Supermarkets to face billion dollar fines

Australia’s supermarket giants risk being slapped with multi-billion dollar fines if they fail to comply with a mandatory code of conduct overseeing their ties with their suppliers.

The Albanese government has announced its support for the findings of a review designed to give farmers and householders a better deal on prices.

But despite widespread competition concerns at rival retailers including Bunnings, Chemist Warehouse and Dan Murphy’s parent Endeavour Group, the review’s final report, to be released on Monday, has rejected calls to expand the code’s coverage to encompass such stores.

Led by former Labor minister Craig Emerson, the review was tasked with investigating supermarket to supplier relationships governed under the Grocery Code of Conduct after public outcry that retailers were failing to pass through savings to shelf prices, leaving consumers and producers dudded.

While Australia’s big four supermarket retailers, Woolworths, Coles, Aldi and IGA parent Metcash, were already signatories to the code, it has remained voluntary since its inception in 2015, with Dr Emerson finding a significant power imbalance between retailers and their suppliers.

In response, the review recommends the code be made compulsory, while penalties for major breaches of the code should also be increased to whichever is greater of $10m, 10 per cent of turnover in the preceding 12 months, or three times the benefit derived from a breach.

A penalty worth 10 per cent of a major supermarket’s turnover would likely amount to the largest corporate infringement in Australia’s history.

For example, Woolworths is expected to report turnover of $50.4bn this year, meaning the retailer risks incurring a penalty in excess of $5bn under changes to the code.

Minor breaches of the revamped code would incur a fine worth $187,800.

But the recommendations failed to deliver on calls to extend the code’s coverage to other sectors also facing allegations of a misuse of market power, even as the review noted competition concerns elsewhere in the economy.

“The review considers that the Code should not be extended beyond supermarkets to cover other retailers,” the inquiry’s final report said.

“This is not to say that these markets are functioning well for all players in those markets.”

Similarly, Dr Emerson declined to alter the code to offer greater protections for wine makers from major liquor retailers, with the report arguing that alcoholic beverages did not fall under the definition of groceries.

However, with no arrangements in place to address market power imbalances between winemakers and retailers, the review suggested further investigation in this area.

“Further work could be undertaken by the Department of Agriculture, Fisheries and Forestry to examine the relationship between winemakers and retailers,” the report said.

Concerns raised by producers who indirectly supplied supermarkets, such as livestock producers that sold their goods to abattoirs and meat processors, were similarly rejected.

“The Review has not received compelling evidence to justify such an expansion,” it said.

Instead, the review simply recommends coverage for supermarkets with annual turnover in excess of $5bn should be subject to the mandatory code, a threshold which would bound Woolworths, Coles, Aldi and IGA parent Metcash.

Costco, which is estimated to record an annual turnover of $4.6bn in 2024, would fall short of the threshold, but would likely surpass it in the future.

Confirming the government would support the recommendations of Dr Emerson’s review, Treasurer Jim Chalmers said the measures would support Labor’s broader efforts to overhaul competition policy and provide cost of living relief.

“Our efforts will help to ensure our supermarkets are as competitive as they can be so Australians get the best prices possible,” Dr Chalmers said.

“We’re cracking down on anti-competitive behaviour in the supermarkets sector so people get fairer prices at the checkout.”

Among the review’s additional recommendations is the establishment of an anonymous complaints mechanism, which would allow suppliers to raise any issues directly with the ACCC.

Dispute resolution mechanisms between supermarkets and their suppliers should also be enhanced, the review says.