’s inquiry in 2008, Coles and Woolworths provided enforceable undertakings to remove restrictive tenancy provisions that may have prevented shopping centres from leasing space to competing supermarkets.

The regulator’s investigation resulted in identifying more than 700 potentially restrictive leases.

ACCC deputy chair Mick Keogh said their inquiry will examine the current environment between supermarkets, as well as barriers to greater competition and new entrants in the sector.

“Competitive markets encourage more attractive combinations of price and quality for consumers, as well as greater choice,” explains Keogh.

“We believe we are well placed to conduct this broad-ranging inquiry and will bring to bear our expertise in competition, consumer law, agriculture and the supermarket sector in particular.”

Commenting on the latest inquiry, Woolworths Group CEO Brad Banducci said the company noted the Federal Government’s decision and “welcomes the opportunity to assist” the ACCC.

“We know many Australian families are doing it tough and looking for relief at the checkout,” remarked Banducci. 

“Food inflation has continued to moderate in recent months, and we expect this to continue throughout 2024.”

The ACCC expects to publish an issues paper in February seeking views on the key issues it will consider in this inquiry.

The Australian Government will provide an interim report later this year, and the final report will be given early next year. It will also publish the formal direction from the Australian Government, including the terms of reference, when it receives it.

Brazilian-founded Acai brand Oakberry is planning to expand its store network across many markets, including Australia, after raising $100 million (US$67 million) in Series C funding.

The round was raised through funds managed by the Brazilian investment bank BTG Pactual – the largest investment bank in Latin America.

The company said the funding will help accelerate its global expansion strategy, targeting more than $300 million in revenue and nearly 1000 stores worldwide by the end of this year.

The brand is now exploring co-investment opportunities in Australia and Portugal as additional priority markets for funding allocations.

Founded in 2016, Oakberry currently has approximately 700 stores across more than 40 countries. 

The brand announced in October it was set to open seven new stores in Australia, bringing its store count to 45 across NSW, QLD, WA, VIC, and SA.

The global energy drinks market’s value reached $62.89 billion in 2023, posting a 7.5 per cent compound annual growth rate (CAGR), with the strategic addition of new flavours emerging as a key trend.

According to The Business Research Company, the increased demand on emerging distribution channels, notably e-commerce, is driving the growth of the energy drinks market.

The research firm forecasts that the market, dominated by Red Bull, Monster Beverage Corporation, PepsiCo, and Coca-Cola Company, will further increase to $83.83 billion in 2027 at a sustained CAGR of 7.5 per cent.

It noted that the introduction of new flavours is an emerging trend, such as Red Bull’s launching of Coconut Edition Sugar-free energy drinks in 2021, a mix of coconut and B-group vitamins, taurine, and acesulfame-K as a sweetening agent.

Such innovations, which seek to attract new customers and boost sales, demonstrate the dynamism of the energy drinks industry.