A regulatory group reveals a plan to stop unfair pricing and downsized products at supermarkets.

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Australia’s consumer watchdog has released its final report after a year-long supermarket inquiry, offering 20 recommendations to stamp out practices such as price-gouging, , and .

The Australian Competition and Consumer Commission (ACCC) inquiry found that the market dominance of Woolworths and Coles had an “oligopolistic” effect on the broader industry and that the pair are among the most profitable supermarket businesses in the world.

However, the ACCC has resisted calls for it to be granted powers to break up the two major corporations.

The report said there was no “silver bullet” to fixing the supermarket sector and provided a suite of recommendations to address four broad issue areas.

The inquiry has been examining everything from pricing practices to profit margins and Prime Minister Anthony Albanese’s government has agreed in principle to its recommendations.

Here’s what you need to know.

What did the report find?

Over the past five years, Australians have been faced with increasing prices across almost all goods and services, but wages have not kept up.

Between 2018 and late 2021, grocery prices increased largely in line with wages, the ACCC report found.

However, by the end of 2022 and the start of 2023, grocery prices were increasing at more than twice the rate of wage growth.

At the same time, supermarket profits have increased — although the major companies claim they have not increased “dramatically”.

The ACCC found ALDI, Coles’, and Woolworths’ Earnings Before Interest and Tax (EBIT) margins — a key indicator of company profitability — to be among the highest when compared to their international peers.

And when considering EBIT, Net Profit After Tax (NPAT), and Return on Total Capital (ROTC) together, the ACCC said ALDI, Coles, and Woolworths “appear to be among the most profitable supermarket businesses globally”.

According to the report, Coles and Woolworths often have a monopoly over fresh produce, as well as some packaged groceries, and suppliers take on extra costs and risk as a result.

The ACCC also noted that can be significantly higher, often due to the increased costs associated with servicing these areas.

Many remote areas do not have Coles or Woolworths stores and have little or no choice over which supermarket they can shop at.

Some stores in remote locations also do not provide price labels, according to the report.

Domination set to continue

According to the report, Coles and Woolworths’ domination of the grocery sector is set to continue. The ACCC estimates Woolworths currently has a 38 per cent of supermarket grocery sales nationally, while Coles has 29 per cent.

ALDI has nine per cent, while Metcash — which supplies independent supermarkets such as IGA, Foodland and Friendly Grocer — has 7 per cent.

The ACCC said that, while ALDI’s discounted prices offer a “crucial” alternative to the two supermarket giants, it does not compete head-to-head with Coles and Woolworths.

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

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

Confectionary aisle with specials labels on shelves

Not all promotional labels at supermarkets are easy to understand. Source: AAP / Dan Peled

Supplier requests for price increases were a key driver of higher check-out costs, Coles said in a submission to a Senate inquiry.

The company also blamed a spike in shoplifting for adding to cost pressures, on Wednesday singling out Victoria as the worst state for stock theft, with incidents of crime 54 per cent higher than in NSW.

What has been recommended?

The ACCC has recommended a range of potential legislative and policy reforms along with other actions aimed at addressing aspects of the market that it says are not working well.

It called for large chains to publish prices online, and for very large chains to provide dynamic pricing via API.

The ACCC also suggested that planning and zoning should be streamlined to make the process of building more stores simpler, and highlighted the importance of new laws to review mergers, especially when supermarkets attempt to buy other businesses.

When it comes to suppliers, the ACCC recommended enhancing forecasts and more transparency over weekly tendering and rebates.

The report also noted that Coles and Woolworths’ promotional practices and discounting techniques can make it difficult for consumers to assess value for money, as well as how much value they get from loyalty programs.

To remedy this, it recommended regulation of promotional tickets and more transparency regarding loyalty program value. It also suggested a review of loyalty programs in three years.

The report also examined shrinkflation, which is the practice of reducing the size of a product while maintaining or increasing the price.

It recommended requiring supermarkets to notify consumers when a package size change makes them worse off.

How has the government responded?

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.

Opposition Leader Peter Dutton has to address anti-competitive behaviour if he wins the next election, due by May 17.

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

– Additional reporting by AAP