From Wednesday it is illegal for Australia's two largest supermarkets to charge significantly excessive prices for groceries, under a law that took effect on July 1 and is enforced by the Australian Competition and Consumer Commission.

The prohibition applies only to supermarket businesses with more than $30 billion in Australian revenue in the previous financial year. On current numbers that captures Coles and Woolworths and no one else: Aldi, the Metcash-supplied IGA network and Costco all sit below the threshold and are not covered.

A price breaks the law when it is significantly excessive compared with the cost of supply plus a reasonable margin, judged by the ACCC on the circumstances of each case. The maximum penalty for a breach is the greater of $10 million, three times the benefit gained from the conduct, or 10 per cent of the company's turnover over the preceding 12 months.

The measure sits inside the Food and Grocery Code of Conduct, which became mandatory earlier in the reform, and delivers a commitment Labor took to the 2025 election. Assistant Minister for Productivity, Competition, Charities and Treasury Andrew Leigh, who announced the start date, has framed it as part of the government's cost-of-living response, alongside the tax and superannuation changes that also began on July 1.

The ACCC can request pricing and margin data from the two chains, investigate complaints, issue infringement notices, accept court-enforceable undertakings and take companies to court. Shoppers can report suspected excessive pricing to the regulator, anonymously if they choose, though the ACCC has said it will not pursue refunds for individual purchases. It plans to publish a list of products it will watch most closely.

How much of this reaches the checkout is the open question. The test the ACCC must apply, whether a price is significantly excessive relative to the cost of supply plus a reasonable margin, has not been run in an Australian court, and the regulator will have to establish what a reasonable margin looks like for a supermarket before it can show one has been exceeded.

Coles and Woolworths opposed the law as it moved through Parliament, arguing it could add to their costs and make them more cautious about discounting and short-term deals. Between them the two chains account for about two-thirds of national grocery sales.

The prohibition is now in force. The first measure of whether it changes anything will be the focus list the ACCC publishes and, after that, whether the regulator brings a case, the point at which the untested standard is finally defined.