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Updated 4 May 2026

What counts as excessive pricing? The test explained

The law bans prices that are 'significantly excessive compared to cost of supply plus reasonable margin.' Here's what that actually means, and why it matters.

The legal test.

The excessive pricing prohibition in the Food and Grocery Code is deliberately flexible. The law does not define "significantly excessive" or prescribe a fixed margin formula. Instead, it requires the ACCC (and ultimately courts) to assess each case based on whether a price is "significantly excessive" when compared to the retailer's "cost of supply" plus "a reasonable margin."

In practice, this means three questions:

1. What is the retailer's cost of supply for this product? This includes the wholesale price the retailer paid, freight, storage, shrinkage, and other supply chain costs.
2. What is a reasonable margin? The law does not specify. It could be 10%, 20%, 30%, or different margins for different categories. The ACCC will assess this case-by-case, considering the risk, specialisation, and market conditions for that product.
3. Is the shelf price significantly above cost-plus-reasonable-margin? Not slightly above. Significantly. A retailer charging 5% more than the legal ceiling might not breach the law. A retailer charging 30% more probably would.

What makes a margin "reasonable"?

This is where the uncertainty lives. The law lists factors the ACCC can consider:

• The degree of competition in that product category and market. If a category is competitive (many brands, many retailers), a higher margin may not be reasonable, because consumers have alternatives. If a product is less competitive (private label, niche item), margins might be higher.
• The geographic location. Remote areas cost more to supply. A price in rural NSW may justify a larger margin than the same product in Sydney, because transport, storage, and shrinkage costs are higher.
• The characteristics of the product. Perishables have higher shrinkage. Speciality items may require staff knowledge or storage. These factors can justify margin differences.
• Market conditions and supply chain disruptions. If drought, floods, or transport disruption genuinely increases costs, retailers can pass those through. The margin remains reasonable if it reflects the cost increase.
• The pricing cycle. The ACCC will assess a retailer's entire pricing cycle for a product, not just the peak price. If a retailer cycles a product between $5 and $7 every week, the ACCC might find that the average margin across the cycle is reasonable, even if the peak price alone seems high.

What the test explicitly allows.

The law is clear on one thing: a retailer does not breach the ban simply by charging more than a competitor, or by raising prices when input costs go up. The test is not "price parity" or "price freeze." It is "cost of supply plus reasonable margin."

This means:

• Higher prices than ALDI are legal, if the cost of supply genuinely differs (because ALDI operates a different store format, buys in different volumes, etc.). The ban only applies to Coles and Woolworths, so comparing their prices to ALDI's is not directly relevant to the legal test, though it may inform what a reasonable margin is in that category.
• Price increases are legal, if the retailer's cost of supply has increased. Wheat prices up 20% means retailers can raise bread prices without breaching the ban, provided the price increase does not exceed the cost increase plus reasonable margin.
• Category discounts are legal. If Coles chooses to accept a lower margin on milk to drive traffic, that is legal. The ban does not prevent low pricing. It only bans excessive pricing.

What the test does not cover.

This is where the gaps are. The law bans excessive pricing, but it does not ban:

• Pricing tricks. If a retailer inflates a reference price and then discounts from it (a $10 "special" off a made-up $20 list price), the final price could still be legal under the test. The ban looks at whether the final price exceeds cost-plus-reasonable-margin. It does not regulate the perception of value.
• Price cycling. The law says the ACCC can assess the full pricing cycle, but a retailer that keeps raising and lowering prices could still stay within the legal ceiling on each individual price point.
• Shrinkflation. If a retailer reduces product size without reducing price, the unit price rises but the ban does not cover quantities, only prices. A 450g butter at $4.50 (when it was 500g at $4.00) is not caught by the ban, even though the effective price increase is 25%.
• Delisting or placement. If a retailer delists a competitor's brand and promotes its own home brand at a premium, the ban does not address that, provided the home brand price is not significantly above cost-plus-reasonable-margin.

Why this flexibility matters.

The law avoids a fixed formula (e.g., "no retailer may mark up more than 25%") precisely because that would be impractical. Different products, different stores, different regions genuinely do have different cost bases. A flexible test lets the ACCC apply the law case-by-case.

But the flexibility also creates enforcement challenges. If the ACCC alleges a price is excessively above cost-plus-reasonable-margin, the retailer will almost certainly argue that their cost of supply includes factors the ACCC has not considered. Litigation will be lengthy and uncertain. This is why first enforcement action will target the clearest cases: products where the pricing gap is wide, the cost justification is weak, and the breach is obvious.

Practical implications.

What does this test mean for your shopping?

The ban will probably reduce the most egregious prices in high-margin categories, but it will not solve all pricing problems. A retailer can still:

• Price at the legal ceiling and call it compliant
• Use pricing tricks to distort perception of value
• Cycle prices to keep customers guessing
• Reduce product sizes instead of raising prices
• Charge different prices in different locations

The most useful tool you have is comparison shopping and price tracking. The ban sets a legal floor. Your own data-driven shopping decisions set a competitive floor.