The CEO of Woolworths has just been threatened with jail time by an Australian Senator.

Wait… what?!

Yep, you heard that correctly. Senator Mckim literally said: “We're not interested in PR spin. We're not interested in you bulls---ing your way through this committee. It is open to the Senate to hold you in contempt, and that carries potential sanctions including up to six months imprisonment for you”

‍So what actually led us to this point?

To answer that, we need to flash back to COVID lockdown times, when supermarkets, who were critical in providing essential goods, had their shelves wiped clean. 

With supply chains shut down globally, logistics became a lot harder, and both Coles and Woolworths warned that the price of groceries would likely rise.

And rise they did. 

In fact, according to the ABS, Australian food prices have jumped 18% since the beginning of the pandemic, or 4.6% each year.

But the worst part? 

During these times Coles and Woolies announced record profits. 

In August 2023, Coles announced a record $1.1 billion profit, which was a 4.8% increase on the previous year. A day later, Woolies announced a 4.6% net profit increase to $1.62 billion.

And that’s when consumers really started complaining. 

Because it seemed like the supermarkets were using COVID supply issues as justification in order to raise prices, which may have just been an opportunity to increase their overall profit.

And with Woolies and Coles collectively holding 64% of the grocery market share, the prices they set have a large impact on Australian consumers.

In February this year, ASIC released an Inquiry into Supermarket Prices to understand the intensity of market power that supermarkets in Australia have, and whether they've been involved in price gouging - that’s when goods and services are priced at a level much higher than is considered reasonable or fair.

The Australian Senate has set up a committee that will run for one year to investigate the practices of the supermarkets. This includes public grillings of the CEO’s and leaders at Australia’s big supermarkets.

So far, they’ve publicly interrogated the CEO of Coles and also Woolworths - and it hasn’t been pretty.

Woolies’ outgoing CEO, Brad Banducci was repeatedly asked by the Senator about the company’s return on equity, and after providing indirect answers, he was threatened with jail time and other potential sanctions.

So what could actually happen if bad things are uncovered?

The former head of the ACCC, Allan Fels, reckons  it would be sensible for Australia to create divestiture laws that are similar to the US.

Essentially, that would force supermarkets to sell stores if they had too much market share. The idea is that this would reduce harm to consumers and smaller businesses.

But in reality, this is unlikely to happen, with many experts believing the major supermarkets may feel ‘uncomfortable for a while’ but won't actually drop prices.  

Following these interviews, we’ll have to wait for an interim report by the Australian Government on 31 August 2024.

And then a final report that’s due no later than 28 February 2025.