The price of helping struggling Australians

Posted on 13 Feb 2024

By Greg Thom, journalist, Institute of Community Directors Australia

Pexels jack sparrow 4198972

A report on price gouging by former ACCC chief Allan Fels has confirmed the worst suspicions of many sector organisations overwhelmed with requests for help from struggling Australians.

The ACTU commissioned inquiry into price gouging and unfair pricing practices set out to investigate the pricing strategies of big business and their potential negative impact on working Australians struggling to afford essential items.

The damning report delivered by former ACCC chair Professor Allan Fels left no illusions as to their effect on consumers amid an unprecedented cost-of-living crisis.

“The greatest concern of Australians today is the cost of living which has two components - the incomes which people receive and the prices which they pay,” said Professor Fels during a recent address to the National Press Club.

“My conclusion is that Australians are paying prices that are too high, too often. The cause is weak and ineffective competition in too many markets.”

Fels price gouging report

From airlines and electricity suppliers to banks, childcare and telecommunications, Fels forensically outlined the tactics used to hoodwink consumers, including:

drip pricing: the practice of initially presenting a low price for goods or services but incrementally increasing the final cost with additional charges

excuse-flation: using general inflation as a cover for bumping up prices

rockets and feathers pricing: when a company’s costs rise, prices go up like a rocket; when costs fall, prices drift down slowly like a feather

loyalty tax pricing: prices are initially set low and sharply increase in later years when consumers cannot easily detect, question or renegotiate them

confusion pricing: bamboozling consumers with a myriad of complex price structures and plans, making price comparisons difficult and dulling price competition

With food and groceries an essential of daily life, it is perhaps not surprising Professor Fels focused heavily on the pricing practices of the supermarket giants, describing the sector as the most concentrated in the world.

Professor Fels said he received twice as many submissions (more than 325) relating to supermarkets as to the next closest category, mainly from cash strapped consumers and farmers and suppliers under pressure.

The report found that Coles and Woolworths were able to increase profit margins in their food and grocery segments during the inflationary period because of low competitive forces and an ability to avoid passing on wholesale cost reductions to shoppers.

“Market power is exercised over farmers and many other suppliers,” said Professor Fels.

“In addition, the gain in profits from this is not passed on, certainly not promptly or fully, to consumers because of market power and a lack of competition in the product market.”

“I am pleased to be doing this inquiry with the ACTU because the focus is on the effect of prices on ordinary people.”
Professor Allan Fels.

Professor Fels' findings in relation to areas such as food, groceries and utilities are particularly relevant to the not-for-profit and charity sector, which are being swamped by people seeking help after being hit hard by cost-of-living pressures.

The ACTU-backed price gouging report comes just a week after research conducted on behalf of the Brotherhood of St Laurence shed more light on the financial crises affecting lower-income households and their economic security.

BSL Making Ends Meet report

The findings of the report Making ends meet: Fostering security and dignity in tough times were based on interviews with more than 40 low to middle-income Victorians who kept detailed financial diaries over a 10-week period.

The research revealed that low and uncertain incomes resulting from low wages, unpredictable work hours, unreliable child support and inadequate social security, created significant stress for participants, leaving families struggling to make ends meet.

Among the reports key findings were that income support payments have not kept up with the rising cost of essentials, leaving recipients struggling to afford the basics, cutting back on food or heating, rationing medication or taking on debt.

“This research highlights the daily battle low-and middle-income families face to try and make ends meet, often to the detriment of their mental and physical health,” said report co-author Dr Dina Bowman.

Professor Fels report is just the first of several probes into the supermarket sector, including a Senate inquiry, an ACCC investigation and a review of the voluntary Food and Grocery Code of Conduct.

Alan Fels 4
Professor Allan Fels in his home office overlooking Melbourne's Botanic Gardens.

Despite being subject to intense scrutiny, the big supermarket chains insist they have done nothing wrong.

In a press release flagging their submission to the Senate Inquiry on Supermarket Prices, Coles said it was “working hard to help Australians put quality food on the table for their families at affordable prices – particularly as they face escalating living costs with higher mortgages and rents and increasing expenses like energy and fuel.   

“This is against a challenging environment of high inflation, with rising costs that affect the whole economy including farmers, suppliers and retailers, and which impact the prices customers pay at the checkout.”

Coles said its profit margin last financial year was 2.6% meaning that for every $100 customers spent, Coles made $2.60 in profit. 

“This research highlights the daily battle low and middle-income families face to try and make ends meet, often to the detriment of their mental and physical health.”
Making Ends Meet report co-author Dr Dina Bowman.

When Professor Fels prepared to launch his inquiry into potential price gouging last September, he said ordinary Australians were top of mind.

“I’d like to emphasise that I’m particularly interested in the impact on disadvantaged and vulnerable people. That’s quite a high priority. Always has been on my mind,” he told the Community Advocate.

In his subsequent report, Professor Fels went out of his way to share the often angry and frustrated voices of those detrimentally affected by rising prices, as he did in a speech to the National Press Club when launching the report.

“I am pleased to be doing this inquiry with the ACTU because the focus is on the effect of prices on ordinary people,” Professor Fels told the National Press Club.

“We have been flooded by submissions – some 750 of them.

“In conducting the inquiry, I have heard from workers, farmers, ordinary people, ACOSS, and others on behalf of poor and disadvantaged people and I have heard stories of real hardship and sacrifice to make ends meet.”

Professor Fels made a swag of specific recommendations to tackle price gouging, but one overall theme stood out.

“A significant part of the cost-of-living crisis has been caused by companies taking advantage of their market power and relying on gaps in Government policy to squeeze consumers and often suppliers to breaking point,” he said.

“Reform to curb this is urgent.”

More information

Price-wise warrior back in the saddle

Canberra doubles down on alleged supermarket price gouging

Sector welcomes spotlight on supermarket prices

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