How can Australian retailers manage cost strain from Iran war?

Kearney sees rising fuel, freight, and packaging costs squeezing margins.

Australia’s retail sector faces rising costs and supply delays as the Middle East war disrupts shipping routes and energy supply, squeezing margins and limiting price increases.

Retailers are dealing with higher expenses across fuel, freight, and insurance, alongside delays in stock deliveries, according to an April report by Kearney.

“The impacts reverberate throughout retail—from grocery and staples to discretionary categories—with participants facing greater cost-to-serve and a harder pass-through environment as customers scrutinise their cost-of-living,” it said.

Rising diesel prices are lifting transport, refrigeration and replenishment costs, whilst shipping delays linked to rerouting and higher insurance premiums are extending lead times and reducing inventory reliability.

Packaging is also tightening as petrochemical inputs become less available, raising resin costs and forcing simpler packaging formats. This affects private-label margins, promotions, and shelf availability.

Higher energy prices are feeding into agriculture, increasing fertiliser and farm input costs and pointing to further food price pressure even if freight costs ease.

Demand conditions are weakening at the same time. Consumers facing higher living costs are shifting to cheaper products, consolidating purchases and delaying discretionary spending, limiting retailers’ ability to pass on higher costs.

Grocery and staple categories remain steady in demand but face pressure on margins. Mid-tier segments such as liquor, pharmacy, and convenience face moderate strain, whilst discretionary sectors including home, general merchandise, and electronics are more exposed to delayed demand.

The Australian retail market was valued at $293.38b in 2025 and is projected to reach $432.28b by 2031, according to Mordor Intelligence, Inc.

Kearney said retailers are shifting focus from efficiency to resilience as lean inventory models struggle in an environment of repeated disruption.

Over the short term, firms are focusing on price perception and improving supply visibility. Medium-term plans include diversifying suppliers, reducing reliance on single sources for packaging, and securing freight capacity. Longer-term measures involve deeper supplier ties and factoring geopolitical and energy risks into planning.

“The most successful will preserve consumers’ price trust, diversify their supply options, and treat resilience as a source of competitive advantage rather than a cost,” Kearney said.

The firm said the sector faces a combination of rising costs, supply disruption, and weaker demand, forcing retailers to plan for multiple scenarios rather than a single outlook.

Questions to ponder:

1. How can retailers protect margins when costs rise but prices can’t keep pace?
2. Which supply chain changes will deliver resilience without adding long-term cost?