With the onset of the new financial year, major grocery retailers Coles and Woolworths reportedly face fines of up to $10 million for item prices which are significantly excessive against the cost of supply.

An RMIT expert explains why this will be difficult to enforce in practice, and even harder to win back the trust of customers.

Associate Professor Meg Elkins, a cultural and behavioural economist from the RMIT School of Economics, Finance and Marketing, said the law’s real test won’t be played out in court, but rather, “in the public’s gut.”

"Shoppers don't compare prices to a retailer's costs, they compare them to what they remember paying last time,” said Dr Elkins, whose research focuses on those on the economic fringes and community wellbeing.

"The [new] law's test is cost-based, asking whether the price is excessive relative to the cost of supply. But the public's test is memory-based, asking whether this price is higher than expected,” she added.

Enforcing alleged price gouging is not that easy, however, Dr Elkins said.

“A retailer can clear the legal bar easily, for entirely legitimate reasons like a bad harvest or rising freight costs, and it will still feel like gouging at the checkout,” she said.

"The law doesn't define what 'excessive' means, or what counts as a reasonable margin. That's not a drafting oversight – it reflects how genuinely hard this is to pin down. “Supermarkets sell thousands of products with shared costs, so isolating one item's true margin is close to impossible,” she added.

The new laws are landing at the “worst possible time” in terms of supermarket trust, coming in the wake of high profile court cases involving the major retailers.

"Coles has already been penalised over its 'Down Down' promotion, and Woolworths is waiting on a similar judgment,” Dr Elkins said.

“Consumers are primed to be sceptical of every price tag, regardless of what the ACCC can actually prove.

"The biggest impact on supermarkets may be psychological; making them feel watched, rather than actually catching them out legally,” she concluded.