Coles Group has denied claims that it dominates Australia's grocery sector alongside arch-rival Woolworths.

The ongoing government probe into food retailing in Australia is focusing on the power of the two retailers, with some estimates setting their combined market share at 78%.

Giving evidence to the inquiry, which is being led by the Australian Competition and Consumer Commission (ACCC), Coles COO Mick McMahon said the company's share of the market stood at around 25%.

McMahon also said Coles had been absorbing cost increases on key commodities, including grain and dairy products.

"Over the last six months, for example, we have passed on less than a third of the price increases we have experienced in the cost of house brand milk," McMahon said, according to The Australian newspaper.

Coles is also planning to introduce unit pricing to allow show shoppers how much a product costs per gram or litre.

The Australian government said it would launch an inquiry into the country's grocery sector earlier this year amid claims that a lack of competition was forcing up prices.

The ACCC is set to publish its findings in July.