Australia's Grocery Oligopoly: High Barriers Limit Competition

The Australian grocery market is currently dominated by an oligopoly, as revealed by a recent report compiled by the Australian Competition and Consumer Commission (ACCC) following an inquiry directed by the government in January 2024.

The report indicates that Woolworths and Coles hold a substantial share of the market, with Woolworths accounting for 38% and Coles 29% of supermarket grocery sales. Compared to their closest competitors, ALDI and Metcash (with 9% and 7% market share respectively), these figures illustrate the concentrated nature of the industry.

The ACCC refers to this scenario as an 'oligopolistic market structure,' where the top players, Woolworths and Coles, have limited incentive to aggressively compete on pricing. The report acknowledges that grocery prices in Australia have risen significantly over the past five fiscal years. While these increases are largely due to rising business costs, ALDI, Coles, and Woolworths have also increased their product and EBIT margins during this period.

The report emphasizes that while there is a need for more competition to dismantle this oligopolistic structure, the barriers to entry for new competitors appear to be dauntingly high.