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Australia is the land of the supermarket duopoly — where the big two of Coles and Woolworths control 65 per cent of the grocery market.
Over the years, this concentrated supermarket sector has faced criticism and scrutiny, and it's been reaching fever pitch again in recent months, with a number of investigations underway into their business practices during the current cost-of-living crisis.
"Inflation has been a hot topic in every country in the world," Jim Stanford, an economist and director of the Centre for Future Work, tells ABC RN's Rear Vision.
And he says there's no topic that gets people more "riled up" than food price inflation.
"Now, we have a situation where world commodity prices, world bulk agricultural products, and others, are coming down in price a lot. And we have not seen that being passed through in food prices at the supermarket," he says.
"Prices went up quickly … but they are not coming down."
And as customers pay more at the checkout, the big two have been enjoying higher returns.
There are also Australian producers who feel angry at the widening gap between farmgate prices and supermarket prices.
So how exactly did Coles and Woolworths come to dominate the market?
It's a story that's more than a century in the making.
The neighbourhood grocery store
In the 19th century, most people in Australia's colonial cities and towns got their food from small grocery stores dotted around neighbourhoods. Shop owners would usually live above the premises.
"They were very small and had a very micro level of distribution," says Matthew Bailey, a retail historian and associate professor at Macquarie University.
In the late 19th and early 20th centuries, grocery chain stores emerged, offering more options and variety in one place.
"There were [grocery chains] like Moran & Cato, Penneys, S.E. Dickins. And they develop efficiencies of scale that made them very effective competitors to the small independent grocers," Dr Bailey says.
These grocery chains became large, sophisticated businesses with hundreds of stores.
The birth of Coles and Woolworths
Coles opened its first store in 1914 in the Melbourne suburb Collingwood and Woolworths opened its first store — Woolworths Stupendous Bargain Basement — in Sydney's Imperial Arcade in 1924.
But neither was in the grocery game — they started out selling general merchandise in variety stores.
"[It was] clothing, footwear, homewares, furniture," says journalist Sue Mitchell, who has been covering retail for the Australian Financial Review for more than 30 years.
"A big part of the range in those days would have been haberdashery, because so many people made and mended their own clothes."
But in the 1950s, this all changed.
"[There was] a pivotal moment," Dr Bailey says.
"One of the key strategic innovations in Australian business history is that both Coles and Woolworths pivot in the 1950s … They decided to go into food."
There was another critical change around this time. Some chains — including Woolworths and Coles — decided to move to a self-service model.
Previously, store employees would regularly discuss products with the customers, get the product and wrap the product.
But in the self-service model, "the customer does the work themselves", Dr Bailey says.
"They rely on marketing for information, and they pick up pre-packaged goods from the shelf and take them up to the counter and pay."
These mid-century developments set the stage for Coles and Woolworths to dominate.
Buying the rivals
Starting in the 1950s, Coles and Woolworths began to buy up the competition, in an intense period of growth.
"[For example] there was a major chain known as Matthews Thompson. It was the biggest food retailer in NSW. Coles bought that in 1960, after a huge fight with Woolworths. It had 248 stores," Mitchell says.
"Woolworths bought Safeway, which had 126 stores, and that gave it a major leg up in Victoria."
Mitchell lists chain after chain that were bought by Coles and Woolworths: Brisbane Cash & Carry, Bi-Lo, Jewel, Flemings. And it goes on.
She says this continued until around 2010.
"Back in the 1960s, Coles' and Woolworths' combined share of the grocery market was 31 per cent. It's now about 65 per cent. And at one stage it got up to about 80 per cent," she says.
And was there concern about the big two gobbling up the competition?
In most circles, "it was celebrated", Mitchell says, particularly in the 1980s and 1990s.
"Competition issues didn't seem to be on anyone's radar at all … It was all about growth and prosperity."
An 'underestimated' competitor
In 2001, German discount chain Aldi arrived in Australia.
Gary Mortimer, a professor of marketing at Queensland University of Technology, says it was "underestimated" by Coles and Woolworths.
"At that stage, Coles and Woolworths executives would have looked at the model and said, 'well, it's a very small food store. It sells about 800 lines compared to our 25,000 lines'," he says.
"I think it was just left to grow organically … It started with two tiny little stores 23 years ago and now has close to 600 stores."
This translates to 10 per cent of the grocery market.
In 2007, a new chapter began for Coles when it was acquired by Wesfarmers for more than $19 billion.
"Coles was really struggling," Mitchell says.
