A national vegetable grower group has told the Australian Consumer and Competition Commission (ACCC) supermarket inquiry that specials are used as "clickbait" to lure in shoppers, sometimes at the expense of growers' profits.
The way supermarkets deal with farmers and how they make money from fresh food specials have been a focus in the first two weeks of the inquiry.
The federal government initiated the probe in response to shopper anger at soaring food prices, coupled with spiking supermarket profits, and farmers claiming unscrupulous practices.
So far, only German supermarket chain Aldi and Metcash — a buying group for independent supermarkets such as IGA — have appeared at the hearing, along with farmers and consumer groups.
Coles and Woolworths are due to appear next week.
AusVeg general manager Lucy Gregg told the hearing specials could be used as "clickbait" for shoppers to the detriment of farmers.
"We often refer to vegetables or fresh produce as clickbait — it's the way to get people in the store," Ms Gregg told the hearing.
"That's why the first point of entry in nearly every supermarket that you go to is the fresh produce."
The tactic of selling ultra-cheap vegetables is referred to as "clickbait" among growers. (ABC New: Cara Jeffery)
Ms Gregg said major supermarkets designated "loss leaders", such as carrots, to lure shoppers.
"Sometimes [supermarkets] sell below what they've bought it for, but also at the same time the grower is often selling below the cost of production as well," she said.
Fruit Growers Victoria industry development officer Michael Crisera told the inquiry pears were often sold below the cost of production, and at times Pink Lady apples were also targeted.
"I'd say pears have been one that have been paid below the cost for a long period of time," Mr Crisera said.
He said loss leaders were more common with German retailer Aldi, as it had a lower cost model.
Mr Crisera claimed loss-leader fruit at Aldi created a "false market price" for growers, who were also supplying Coles and Woolworths.
"If Aldi have come in at this price, say it's $1.90 a kilo, we have to get somewhere close to it," he said.
"Coles and Woolworths do not run the same cost model — their costs are a lot higher, they can't afford to run a loss leader, so they'll put that expectation for their suppliers to support them at a lower price."
Aldi later told the hearing that prices were always set with the growers' agreement.
Victorian Mooroopna fruit grower Peter Hall said when pears were priced below $2 a kilogram on supermarket shelves "there was nothing in it for the grower".
"When you see pears for $1.99 a kilo, no grower is making a buck out of that," he said.
The inquiry has been told pears are often sold below the cost of production.
No contracts and no promises
Mr Crisera said farmers did not have contracts with supermarkets, saying it was "really a verbal discussion pre-season, about commitments, about some notional volumes, and they'll look at historically what the vendor has done".
Ms Gregg told the hearing supermarkets might only buy a fraction of the vegetables they had signalled they would buy from suppliers.
Naomi Sharp, senior counsel ACCC: So are you saying that, as an average, the supermarkets are only taking 30 per cent of what they've indicated they will take?
Lucy Gregg, AusVeg: Yes, that was some of the feedback from the growers.
Ms Gregg said some growers alleged it was a "deliberate attempt to distort the market", because excess produce ended up in the wholesale market, which resulted in an oversupply and then a price drop.
Aldi Australia managing director of national buying Jordan Lack said Aldi did not guarantee volumes it would buy from growers, instead agreeing on a price each week with suppliers.
But he said they sometimes went back to farmers to ask for price variation if a competitor dropped its retail price.
Aldi said it often reduced retail prices on "super saver" products to match competitors, but insisted it did not force suppliers to take a lower price.
Farmers want mandatory disclosure rules for the price and volume of all fresh fruit and vegetables. (ABC News: John Gunn)
Price transparency
The National Farmers Federation wants to make it mandatory for supermarkets to disclose price and volume information for fresh fruit and vegetables, saying this would "improve farmers' understanding of how supermarkets determine prices paid to suppliers."
Mr Lack, from Aldi, told the inquiry it was a bad idea because there could be "unintended consequences", including lowering competition, which could push up retail prices and be bad for shoppers.
Naomi Sharp, ACCC: Why would that diminish competition?
Jordan Lack, Aldi: I think if that is done on a weekly basis, and suppliers can see that another supplier is consistently higher than them, there may be a desire for them to also take that higher price and submit accordingly.
Mr Lack admitted the system of growers submitting planned volume and a suggested price each week gave supermarkets market power.
Margins on the middle aisle
From dishwashers to snow gear, the middle aisle is a favourite among Aldi shoppers, and Aldi told the hearing it made higher margins on these products.
Naomi Sharp, ACCC: Am I right to understand that as a general matter, the receiving margin is higher for the middle aisle as compared with other product offerings?
Oliver Bongardt, Aldi Australia managing director of national buying: That is correct.
Aldi has almost 600 stores nationally, and now has a 10 per cent share of the national grocery market.
However, it told the inquiry it would not be expanding into Tasmania or the Northern Territory, which both had higher food costs than other states.
Independent supermarkets say Coles and Woolworths buy up prime sites to force them out of the market. (ABC News: Kate Ainsworth)
Squeezed out
Independent supermarkets claimed they were being squeezed out of the market by Coles and Woolworths because of land banking and creeping acquisitions.
The claims were made by representatives from Metcash, who fronted the ACCC inquiry.
Metcash is Australia's largest wholesaler, supplying products to 2,000 independent supermarkets, with a focus on IGA stores in regional, rural and remote areas.
It also owns three supermarkets, and has shares in many independent stores.
Metcash Foods CEO Grant Ramage said the major supermarkets were land banking — by buying up or putting options on land or stores — to reduce competition from independent retailers, lowering choice for consumers in the process.
"An example of this was an independent in Queensland, where the [supermarket] chain bought the premises from the landlord and ended the lease for the independent," he said.
"They already had stores in the area, it was patently not about having a presence, they already had a presence, but they obviously wanted to remove the independent from that area."
Coles and Woolworths are expected to appear at the inquiry next week. (ABC News: Charlie McLean)
Metcash claimed creeping acquisitions, where a big supermarkets bought up independent stores, also impacted its buying power.
Mr Ramage said Coles and Woolworths strategically used a process of "decapitation" to reduce the scale and competition of the independent supermarket network.
"Which is taking the big stores at the top away, and that has a disproportionate effect on our network," he said.
"That effect reduces the overall volume that we supply that goes through our distribution centre and has a material impact on the cost per carton for the distribution centre and our ability to continue to invest."