ACCC supermarket inquiry is over. History says there's an opportunity to buy Woolworths and Coles

The Australian Competition and Consumer Commission released its final supermarkets inquiry report, offering 20 recommendations to improve outcomes for consumers and suppliers, but found no evidence linking price gouging to the inflationary cost-of-living pressures.

According to Macquarie, history suggests the conclusion of regulatory events creates a buying opportunity, with average returns 100 days post-comparable events of 17%. Their analysis of share price performance around three major consumer-facing regulatory inquiries into banks, Qantas and childcare suggests the market tends to "sell the rumour" and "buy the fact".

The analysts see a buying opportunity for both supermarkets, especially in Woolworths (ASX: WOW), which is currently trading at close to a five-year low relative valuation to Coles (ASX: COL).

ACCC findings

The ACCC's inquiry did not find evidence of supermarkets breaching the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products.

The 12-month inquiry did surface some interesting data points around grocery prices and supermarket margins, notably:

• Over the last five years, Australian grocery prices have risen 24% compared to 22% for other goods and services. However, this is less than the increase in most other developed countries

• Coles and Woolworths have raised retail prices on packaged grocery products beyond what’s needed to cover wholesale price increases, showing they have significant market power in retail markets and can use it to boost profit margins

• Aldi, Coles, and Woolworths have reduced cost growth but haven’t fully passed the savings to consumers. Instead, they’ve increased margins

• Aldi, Coles and Woolworths' appear to be among the most profitable supermarket businesses globally

Transparency, fairness and competition

As a result, the ACCC has not issued orders to supermarkets but has made a series of recommendations. The recommendations, which include clearer pricing practices, greater transparency for suppliers and reforms to planning and zoning laws, are designed to improve competition in the supermarket sector, make a difference for consumers and give suppliers fairer bargaining conditions. Some of the notable recommendations include:

• Support for community-owned stores in limited choice areas. Governments should explore initiatives to bolster community-owned and community-run stores in remote regions with limited competition, aiming to improve prices and quality for consumers in geographically constrained markets.

• Publication of pricing information. Supermarkets should publish prices for all in-store and online products, while large chains should provide APIs for dynamic price data access to third parties, enhancing transparency and enabling easier price comparisons to foster competition.

• Minimum information requirements for discount price promotions. Supermarkets should adhere to minimum disclosure standards for discount promotions, backed by record-keeping, ensuring consumers receive clear details on discount percentages, base prices, and applicable date ranges for transparency.

• Transparency in loyalty programs. Coles and Woolworths should provide periodic disclosure summaries to loyalty program members, detailing points earned, benefits redeemed, and total spending, ensuring clarity on the monetary value derived from participation.

• Notifications for package size changes. Supermarkets should display notifications near product tickets and on website pages when package sizes decrease in a way that raises unit prices, addressing shrinkflation concerns and keeping consumers informed about value-for-money impacts.

Sell the rumour, buy the fact

Macquarie analysed the total returns for the three groups over a 100-day period before and after the final release of their respective inquiries. On average, across the three inquiries, the groups saw a -1% return in the 100 days leading up to the reviews. Post-event, however, returns were consistently positive, averaging +17% in the 100 days following the reviews’ completion. Of course, these returns can also be influenced by various factors during these times, such as market trends, economic conditions, inquiry findings, and events like elections.

Source: Macquarie Research | March 2025

Woolworths vs. Coles

Woolworths shares have slumped 7.6% year-to-date and down 12.2% in the past twelve months, hit by supply chain issues (including December 2024 industrial action) and disappointing earnings in FY24 last August and 1H25 in February. Meanwhile, Coles has fared better, with a modest 1.7% year-to-date decline and a 12.0% rise over the past year, fueled by improved cost controls, supply chain enhancements, and reduced theft. This performance gap has pushed Woolworths near a five-year low relative to Coles.

Source: Macquarie Research | March 2025

Macquarie sees an opportunity for Woolworths, noting it has faced more disruption and scrutiny during the inquiry but could enhance operating performance moving forward.

The analysts maintained an Outperform rating on Coles with a $22.00 target, anticipating margin gains from supply-chain investments, with FY26 expected to be a strong year due to the SSI program and reduced dual-running costs. Woolworths was upgraded from Neutral to Outperform with a $30.80 target, with analysts suggesting a potential re-rating as the market grows comfortable with risks tied to the ACCC report and election cycle, though this may take time due to the upcoming Federal Election.