ACCC report to the Senate on wholesale grocery prices

30 September 2002

The Australian Competition and Consumer Commission has issued its report to the Senate on a survey of prices paid for wholesale groceries by major retail chains and independent wholesalers.

"The report did not deal with retail prices", Acting ACCC Chairman, Mr Sitesh Bhojani, said today. "It was a study, requested by the Senate, to assess whether 'like customers' paid similar prices for wholesale groceries and, if there were price differences, whether those differences produce anti-competitive effects.

"The ACCC's study was largely confined to supermarket grocery items and excluded liquor, fresh fruit and vegetables. The ACCC surveyed 50 key suppliers of supermarket grocery items and received 35 responses, of which 19 suppliers provided financial data on their terms of trade. The 19 suppliers covered 24 product lines of groceries.

"The inquiry was conducted on a voluntary response basis. Allowing for that limitation, the ACCC was able to make some observations that may help understand the impact that prices have at the starting point in the grocery supply chain.

"Basically, there are two layers of discounts that operate at the wholesale end of the market. The first layer relates to discounts for volume, settlement terms and wastage. Most bulk buyers can obtain much the same price under the first layer. The second discount layer is mainly tied to promoting the supplier's product at the retail outlet.

"The report observes that suppliers in the Australian grocery industry do not favour any single buyer. Major retailers such as Woolworths and Coles have buyer power and while they may obtain better wholesale prices more often than the independent wholesalers, the market does not appear to exhibit anti-competitive conduct, based on the data received.

"The ACCC also noted the debate in the industry over the divergence in views in what principle should govern price support. Some argue for the principle of like terms for customers of a similar scale based on the size of the central distribution warehouse, while others state that the principle is based on like terms for like performance, which encompasses how the buyer presents and promotes the product to consumers.

"The ACCC notes the debate and also noted a feature in the industry referred to as 'street money' where some suppliers deal directly with independent retailers and provide direct funding support to promote their product. Street money is a form of price support that bypasses the independent wholesalers in the supply chain. The reasons for price differences are many and varied".

Release number: 
MR 234/02
ACCC Infocentre: 

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