Changing … ‘ColesWorths’ and price gouging

Note: It's a complex topic, and this newsletter is longer than I intended. Next week, I will unpack the narrative and how I came to my thoughts about what to change.

Introduction and a systemic approach

The increasing cost of living has been a big topic in Australia this past 6 months or so, and the ABC 4 Corners program broadcast an investigation into the 2 major supermarkets Monday night.

So, how do we understand this accusation of price gouging, and how do we change this complex challenge for the better?

I’m employing a systemic lens as I tackle this ginormous challenge, and I reckon we will knock it off by the end of lunch! (Sarcasm is the lowest form of humour!)

I recommend watching the program via the link above for the entire background. I won’t repeat it all here except to provide a little context for those reading outside of Australia.

Context

Australia’s supermarkets are dominated by two major companies, Coles and Woolworths, who together claim approximately 65% of the market. Aldi, one of their biggest competitors, accounts for only 10%. This is very concentrated market power compared to other countries and has resulted from mergers over a long period of time as smaller chains were absorbed into these larger companies. They are sometimes referred to as ColesWorths because their positions in the market so closely mirror each other.

Why now?

Despite early signs of inflation easing recently, nearly everyone is suffering from the cost-of-living challenges. Many people are hurting. It encourages the human psyche observe who is winning who is losing.

Our politicians are concerned because not doing something is unacceptable to the voting public. All sides of politics are keen to “hold the duopoly to account”. ?As governments often do, an inquiry has been set up for the ACCC to examine pricing practices and the relationships between wholesale, including farmgate, and retail prices.

Let’s take a brief systemic look at what is going on…

1. Economic patterns over time

The duopoly has emerged over time – say over 70 years. And the overall context has changed enormously in that time. Some of the more important changes have included:

• Mergers and takeovers of smaller supermarket chains
• The Australian economy opening up to the wider world
• Greater competition in the economy generally
• Growing emphasis on short-term profits from investors
• Development of food supply chains outside Australia
• Marketing techniques that have become more and more sophisticated to influence buyer behaviours over time.?

2. Farmers (and other Suppliers)

• A growing power imbalance between supermarket buyers and farmers
• Erosion of farming profits over time – ‘race to the bottom of the barrel’ is the system's terminology for this phenomenon. We are now at the bottom of the barrel, with farmers earning so little that some are exiting the industry.
• Climate change and weather extremes making farming even more risky
• Short-term seasonal contracts that allow the purchaser to reject goods upon arrival (wow!)
• Suppliers pay for or contribute to ‘in-house advertising’

3. Customers ( I hate being called a consumer - you too?)

• Changing expectations from fruit and veg in season to all year round supply
• Desire for greater choice
• Changing expectations of quality
• Increasing price sensitivity (?) I am speculating here.

4. Employees (team members)

• Coles and Woolworths employ approximately 335,000 people between them (many of them are young people with little work experience), making them the largest private employers in Australia.
• Online purchasing has created different work environments for different workers
• In 2023, both companies were taken to court accused of underpaying workers
• Former Coles CEO Aaron Basangi even admitted to stealing $1.9m from the company in 2023.
• All of this suggests that there may be cultural issues around ethical behaviour.

5. Regulator – ACCC

• Oversees the Food and Grocery Code of Conduct
• The code is voluntary
• The intention of the code was to improve standards of behaviour towards suppliers in particular.
• There appear to be no consequences for poor behaviour.
• Suppliers can raise disputes through the Code Arbiter (And this of course is within the context of a huge power imbalance in the industry)

So how do we change the price gouging?

Prices are just one symptom of something else happening. Employee conditions and attitudes to suppliers are other symptoms. I get the feeling of a system that is devouring itself – do you? What is at the heart of it? (I could go much deeper into 'extractive' versus 'regenerative or nurturing' cultures here - but there is not enough space today, and it deserves a good amount of space.)

Here are four possibilities that arise for me:

• Company management’s desire for constant growth in a relatively small market. And that is not even fair because it may be that senior management is in a bind, too. Is it their desire or the direction in which the whole system (investors, boards) drags them? I am not a fan of the executives’ decisions, but I empathise with them as I see them in the system.
• Organisational cultures (not unlike the Royal Commission into Misconduct in the Banking, etc, held Dec 2017 – Feb 2019) have developed a tolerance of unethical and coercive methods to achieve ends, that result in unintended consequences. (For example, if you feel your employer is not paying you fairly, it makes picking up a free chocolate bar seem ok doesn’t it?)
• Customers (that's most of us reading) take responsibility for shopping in places that align with their values. It turns out that some marketing around ‘lowest prices’ may not even be accurate. So, customers should check for themselves. They may even change their food shopping to a local market with local and known suppliers, discovering that it doesn’t cost more. Or if it does cost more, they may decide that they are willing and able (in some cases) to pay more to ensure that growers and other suppliers are appropriately paid for their work.
• Alter the market so that greater competition emerges – let's move away from the duopoly that government regulations have allowed or enabled – they haven't stopped it anyway. This would involve changes in the law.

Psychological adaptation

All except the last, are examples of adaptive challenges requiring people to think and feel about things differently so that new behaviours emerge. ?Even the last involving legislative changes contains elements of adaptive work. Imagine negotiating changes with Australia’s largest private employers. I’m sure the supermarkets see things very differently. But psychological adaptation is where the real changes are. This type of adaptation requires those involved to weigh up the pros and cons of a proposed change. At its heart, the adaptation reprioritises what is most important for a better future.

The tendency to zoom in on separate symptoms

It is easier to focus narrowly on prices and set some new rules in place. As politicians are already talking about ‘holding the duopoly accountable’, perhaps they will even extract a pound of flesh from the senior management and executive in the process (someone must be accountable - but not the person pointing the finger!). This action reinforces the retaliatory nature of the system as it already is too…. Interesting.

Also interesting to note that since I began writing this article, Woolworths CEO has decided to retire – hot on the heels of his interview with the ABC where he didn’t perform quite as I expect he would like to have. Brutal, isn’t it?

Question for you

How often do you get sucked into a narrow focus on a challenge, often zooming into one symptom, and in so doing, you end up with no solution – no change - ?at all.

Changing… the way we choose to look at the challenge that is ColesWorths and price gouging may make all the difference.