"Wesfarmers brought in a team of mainly UK grocery retailers, including Ian McLeod and John Durkin, who brought with them some pretty tough European-style negotiating tactics [with suppliers].
"They demanded that suppliers justify price rises by proving that their costs were increasing and they threatened to replace branded goods, like Nestlé and Unilever, with private label brands."
Mr McLeod led Coles' successful 'Down Down' campaign and also introduced the infamous $1-a-litre milk, which Woolworths and Aldi soon copied.
The independents
So what does the duopoly mean for the independents, like IGA, FoodWorks and Drakes?
Debbie Smith bought her first independent supermarket in the late 1990s in a small country town in Queensland.
It was successful, and after selling the business, she took over two other independent supermarkets in the bigger regional centre of Toowoomba in 2008.
Business was good, but then an Aldi and a Coles opened in a new shopping centre 800 metres away, which sapped her customers.
"We stayed open till 11 o'clock at night, we had free home deliveries … It was just never enough," she says.
So do shoppers lose out when the big two — and their offerings — come to town and open several stores?
"They lose out in range … there's no diversity [when there are only duopoly stores]," Ms Smith says.
It's a point echoed by Brad Hopper.
Mr Hopper owns several independent supermarkets in southeast Queensland. One of his stores is closing after 20 years. His lease wasn't renewed because the centre was sold to Coles, he says.
"A lot of suppliers get their start with independents like us. That's what's being missed … They can't grow without finding a small independent to take them on to test the market," he says.
An ACCC inquiry
In 2008, the ACCC (Australian Competition and Consumer Commission) had an inquiry into the competitiveness of retail prices for standard groceries.
It found that grocery retailing in Australia was workably competitive.
But there were several factors that were limiting the level of price competition.
One of these was the restrictive leases that Coles and Woolworths were able to obtain in shopping centres, which was making it very hard for new players to secure sites.
"We said to the government, '[these covenants] had to go'," says Graeme Samuel, a former chair of the ACCC.
"The government supported us on that and we then obtained from Coles and Woolworths an undertaking that they would no longer enforce those covenants, nor were they be included in the future leases or renewal of leases," he says.
"And you'll now see that Aldi is now appearing in a number of shopping centres and imposing a competitive discipline."
The Kaufland example
Aldi has done well in Australia, but another German chain Kaufland backed out of their plans to open stores at the last minute.
Mitchell says they struggled to secure land to build stores and lock in suppliers.
"They had about a $500 million capital budget, but they only managed to find about 20 sites before they decided to pull the plug," she says.
"That's because the sites had already been tied up by Coles and Woolworths, which had a huge land banking [or purchased land] and huge property operations.
"And also, we were hearing at the time that one of the reasons Kaufland pulled out was because major suppliers — especially in fresh food — refused to supply them.
"They couldn't reach supply agreements, because those suppliers were worried about retribution from Coles and Woolworths."
How do we compare?
How does Australia's duopoly share of the market (around 65 per cent) compare to other countries?
In the UK, the two largest supermarket chains — Tesco and Sainsbury's — have 43 per cent of the market.
But the UK has a much bigger population, which makes it easier for smaller operators to get a viable market share.
Australia's market is similar to Canada's, where three big companies — Loblaw, Sobeys and Metro — dominate.
Meanwhile, across the ditch, New Zealand is even more concentrated than Australia, with Countdown and Foodstuffs having 80 per cent of the market.
What next?
In January, Prime Minister Anthony Albanese announced the ACCC would be directed to conduct a 12-month price inquiry into the supermarket industry.
This is in addition to a federal Senate inquiry and the code of conduct review that's underway.
It comes amid more reports, including from ABC's Four Corners, that Coles and Woolworths are profiting off rising prices.
On Wednesday, Woolworths chief executive Brad Banducci announced his retirement as the company posted a $781 million loss, driven by one-off accounting write-downs. Excluding those, the company posted a 2.5 per cent rise in underlying profits.
Coles and Woolworths say their recent boost in profits is thanks to cost efficiencies and productivity improvements.
And they have blamed higher grocery prices on wage rises, supplier cost increases and higher energy prices.
Mr Samuel says the ACCC inquiry will hopefully provide more clarity on the situation.
The inquiry will "be very important to actually demonstrate whether, [for example], the problem is occurring in the supply line, in the logistics between the farmgate and getting to Woolworths or Coles or Aldi or IGA, onto the shelves".
"It's quite easy to pick off [Coles and Woolworths] and to say they're price gouging," he says.
"I think the important thing is to have the ACCC do an evidence-based analysis to work out really what's occurring."
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