If you want to understand the competition problems in Australia’s corporate sector, take a look at the annual results delivered by Woolworths.

Best known for running the country’s biggest chain of supermarkets, Woolworths also owns the discount department store Big W, and the results from those two businesses couldn’t be more starkly different.

Amid relentless increases in household costs, consumers are making necessary – and sometimes emergency – adjustments to their spending.

This has dented the profits and margins of businesses selling discretionary goods, especially those operating in a competitive market with multiple brick and mortar rivals and online shopping options.

To keep enticing customers, those stores need to offer cheaper prices or accept that customers are unlikely to buy higher-priced products, leading to narrower profit margins.

As a discount department chain, Big W is more immune to the pullback in discretionary spending than other retailers. But its sales dropped 3.9% over the past year as profit margins were squashed from 3% to 0.3%.

Big W attributed the result to customers remaining cautious “resulting in a reduction in discretionary spending”.

Against that backdrop, you’d expect customers to be searching for the best deals for essentials like groceries, electricity, loans and insurance, in turn forcing retailers in those sectors to cut prices.

But – almost without exception – supermarkets, energy retailers, banks and insurers have reported strong results for the past financial year, punctuated by expanding profit margins at supermarket chains owned by Woolworths and Coles.

In some cases, those profit margins are now at record levels, and well above pre-pandemic levels, even as customers face intensifying cost-of-living pressures.

As noted in various parliamentary reviews and reports, those sectors are noted for their lack of competition. Two big supermarkets, three main energy retailers, and a handful of major banks and insurers offer few alternatives to customers.

Those businesses are also operating in the sectors that have helped drive household costs and inflation higher in recent years.

On Wednesday, Woolworths reported improved earnings and expanded profit margins from its Australian food business, a trend largely uninterrupted since the start of the pandemic.

The outgoing chief executive, Brad Banducci, attributed a large portion of profit growth inside the supermarket’s business to improved efficiencies in its online sales channels and “adjacent” businesses like retail media.

On Tuesday, the Coles chief executive Leah Weckert noted it had significantly reduced the level of theft from its stores – a cost reduction that ultimately aids profits.

Yet the supermarket businesses haven’t had to give any of those margins up, via improved prices to suppliers or reduced prices to customers, offering a stark contrast to Big W’s fortunes.

Why? A lack of competitive forces.

As Allan Fels, the former competition watchdog, said: “While there are concerns about major retailers unfairly exercising pressure on suppliers, there has not been a price war between the major supermarkets in some years.”

The same goes for electricity bills and insurance premiums.

Supermarket profit margins remained robust even during a period when Australians reduced their consumption, which would typically prompt retailers to compete more vigorously.

The major supermarkets argue there is healthy competition. They point to Aldi, Costco, Chemist Warehouse’s front-of-shop offerings and the emergence of e-commerce options.

But that misconstrues what true competition is: a real rival must offer a shopper a bona fide alternative for their weekly shop to create pricing pressure.

Meanwhile, Woolworths and Coles continue to charge near-identical prices, expand profit margins in unison, and enjoy having their share prices track towards record highs even as customers struggle in a costofliving crisis.