With inflation driving up the cost of living, many are dreading not just the hassle of a big grocery shop, but also the bruising cost.

But while Australians struggle with their budget and spending, several major supermarkets made large profits in 2022–23. Coles and Woolworths, for example, made net profits of A$1.1 billion and A$1.62 billion, respectively.

Allegations of price gouging by Australian supermarkets have even led to a Senate inquiry into supermarket pricing.

Coles chief executive Leah Weckert has promised to appear at the inquiry, saying the company “works hard to keep prices affordable for Australian households […]” and is ready to “engage in an informed discussion on the factors that influence supermarket pricing.”

Woolworths Group chief executive Brad Banducci, meanwhile, said he welcomes the chance to explain to the Senate “how we are working to balance the needs of our customers, our team and our suppliers in the context of economy-wide inflationary pressure”.

But why wait until a Senate inquiry to explain all that? There’s an opportunity now for the big supermarkets to be more transparent about how they decide what prices to put on products.

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Allegations of price gouging

It’s not just politicians and customers complaining about supermarket prices.

Australian farmers have also accused Coles and Woolworths of price gouging for fruits and vegetables, claiming supermarkets profit too much from their crops.

The National Farmers’ Federation has called for greater transparency from the supermarkets on how they decide prices.

A recent survey by AUSVEG (the peak industry body for the Australian vegetable and potato industries) found 34% of vegetable growers are considering leaving the industry in the next 12 months as they struggle to turn a profit.

When asked about calls for more transparent pricing, a Woolworths spokesperson told The Conversation:

We publish both our average gross margin and EBIT (earnings before interest and taxes) margin transparently in our public financial reports.

Supply chain costs are different for every product and they are constantly fluctuating, as are our buying costs in the case of fresh food like fruit and vegetables.

Shoppers are very savvy. We operate in a highly competitive industry and we know our customers will – and do – shop around to find the best value.

As we start to see the rate of inflation ease, we will continue to focus on delivering savings to our customers.

Coles was also contacted for comment but did not reply before publication deadline.

Factoring in many costs

When a retailer buys products from their suppliers, it involves a supply chain that includes supply, manufacturing, transportation and distribution, warehouse and storage.

There are several costs – such as product costs, transportation fees, labour, rent, inventory and more – involved at every step of the process.

The supermarket must factor in all costs, as well as its profit margin, when it sets the selling price for a product.

Organisations usually have these cost breakdowns as part of their internal decision-making – but they don’t typically disclose these calculations to their customers.