The supermarket supplier squeeze
How the Coles and Woolworths duopoly squeezes suppliers, reduces brand choice, and pushes prices higher for shoppers.
You walk into a supermarket to buy pasta and there are three brands instead of ten. The milk comes from the supermarket's own label. The specialty cheese you used to buy is gone. This isn't random. Coles and Woolworths use their enormous buying power to squeeze suppliers so hard that smaller brands and producers simply can't afford to supply them anymore. The result: less choice, fewer independent brands, and higher prices for shoppers. Pinch tracks 74,000+ products across 4 Australian retailers with 52 weeks of price history. We see this squeeze reflected in what appears on shelves and what disappears.
The scale of the duopoly
Coles and Woolworths together control 67% of the Australian grocery market. That's not a duopoly that competes with other big retailers. That's a system where two chains dominate two-thirds of all grocery sales. For suppliers (farmers, producers, manufacturers), this means Coles and Woolworths aren't customers you can take or leave. They're the only viable path to scale.
That asymmetry of power is the foundation of everything that follows. When you need a retailer more than they need you, they can dictate terms.
How the squeeze works
Delaying payments
Coles and Woolworths routinely negotiate payment terms with suppliers of 30, 60, or even 90 days. For a large manufacturer, this means delivering product now and not getting paid for months. For a small producer, this is a cash crisis. You've paid for ingredients and labour upfront. You won't see the revenue for 90 days.
The Food and Grocery Code of Conduct (mandatory from 2025) limits unfair payment delays, but enforcement is weak and the baseline is set high. 30 days is now the norm, which was previously rare.
Cost-sharing and margin demands
Coles and Woolworths will demand that suppliers contribute to the cost of promotions, store displays, or even new shelf space. If you want your pasta sauce in Coles, you might be asked to fund the "summer sauces" promotional campaign. If you want distribution to 250 stores instead of 50, Coles might ask you to absorb part of their logistics cost.
These demands aren't negotiated as one-time costs. They're baked into the margin. A manufacturer might have a 25% margin on their core product. After cost-sharing demands, slotting fees, and promotional contributions, that margin shrinks to 10% or lower.
Buying power and category control
Coles and Woolworths can leverage control of an entire category to force terms. If you're a small dairy producer and you want to stock milk, you might find that Woolworths insists you also supply yoghurt and butter at the same margin, even though your company specialises in milk. If you say no, you lose access to milk distribution entirely.
This category bundling is a form of economic leverage. It forces suppliers to operate in categories where they have no competitive advantage, just to maintain access to categories where they do.
Price pressure and cost-plus
Both chains ask suppliers to disclose their cost structure so they can set retail prices at a predetermined markup above cost. In theory, this sounds fair. In practice, it means if your input costs fall, so does your margin. But if your input costs rise, you can't easily pass the cost through because you're locked into a cost-plus agreement.
During inflationary periods, this creates a squeeze: costs rise, your margin is cut, and you're asked to maintain or increase volume. Many suppliers have reported that they are asked to absorb cost increases rather than pass them through to retail price.
What the ACCC found
In 2024, the ACCC completed a 12-month inquiry into supermarket pricing. The findings on supplier treatment were stark:
- Suppliers reported persistent "fear of retribution" when raising concerns about unfair treatment
- Smaller suppliers reported being unable to negotiate payment terms, slotting fees, or margin expectations
- Producers described being unable to plan ahead because they could be delisted with little notice
- Farmers reported being paid less than the cost of production in several product categories
The ACCC concluded that the imbalance of power between Coles/Woolworths and suppliers is the root cause of many smaller producers exiting the market entirely.
What changed: the Mandatory Food and Grocery Code
In response to the ACCC findings, the federal government introduced the Mandatory Food and Grocery Code of Conduct in late 2024. The Code applies to all retailers, wholesalers, and suppliers and requires:
- At least 30 days notice before a retailer changes prices, terms, or supply arrangements
- Written justification for unfair cost-sharing demands
- Good-faith negotiation over disputed terms
- A dispute resolution process if supplier and retailer cannot agree
The Code also limits the worst payment delays and requires transparency about what suppliers are paying for shelf space and promotional support.
It is not a ban on negotiation. It's a floor: both parties must behave with good faith and transparency. Coles and Woolworths can still set tough terms. They just have to explain them and give suppliers time to adapt.
