The share prices of Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) both increased more than 5% on Friday after the release of the ACCC inquiry.
The Australian Competition and Consumer Commission (ACCC) has been looking at supermarket pricing and competition.
According to reporting by the ABC, the ACCC was unable to conclude whether price gouging was happening.
What did the ACCC say?
The competition regulator noted there has been a lot of attention on the supermarket sector. It said that Australia is home to some of the world’s most profitable supermarket businesses, which also includes Aldi.
The ACCC said that the majority of the price hikes in supermarkets were because of suppliers and rising operating costs. However, it also found that the supermarket product (gross profit) and operating profit margins did increase at the same time.
On the issue of price gouging, ACCC deputy chair Mick Keogh said:
We didn’t reach that [price gouging] conclusion, and part of the reason is the complexity of making that when you look at the range of products and the different margins that they have, and the fact that they change pricing almost on a weekly basis.
It’s very difficult to get to the bottom of that. The profitability figures do give you some very broad picture of what’s happening, but the issue of price gouging isn’t one we were able to engage in too closely.
Aldi, Coles and Woolworths, each have their established position in the market, and yes, they have specials and promotions and all sorts of things.
But when you look at their pricing in the longer term, particularly Coles and Woolworths, it’s largely similar, and their product range is largely similar. So that’s what we mean by an oligopoly.
The ACCC also reportedly said that charging high prices, having high profit margins and lifting prices isn’t illegal. However, if there were greater competition then retail prices may be lower, service quality costs may be higher, or both.
The regular also said that supermarkets need to be transparent when package sizes shrink disproportionately to price.
Final thoughts on Woolworths shares and Coles shares
The ACCC concluded that Woolworths and Coles will still dominate the sector and doesn’t see that changing for the “foreseeable future”.
That’s probably music to the ears of holders of Woolworths shares and Coles shares. It was probably also pleasing for shareholders that they won’t face any significant rule changes, punishment or things of that nature.
I wouldn’t say they’re cheap after jumping last week, but it has taken some of the uncertainty away.
