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, say experts.
Lack of competition pressures shoppers
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.
Professor 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.”
Cost of doing business
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,” Associate Professor 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”.
High inflation
Shrinkflation and skimpflation (which involves lowering the quality of a product or service without reducing its price) makes it hard for consumers to gauge the value they’re getting for a purchase.
Ultimately, the culprit for these problems is high inflation, says Associate Professor 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.”
While Professor Garg calls for more assertive government action on covert pricing tactics, Associate Professor 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, Professor 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.