Coles denies raising petrol prices to offset cheap milk

Coles has denied that it has increased the price of petrol sold through its Coles Express outlets in order to subsidise its savage cuts to milk prices, as a Senate inquiry has been told consumers and famers should not trust the supermarket giant.

Evidence provided by Foodland supermarkets chief executive Russell Markham suggested that Coles has increased petrol prices – which have risen to 29-month highs in recent weeks – to help offset the loss of profits on milk, prices of which have been slashed to $1 a litre.

But in a letter to the Senate inquiry, Coles has hit back at the suggestion, saying it has absorbed the cheaper milk costs.

“Coles does not cross subsidise lower grocery prices through higher petrol prices. Pricing of these products is quite separate. Petrol prices have been rising because of higher global oil prices,” the supermarket giant.

However, competition and consumer law expert Frank Zumbo, of the University of New South Wales, says he will raise the question of whether Coles has increased the prices of other products when he appears before the inquiry this afternoon.

“We don’t know. It’s a question to be asked. But the economics is simple. If you lower the price and cut your profit margins on one of your biggest selling product, you will reduce profit margins across the grocery business.”

He says consumers are also hamstrung by the fact that because there is no pricing transparency system in place across the supermarket sector – the Government’s Grocery Watch website was shut down in mid-2009 – and it is difficult to see whether other prices are changing.

“This is where the absence of full price transparency puts customers at a disadvantage. “

Zumbo’s other big question for the inquiry is whether Coles is potentially breaching competition rules by selling milk at below price.

While Coles has denied this, Zumbo says the inquiry needs to pursue the matter.

“It should be asked and it should be answered by Coles, for no reason other than so the matter can be put to rest.”

He also wants to examine whether the price cuts to home-brand milk at Coles and Woolworths could lead to anti-competitive price discrimination between branded milk and home-brand milk.

“The inevitable danger of that is that the price war pushes up the price of branded milk and distorts the competition between the two.”

The Australian Competition and Consumer Commission is also scheduled to appear before the inquiry today.

Coles will appear in two weeks.