Angry at covert pricing tactics? Blame inflation and a lack of competition

As shrinkflation and other unfair pricing practices draw public ire, experts say deeper problems are to blame.

Claims of “shrinkflation” and other covert retail tactics that pass costs on to consumers are drawing increased attention as Australians continue to struggle with high living costs. But with inflation squeezing both retailers and shoppers, the causes of big price rises, falling value for money and unfair pricing practices are complex.

In particular, shrinkflation – where retailers reduce the size of products without lowering prices – has gained notoriety amid increased public scrutiny of Australia’s supermarket sector. The Albanese government recently announced a strengthening of the Unit Pricing Code in an explicit bid to curtail what it called this “increasingly common” practice.

However, opinions on such tactics, their prevalence, and how shoppers can respond, differ. Professor Nitika Garg in the School of Marketing at UNSW Business School points to a lack of competition, including in the Australian supermarket “near-duopoly” of Coles and Woolworths, as a leading source of the problem.

Prof. Garg says shrinkflation and other covert tactics are growing issues and consumers need to shop around to find better value – meaning they will inevitably pay more, either in time or higher prices. 

“Imagine a young family with young kids and without huge amounts of discretionary income – how much time do they have to sit on websites and apps and price-compare?” she says.

“It is a heavy burden to place on individual consumers.”

In contrast, Associate Professor Mark Humphery-Jenner in the School of Banking & Finance at UNSW Business School cautions against overreacting to claims about unfair pricing tactics, which he says can be overblown.

Generally, retailers already face thin profit margins, so higher prices are an inevitable result of high inflation, not a case of price-gouging, he says. 

“The concern is that when customers are price-sensitive – or demand elastic – retailers cannot maintain profits without losing customers [and] we are not even talking about increasing profits,” A/Prof. Humphery-Jenner says. 

"Operating at breakeven can be challenging when your own input costs go up and you cannot pass this on to customers.”

He says supermarkets generally keep only a few cents of profit for every dollar spent. Notably, Woolworths Group recently saw its share price drop after warning that despite a 4.5% increase in group sales in the first quarter of 2025, it expects lower first-half earnings for its Australian Food business as value-conscious shoppers continue to seek out specials and savings, leading to a “lower-margin sales mix”.

Competing pressures

Prof. Garg and A/Prof. Humphery-Jenner agree that retailers’ use of dubious pricing practices has a strong psychological impact on consumers, who are increasingly sensitive to perceived unfairness around costs amid an inflation-fuelled cost-of-living crisis.

The Australian Bureau of Statistics (ABS) reported rising costs across all household types in its latest data, with increases of at least 1.2% in all five Living Cost Indexes in the June quarter and annual increases of between 3.7% and 6.2%. The food and non-alcoholic beverages category was among the main contributor to the cost increase.

Amid these consumer pressures, Coles and Woolworths in August announced strong financial results for 2024, with Coles reporting $1.1 billion in profits for the year and Woolworths reporting a $108 million profit – down from $1.7 billion following a $1.5 billion impairment to its New Zealand business.  

Shrinkflation is a common flashpoint in tightened economic conditions because it makes it harder for consumers to gauge the value they’re getting for a purchase, Prof. Garg says. 

Consumer advocacy group Choice has found numerous examples of Coles and Woolworths charging the same – or more – while covertly decreasing package sizes, including of their own-brand breakfast cereals. 

For instance, it found Coles reduced the size of its Mighty Grain cereal to 495 grams from 560 grams in October 2022 but kept the price at $4.50. The same report found Woolworths similarly downsizing its Max Charge cereal in September 2023, resulting in a nearly 14% price increase per 100 grams of cereal. 

Skimpflation, a related tactic, involves lowering the quality of a product or service – such as selling food made with lower-quality ingredients or reducing staffing levels at a restaurant – without reducing its price. Prof. Garg says this can be even more harmful to consumers, especially those who buy generic brands as a cost-saving measure.

“In those situations, if the quality is compromised or even just reduced, it is harder for the consumer to pick up on it,” she says.

Larger root causes

Ultimately, the culprit for these problems is high inflation, says A/Prof. Humphery-Jenner. 

“Retailers’ costs have increased; consumers’ disposable income has decreased,” he says.

“This creates a downward spiral where consumers argue that they cannot afford to pay more, while retailers argue that they cannot afford to charge less.”

Nonetheless, many consumers are left questioning why prices remain high even after supply chain shocks have stabilised, Prof. Garg says. “Because, for the retailers, if the consumer is now already used to paying, let’s say, more than $1 a litre for milk, that’s fine – why should they bring it down?”

She says a significant contributor to these problems in Australia is a lack of competition in too many markets. 

“If people really want to get the best deal for them and make a difference to their budgets, at least, and hopefully send a message to these companies in the long run, they have to shop around, which obviously carries a cost for consumers,” she says. 

“When such a huge section of the population is struggling, this requires more systemic changes and for us to rethink why our markets are designed the way they are.”

But while Prof. Garg calls for more assertive government action on covert pricing tactics, Prof. Humphery-Jenner says more regulations will only exacerbate the problems, with more complex industrial relations laws adding to salary costs as well as indirect compliance costs. 

For now, Prof. Garg says, retailers can take steps to help consumers struggling with high living costs, such as by partnering with government programs supporting vulnerable populations and young families.