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Australia’s new law on supermarket “price gouging” (also known as excessive pricing) .

It prohibits any very large supermarket with revenue exceeding 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 supply, plus a reasonable margin.

The law is an to the existing mandatory . It will be enforced by the Australian Competition and Consumer Commission (ACCC). Significant financial penalties apply for any breach.

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

Recently Coles was found to have under its “Down Down” promotion, where it advertised prices as reduced, even though the prices were . Significant penalties are expected. A similar action by the ACCC is awaiting judgment.

Why was the new law introduced?

The new law fulfils the Labor government’s to ban supermarket price gouging as part of its commitment to address cost of living pressures.

The law was introduced following evidence of rising grocery prices.

Last year, the ACCC’s found Coles and Woolworths have significant market share – more than two thirds of Australian grocery sales. They are also among the most profitable supermarket businesses globally and face little competition.

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

Other inquiries into supermarket pricing, including by the and the into supermarket prices, recommended an excessive pricing law. Separate parliamentary inquiries in and also pointed to the need for tighter regulation of the sector.

Australia’s law goes further than other countries

Australia’s law is unique. Countries that have introduced a dedicated price gouging law have done so primarily for a limited time in cases of emergency, like the COVID pandemic, when products (such as face masks) are scarce and the risk of price gouging is high.

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

However, excessive pricing is not expressly part of .

Instead, Australia chose to include excessive pricing in the Grocery Code. This approach confines excessive pricing only to large supermarkets, rather than to other sectors of the economy.

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

How will the law apply in practice?

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

In the EU, the of whether a price is excessive is if the price is significantly above 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 that are spread across a huge portfolio of products. So it is hard to allocate costs and profits to a single product. Supermarkets also deal with hundreds of suppliers, with prices and costs changing frequently.

Therefore, courts and regulators look to other means for determining 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 places an emphasis on whether a supermarket is making a “reasonable” profit margin. However, determining the profit margin of a business is notoriously difficult and what is “reasonable” is open to debate and proof.

All this means the new law will be difficult to apply, as noted in Treasury’s .

What can consumers expect from the new law?

In practice, the new law is likely to be used only infrequently, given the difficulties of proof. Large supermarkets will also have an incentive to defend any excessive pricing claim brought by the ACCC.

The law is not a silver bullet for achieving fair grocery prices or for addressing cost of living pressures. Consumers need to manage their expectations of what it can realistically achieve on its own.

It was always intended that the excessive pricing law would be part of a broader armoury of consumer measures. This includes:

• the , which requires major supermarkets to of certain acquisitions
• funding the consumer group CHOICE to provide greater transparency on consumer prices, and
• funding for the ACCC to address misleading conduct by supermarkets, including in the recent May budget.

The new law does put Coles and Woolworths on notice that their pricing practices are being watched.

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

, Adjunct Professor, 91ɫ��Ƭ Law,

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