Australian supermarket ACCC report: Watchdog unveils plan to end shrinkflation

The days of supermarkets sneakily charging shoppers more for less are numbered, with the competition watchdog recommending a suite of changes to stamp out price gouging in the sector.

Forcing supermarkets to notify consumers when a package size change makes them worse off is one of 20 recommendations the Australian Competition and Consumer Commission has made in the final report of its inquiry into supermarket pricing and competition.

The government has agreed in principle with the recommendations but noted the report did not support a coalition proposal to grant the competition watchdog powers to break up the major grocers.

Treasurer Jim Chalmers said the government’s supermarket crackdown would lead to more competition and a fair go for Australians at the check-out and the farm gate.

“This is about ensuring Australians aren’t treated like mugs by the supermarkets,” he said.

In its report, the commission described the supermarket sector as having an “oligopolistic market structure” dominated by the duopoly of Woolworths and Coles.

The two “very large” supermarket chains, which dominate 38 per cent and 29 per cent of national grocery sales respectively, have “limited incentive to compete vigorously with each other on price”, the report found.

In addition, they can use their monopoly purchasing power - Coles or Woolworths are often a supplier’s sole buyer - to suppress prices for suppliers and reduce production to inefficient levels, meaning higher prices and reduced choice for consumers in the long run.

The report said there was no “silver bullet”, delivering a suite of recommendations to address four broad issue areas.

Increased transparency, such as mandated publication of price and package size information, would help clamp down on shrinkflation and dodgy discounting.

The regulator took Coles and Woolworths to court in 2024 for alleged sham deals. They were accused of raising prices on products before lowering them and advertising them as discounts, despite costing more than the original price.

The report also recommended financial support for community-owned stores to improve choice and supply in remote areas, changing the Food and Grocery Code to balance supermarket buying power with farmers, and addressing planning and zoning issues to remove barriers for new entrants.

While Coles and Woolworths are far and away the biggest players in the sector, foreign-owned “hard discounter” ALDI and independent supermarkets supplied by wholesaler Metcash provide important competition.

The large scale of Australian supermarket chains has resulted in a relatively efficient food supply system, benefiting consumers, the commission acknowledged.

“In particular, ALDI, Coles, Metcash and Woolworths have a scale and scope that provides convenience to many Australians and benefits them through efficiencies in their procurement, logistics and other business functions,” the report said.

The supermarkets maintain they have not engaged in price-gouging, claiming their profit margins haven’t increased dramatically in recent years.

“Customers are increasingly cross-shopping and splitting their grocery spend across a range of retailers - both in store and online,” the supermarket giant said in response to the report.

“Coles must compete vigorously for a share of consumers’ grocery baskets.”

Coles added that it understood the cost-of-living challenges faced by families and warned against measures that will “increase red tape and drive up costs”.

Opposition Leader Peter Dutton has vowed to give the commission powers to divest the major chains to address anti-competitive behaviour if he wins the next election, due by May 17.

Prime Minister Anthony Albanese has derided the proposal as a relic from the Soviet Union.