SYDNEY (March 21): Australia's dominant supermarket chains have benefited from wider profit margins at a time of rapidly increasing shelf prices, the competition regulator said in a new report on Thursday, and called for measures to make the industry fairer.

Grocery prices have jumped 24% in the past five years, outpacing wages and disproportionately affecting lower-income earners, the Australian Competition and Consumer Commission (ACCC) said in the report, published by the government.

Between them, top retailers Woolworths, Coles and privately held ALDI sell three-quarters of Australia's groceries.

Most of the price rises were due to increased supply-chain costs, but the grocers also increased their profit margins during this time, the report said, meaning that "at least some of the grocery price increases have resulted in additional profits for ALDI, Coles and Woolworths".

Recommended measures included forcing supermarkets to publish changes to package sizes, simplifying planning laws to enable new entrants to open stores, and limiting companies' negotiating power with suppliers.

Woolworths and Coles in separate statements welcomed the report but said they had already taken measures to improve customer experience.

"We welcome recommendations that improve transparency for customers where they don’t have unintended consequences or increase costs," Woolworths chief executive officer Amanda Bardwell said.

Coles challenged the report's claim that supermarket profits grew faster than their costs.

"Overall product margins have increased nominally to cover rising costs, but the ACCC's analysis of these margins excludes the other significant costs like energy, rent, wages which have all increased," Coles said.

Shares of both the firms gained as investors bought on the absence of recommendations from the commission for aggressive reforms which could have impacted supermarket profit, such as enforced price controls, analysts said. Woolworths shares were up 3.2% while Coles rose 1.5%, against a flat overall market.

"While we do see heightened media publicity around the announcement as likely to negatively impact the supermarkets in the near-term we do not expect a material impact to supermarket earnings from the recommendations," Citi analysts said in a note which called the report "benign".

Australian Treasurer Jim Chalmers said the government was already targeting supermarkets, including by making them comply with an industry code of conduct.

"Our ongoing supermarket crackdown means more competition, better prices and better deals for Australians," he said in a statement.

The ACCC report said market leader Woolworths and smaller rival Coles have an "entrenched position in an oligopolistic market".

"Substantial pro-competitive departures from the status quo are unlikely in the foreseeable future," it added.

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