Never mind the ACCC, Banducci, in Europe they fight anti-competitive behaviour with dawn raids!

Much has been made of Brad Banducci’s temper flare featured on Four Corners last night. The Woolworths CEO bridled at reporter Angus Griggs’ question about comments made by ex-ACCC chief Rod Sims that Australia has one of the most concentrated grocery markets in the world, with Banducci momentarily walking off in a huff. But if a rather benign question like that can set him off, what would he make of the European approach to uncompetitive behaviour?

The past two weeks have seen a spate of global food and consumer goods companies — from Kraft Heinz to McDonald’s and Pepsi — admit to falls in sales volumes in the closing months of 2023 as consumers revolted to price rises imposed almost at will and accepted by retail outlets. But according to global law firm, White & Case, European competition authorities (the most proactive of all regulators in this area) “are focusing more on companies in the consumer sector as inflation heightens the risk of uncompetitive behaviour”.

European regulators don’t muck around — they stage so-called dawn raids on companies to prevent companies or their employees from ditching evidence. These are “surprise on-the-spot inspections” by antitrust regulators.

In 2022, 17 unannounced inspections — dawn raids — were made by competition authorities across the UK, EU and Switzerland at companies in the consumer sector, but this rose to 26 in 2023, according to the White & Case Dawn Raid Analysis Quarterly (DRAQ). Here, the Australian Federal Police raids journalists and alleged criminals, not big food companies.

In total, European competition authorities carried out 62 dawn raids in 2023, just two fewer than the 64 dawn raids conducted in 2022. “It’s easy to hide price increases when there is inflationary pressure,” said Zoë Mernick-Levene, head of competition at London-based law firm Leigh Day, told The Financial Times. “[There is an impression that] markets are not working so well and [regulators] are looking much more intently at the bargaining power between consumers and firms.”

The European Commission raided fragrance and fashion companies, including Gucci-owner Kering, the energy drink maker Red Bull and more, all on suspicion of having violated EU anti-trust laws. The commission also raided tyre companies including Pirelli and Michelin for suspected cartel activity. 
In the UK, the Competition and Markets Authority accused food producers of contributing to food-price inflation by pushing up prices by more than their costs after launching an inquiry into the groceries sector. 

In Australia, the Albanese government has been very slow off the mark and only just got around to commissioning an inquiry into supermarket pricing after the ACTU got former ACCC head, Professor Allan Fels, to conduct an inquiry of his own.

The Financial Times pointed out that European consumers have experienced the worst cost of living crisis in a generation in the wake of Russia’s invasion of Ukraine two years ago and the lifting of Covid lockdowns. “But while lower energy prices have eased overall inflation, and other raw material costs have fallen, the price of goods has continued to mount,” the paper pointed out.

So why the concern? Well, readers will know it’s because supermarket prices are rising quickly — more quickly than the inflation rate. In Australia, not too many people understand inflation or its importance to the bulk of shoppers — stock market analysts and business media have remained quiet on the issue and failed to really dig into the way prices and volumes have gone over the past two years, or the influence of inflation and profit margins.

Globally, the value of retail sales in the consumer products sector rose by an average of 10% year on year in 2023 (nearly double the 10-year average growth rate) — but three-quarters of the growth was a result of price increases, according to a report last week by management consultants Bain. In the US and Europe, 95% of sales growth was driven by price rises.

Bain said its first annual Consumer Products Report included a survey of more than 120 senior consumer products executives around the world and underlines just how much rising input costs have contributed to the widespread decoupling of price and volume growth.

“Consumers — asked to pay more without getting any extra benefits in return — are switching to more affordable private-label brands or more premium insurgent brands that offer greater consumer value. They are also waiting for promotions or just buying less. Slightly more than half of executives said they had been significantly affected by consumers reining in spending in 2023,” Bain reported.

“And while leading CPGs (consumer packaged goods) have increased prices by more than 20% on average since the third quarter of 2021, that has been blunted by similar growth in the cost of goods sold. For top CPGs, the average EBIT margin remains near a 10-year low, and retailers have been looking to share their own margin pain with CPGs.” Now, while that report was only released on February 14, price rises and “shrinkflation” (making food packaging smaller and not cutting the price) have been going on for the past two years (for regulators at all levels to see) and have been ignored.

Last night’s Four Corners report on Coles and Woolies was deficient in that it didn’t look at their competitors in IGA (Metcash) with around $9.6 billion in annual sales and the German-owned price cutter, Aldi, with an estimated $12 billion a year in sales. Nor did Four Corners assess the role of aggressive and mostly foreign-owned suppliers like Pepsi, Coca-Cola, Mondelez (Cadbury), Unilever, Nestle, Colgate Palmolive, Procter & Gamble and Kraft Heinz.

These companies are on the record about pushing prices up faster than inflation over the past two years and these prices have risen in supermarkets and other outlets around the world, including in Australia.