The new price gouging law starts on July 1. Can it rein in Coles and Woolworths?

Australia’s new law on supermarket ‘price gouging’ (also known as excessive pricing) will come into effect on July 1, 2026.

It bans any very large supermarket with a turnover of more than A$30 billion – currently only Coles and Woolworths – from charging a price for a grocery product that is significantly excessive compared to the cost of delivery, plus a reasonable margin.

The law is an addition to the existing mandatory Food and Grocery Act. It will be enforced by the Australian Competition and Consumer Commission (ACCC). Each violation carries significant financial penalties.

The law comes into effect at a time when major supermarkets are under scrutiny for their pricing policies.

It was recently discovered that Coles had misled consumers with its ‘Down Down’ promotion, where it advertised prices as reduced even though the prices were higher than originally advertised. Significant fines are expected. A similar action by the ACCC against Woolworths is awaiting judgment.

Why was the new law introduced?

The new law fulfills the Labor government’s pre-election pledge to ban price gouging in supermarkets as part of its commitment to tackle cost-of-living pressures.

The law was introduced after evidence of rising food prices.

Last year, the ACCC’s supermarket survey found that Coles and Woolworths have a significant market share, accounting for more than two-thirds of Australian supermarket sales. They are also among the most profitable supermarket companies in the world and have little competition.

While the ACCC did not recommend an excessive pricing law, it expected greater competition would reduce profit margins in the sector.

Other investigations into supermarket prices, including by the Australian Council of Trade Unions and the Senate Committee on Supermarket Prices, recommended an excessive pricing law. Separate parliamentary inquiries in Queensland and South Australia also highlighted the need for stricter regulation of the sector.

Australian law goes further than that of other countries

Australian law is unique. Countries that have introduced specific law on price gouging have mainly done so for a limited time in emergency situations, such as the COVID pandemic, when products (such as face masks) are in short supply and the risk of price gouging is high.

The European Union uses its competition law to prohibit large companies from abusing their dominant position to harm competition, including by charging excessive prices.

However, excessive pricing is not expressly part of Australian competition law.

Instead, Australia chose to include excessive pricing in the Grocery Code. This approach limits excessive prices only to large supermarkets, and not to other sectors of the economy.

However, Australia is expected to rely on competition cases from the EU and the United Kingdom in applying the new law. But even in the EU and the UK, the cases are not extensive and the principles around what constitutes an excessive price are not yet fully settled.

How will the law be applied in practice?

The new law does not define when prices are significantly excessive (or provide examples), nor does it indicate what a reasonable profit margin is.

In the EU, the overarching test for whether a price is excessive is whether the price is significantly higher than what would be charged in a competitive market.

However, the test will be difficult to apply because the nature of a supermarket business involves costs spread across a huge product portfolio. So it is difficult to allocate costs and profits to a single product. Supermarkets also deal with hundreds of suppliers, with prices and costs changing regularly.

That’s why courts and regulators look at other ways to determine whether a price is excessive. This could be the price charged by other companies for a similar product, or the price charged for the product in different places or at different times.

The new law focuses on whether a supermarket makes a “reasonable” profit margin. However, determining a company’s profit margin is notoriously difficult and what is “reasonable” is open to debate and evidence.

All this means that the new law will be difficult to apply, as noted in the Ministry of Finance’s consultation document.

What can consumers expect from the new law?

In practice, the new law is likely to be applied only rarely, given the difficulties in proving it. Major supermarkets will also have an incentive to defend any excessive price claims made by the ACCC.

The law is not a panacea for achieving fair food prices or tackling cost-of-living pressures. Consumers must manage their expectations of what they can realistically achieve on their own.

The excessive pricing law was always intended to be part of a broader arsenal of consumer measures. This includes:

• the new mergers law, which requires major supermarkets to notify the ACCC of certain acquisitions
• funding the consumer group CHOICE to provide greater transparency on consumer prices, and
• funding for the ACCC to tackle misleading behavior by supermarkets, including increased funding in the recent May budget.

The new law puts Coles and Woolworths on notice that their pricing practices are being monitored.

Will these July 1 changes transform Woolworths and Coles’ market dominance? It’s unlikely. But having new commercial incentives for major supermarkets to review their pricing policies can only be positive for consumers.