What hasn't changed
The Mandatory Code is helpful but it doesn't solve the underlying problem: market structure. Coles and Woolworths still control 67% of the market. Suppliers still have nowhere else to go. Both chains can still demand concessions that smaller producers can't afford.
The result is visible on supermarket shelves. Independent brands are disappearing. Category ranges are narrowing. And private label (Coles' and Woolworths' own brands) now account for 36% of all FMCG sales in Australia ($46 billion annually). Fifteen years ago, private label was 20% of sales.
The shelf effect: less choice, more private label
When suppliers can't afford the terms Coles and Woolworths demand, they exit. Their shelf space is taken by private label products, which don't have to negotiate with the retailer (because the retailer is the supplier). Private label margins are higher. The retailer gets to control pricing, supply, and promotion directly.
This creates a cycle:
- Independent brand can't afford cost-sharing or margin demands
- Brand is delisted or fails to negotiate renewal
- Shelf space is taken by private label equivalent
- Consumer sees one option where there were three
- Private label grows as a share of category
- Private label pricing becomes the price anchor (often higher than it was when brands competed)
For shoppers, this means less choice. For independent producers, it means smaller markets. For Coles and Woolworths, it means higher margins on private label products.
Check your shelf
Next time you're at the supermarket, count the brands in a category you know well. Pasta sauce. Breakfast cereal. Milk. Compare what's there now to what was there a year ago. You'll likely find fewer independent brands and more supermarket own-label options. That's not coincidence. It's the result of suppliers being squeezed out of the market.
Download Pinch (free on iOS and Android) to see price history and track which brands are disappearing from your regular shops.
Why this matters for prices
The supplier squeeze affects the price you pay in three ways:
Less competition in the supply chain
When independent brands exit because they can't afford the terms, the number of suppliers shrinks. Coles and Woolworths then have fewer alternatives when they source products. With fewer suppliers, there's less negotiating power on the retailer's side too. They might end up paying more for private label products, which gets passed to you as a higher shelf price.
Fewer retailers to distribute through
As smaller independent brands exit, the only realistic distribution channel is through Coles and Woolworths. This makes it harder for new brands to enter the market. If you have a new pasta sauce and want to compete, you need to go through Coles or Woolworths to reach scale. But both demand terms that a new entrant can't afford. So you never scale. You stay small. You're squeezed out.
Result: less innovation, less new entry, less dynamic competition in categories.
Higher private label pricing
With fewer independent brands on the shelf, private label becomes the default competitor. Coles and Woolworths can price their private label closer to name brands because there are fewer name brands to benchmark against. Pinch data shows that Coles and Woolworths' private label products are often more expensive than equivalent branded products at retailers with lower market share (ALDI, Harris Farm).
What suppliers say
The ACCC report included anonymised accounts from suppliers:
"If we raise concerns about unfair treatment, we fear we will lose the relationship and the market."
"We are regularly asked to absorb cost increases rather than pass them through to price."
"The payment terms have gotten progressively worse. 60 days is now normal. We can't plan beyond 60 days because we don't have cash flow certainty."
"We were asked to fund a summer promotion. We said we couldn't afford it. We were delisted from 150 stores."
These accounts illustrate a dynamic that's invisible at the checkout but very real in the supply chain: suppliers don't negotiate with Coles and Woolworths. They comply, or they disappear.
What shoppers can do
Notice what's disappearing
Pay attention to brands you used to buy. If a brand vanishes or becomes harder to find, it's usually because the producer couldn't afford the retailer's terms. When that happens, you've just seen the supplier squeeze in action.
Try to buy from retailers with lower market share
ALDI, Harris Farm, and independent grocers have smaller market share, which means they're less able to dictate supplier terms. These retailers often have more diverse brand selection and more room for independent producers to compete on price and quality. Shopping at them creates space for brands to exist outside the Coles/Woolworths duopoly.
Check private label prices
Coles' and Woolworths' private label products aren't always cheaper than branded products. In some categories, private label is more expensive than equivalent products at ALDI or Harris Farm. Pinch tracks price history for all of this. If you assume private label is cheaper, you'll miss better prices at retailers with less market power.
Support the Code, but know its limits
The Mandatory Food and Grocery Code is a floor, not a fix. It requires transparency and good faith. It doesn't restructure the market. It doesn't give suppliers genuine negotiating power when they're competing for access to 67% of the grocery market. Know what the Code does and doesn't do, and don't assume that regulation alone will solve the problem.