Australia's deep discount culture is squeezing supplier margins and reshaping the retail landscape, as supermarkets and department stores compete on price rather than service or quality.
Business & Markets Desk is a contributing writer covering business and public affairs for The Sydney Times.
Australia's retail sector is facing a structural shift towards deep discounting, as ALDI, Kmart, TK Maxx and online marketplaces compete on price, squeezing supplier margins and forcing established retailers to rethink their value propositions.
ALDI has continued its aggressive expansion across Australia, with new stores opening in regional centres and outer suburbs that were previously dominated by Coles and Woolworths. ALDI's model relies on a narrow product range, limited opening hours and private-label products that carry higher margins than branded equivalents. The result is lower shelf prices for consumers and lower supplier returns for the manufacturers and distributors that supply the supermarket.
Kmart has repositioned itself as a destination for affordable homewares, clothing and general merchandise, using its scale to push down supplier prices. The Kmart effect is particularly pronounced in the homewares and clothing sectors, where Australian manufacturers and importers have seen their margins compressed by the retailer's relentless focus on low prices.
TK Maxx has expanded its footprint in Australia, importing surplus inventory from Europe and the US and selling it at prices well below Australian retail. The TK Maxx model is disruptive for Australian department stores and specialty retailers that rely on full-price sales to maintain margins.
The ACCC has been monitoring the relationship between supermarkets and suppliers for several years, with particular attention to the practices of Coles and Woolworths, which together control around 65 percent of the Australian grocery market. The ACCC's 2024 inquiry into supermarket pricing found that both Coles and Woolworths used their buying power to negotiate prices with suppliers that were below the cost of production for some products, forcing suppliers to absorb losses or withdraw from the market.
The inquiry found that the supermarkets' buying power had increased over time as their market shares grew, and that the competitive pressure from ALDI had amplified the buying power of the major supermarkets. ALDI's low prices forced Coles and Woolworths to lower their prices to remain competitive, which in turn forced the major supermarkets to push harder on suppliers to maintain their margins.
The result is a spiral of discounting that is squeezing supplier margins across the board. Small and medium-sized suppliers are particularly exposed, as they lack the scale to negotiate from a position of strength with the major retailers. Many Australian food manufacturers have responded by reducing the size of their products rather than raising prices, a practice known as shrinkflation that maintains the shelf price while reducing the quantity of product.
Australian consumers are the main beneficiaries of the discounting wave. The Productivity Commission found that grocery prices in Australia are lower in real terms than they were a decade ago, and that the entry of ALDI has been the single most important factor in driving prices down. The Commission estimated that ALDI's expansion has reduced grocery prices by around 13 percent for the products it sells.
The discounting has also expanded consumer choice, with a wider range of products available at lower prices than at any time in the past. ALDI's limited-range model has forced Coles and Woolworths to rationalise their ranges and focus on faster-moving products, reducing waste and improving efficiency.
The ACCC continues to monitor the supermarket sector, with particular attention to the practices of Coles and Woolworths. The Commission has the power to investigate allegations of anti-competitive conduct, including misuse of market power and unconscionable conduct in dealings with suppliers. The 2024 inquiry into supermarket pricing recommended changes to the Food and Grocery Code of Conduct to strengthen protections for suppliers, including a mandatory dispute resolution process and increased penalties for breaches.
The ACCC's 2025 monitoring report found that the major supermarkets had made some progress in addressing the Commission's concerns, but that structural changes were needed to rebalance the relationship between supermarkets and suppliers. The Commission recommended that the Government consider introducing mandatory unit pricing standards and requiring the major supermarkets to publish their supplier terms and conditions.
According to the ACCC supermarket inquiry report, the competitive pressure from ALDI has amplified the buying power of the major supermarkets, forcing suppliers to absorb losses or withdraw from the market. The Commission recommended changes to the Food and Grocery Code of Conduct to strengthen protections for suppliers. For more on Australian business and markets, see Business & Markets.
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