Daniel Comins's freezer is packed with frozen vegetables.
He has changed his shopping habits as he had tried to ward off the rising cost of his weekly grocery shop.
"The biggest change that I've made is cutting down on the fruit and fresh vegetables," he told The Business.
"I've really just cut that out and now I'm actually buying more frozen stuff than fresh stuff."
The single father from Launceston has been keeping a close eye on his receipts.
"The prices have definitely gone up and hit the shopping budget," he said.
Mr Comins believes supermarkets are taking advantage of inflation, and hiking prices more than they need to.
"I see it quite often when I go in and I buy something. One week it's on special — and I know the regular price — and then once it comes off special, it seems to go up a bit in price," he said.
"I think that they're kind of pocketing it, where they could probably make a bit less profit in the meantime."
However, Tom Kierath, the head of consumer research at investment bank Barrenjoey, said he saw little evidence of profiteering in the big supermarkets' latest results.
"I think they're doing their best to withhold price rises as much as they can," he said.
"It's obviously difficult for them because they have a lot higher costs through wages and logistics costs coming through.
"They're managing their cost base probably better than what they have in the past, and probably a little bit better than what we'd expected, so that's what has driven the better profit outcomes versus our expectations."
So what have the latest profit results from Australia's two big supermarkets, which hold roughly 70 per cent of the grocery market between them, told us about price rises?
Profit margins rise for Woolworths and Coles
One thing that is indisputable from both companies' results is that they are making more profit from every dollar consumers spend in their stores that they did in the same period last year.
Coles Group increased its net profit by 17.1 per cent to $643 million off the back of a much more modest 4.1 per cent increase in sales, as its gross margin increased from 26.1 per cent to 26.5 per cent.
Woolworths' net profit after tax (excluding major one-offs) was up 14 per cent to $907 million on a 4 per cent sales increase.
Aside from its eponymous supermarkets, Woolworths also owns Big W, Pet Culture and Healthy Life.
Looking specifically at its Australian food business, earnings before interest and taxes (EBIT) jumped 18.2 per cent.
Woolworths' supermarket gross margins rose 0.48 of a percentage point to 30.7 per cent, while its cost of doing business (CODB) fell 0.3 of a percentage point to 24.8 per cent.
The combination of the two pushed its earnings to sales ratio up 0.78 of a percentage point to 5.9 per cent.
Debate on the margins
The key source of contention is why profits and margins increased so dramatically.
Both supermarkets attributed much of the profit improvement to a large reduction in COVID costs, with 2021's east coast lockdowns and the Delta and Omicron COVID-19 waves throwing distribution centres and stores into chaos amid staff absenteeism.
Coles said it benefited from a $130 million reduction in COVID-related costs compared to the same period a year earlier, but its profit report showed the overall cost of doing business in the supermarket division rose slightly.
Woolworth's chief executive Brad Banducci argued that, excluding the savings from reduced COVID-related costs, profit growth was much weaker and margins had not increased.
"When you look at our results — excluding that we've got a far more muted profit growth of about 4.5 per cent inside food — average gross margin has not gone up in the business," he told reporters at a press conference.
"In fact, if you put our DC (distribution centre) costs in there, it's gone down."
Mr Banducci also said a consistent decline in tobacco sales had pumped up overall profit margins.
"Our tobacco business is declining quarter-on-quarter by around 15 per cent," he said.
"It's a low-gross-margin business, so you've just seen a mix adjustment come through over the three years of some materiality."
Coles said its profit margins would have been higher but for "investment in pricing", "increasing headwinds in markdowns" and "stock loss as a result of increasing theft".
Mr Kierath said it was important to note the companies' profits fell in the last six months of 2021, so these results were rebounding off an unusually low base.
"The way we look at it is on a three-year basis and, if you look at it on that on that view, in other words versus pre-COVID, the [earnings] growth rate is pretty steady," he argued.
"It's kind of 5 or 6 per cent, which is a pretty normal level of profit growth."
Without knowing what price increases Coles and Woolworths have faced from their suppliers, it is impossible to know exactly how much of the 7.7 per cent annual jump in grocery prices over the December quarter at both supermarkets is simply passing on rising costs and how much is extra margin for the retailers.
Grocery inflation may have peaked
Both supermarkets fingered dairy, home care and pantry items as the key contributors to price rises over the past few months.
Mr Banducci said a jump in the cost of essentials for families with young children concerned him.
"We're still seeing relatively elevated inflation in the baby category, and so that that does worry us," he said.
"The same is true in shelf products, or what we call perishables or everyday chilled, which is sort of milk, yoghurt, dairy. And, and that's really on the back of the pressure that, you know, the dairy farmers have experienced."
Incoming Coles chief executive Leah Weckert said it was a fine balance deciding how much of the supermarket's increasing costs to pass on to consumers.
"What we are constantly balancing in that process is what is the right value position that we want to have for customers, versus how much we need to pass through into the price," she explained.
Outgoing boss Steven Cain added that the company had faced operating cost increases passed on to them by their product suppliers, as well as a shortage of materials and labour.
"The good news from a consumer point of view is that supplier cost inflation is starting to ease," Mr Cain said.
"We expect headline inflation to moderate throughout the remainder of the half, particularly in relation to anything from farms."
However, while prices remain elevated, Mr Comins is not alone in changing his shopping behaviour.
Ms Weckert said Coles had observed significant changes, including a 12 per cent jump in sales for its own brand products.
"The meat space is [another] one of them," she said. "For example, you might see customers trading out of steaks and into cheaper beef cuts. We've seen mince in particular see quite good growth.
"Then also in some of the core grocery categories, so things like oil and rice and pasta, we are seeing really strong growth of own brand."
Mr Kierath said he also expected the big supermarkets to sharpen up on pricing as more consumers felt the budget pinch of surging interest rates and inflation.
"Both of them will trade fairly well through a difficult consumer environment that we expect this year," he said.
"And I think they'll gradually put more emphasis on price."
With a return to more in-store shopping, Mr Kierath believes market share might start swinging away from the supermarket duopoly if they do not compete more aggressively on price.
"On the whole, there's not a huge difference between Coles and Woolworths," he told The Business.
"It just depends on how closely you pay attention to price and how well you pick over the specials.
"I think you'll see Aldi win a bit of share and we think that's starting to happen now because they are a cheaper place to shop, and the same with Costco.
"Because both those retailers didn't have a strong online offer, they couldn't really benefit from the lockdown period when people pivoted to online."
