Supermarket price survey 2009

Our national survey reveals the true price we pay at the supermarket
 
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01 .Introduction

bag of groceries

The average Australian household spends roughly 12% of their income on groceries and most goes into the coffers of supermarkets. Coles and Woolworths dominate, accounting for 55%-60% of what we spend on groceries (compared with the UK, where the four largest retailers between them have just 65% of the market). Yet a controversial inquiry into grocery prices last year by the Australian Competition & Consumer Commission (ACCC) concluded Australia’s supermarket industry is “workably competitive”, and that supermarkets have little power to control grocery price increases.

To get our own snapshot of what consumers are paying across the country, CHOICE wrote a shopping list, grabbed our green bags and hit the supermarket aisles. Two years on from our last survey (CHOICE, July 2007), we found:

  • Grocery prices have increased and Aldi is still cheapest.
  • Where you live and the intensity of retail competition in your area has a major impact on what you pay at your local supermarket.
  • There’s almost no difference in the average price of our basket of groceries at Coles and Woolworths, even when specials are included.

Please note: this information was current as of November 2009 but is still a useful guide today.


What you can do

Join our fight for a fairer deal at the checkout.

  • Write to your supermarket asking them to help you make smarter grocery choices by publishing more store-based prices on its website. Use our letter.
  • Look critically at specials and multi-buy offers – are they really saving you money? Use unit pricing to get the best deal.
  • Give your local greengrocers, bakers, butchers and delis a go. Tell us about your experience by leaving a comment on our blog.

How we survey

Supermarkets and locations

We sent undercover shoppers into 145 supermarkets in 24 cities across Australia. The chains surveyed are Aldi, Coles, Foodworks, IGA and Woolworths/Safeway. We survey supermarkets in clusters so that each store has local competition. The majority of supermarkets surveyed remained consistent with our 2007 study.

Grocery basket items

We collected price data on 35 different products. All Aldi and non-Aldi products are matched as closely as possible. Sixteen of the items in the CHOICE basket were kept the same as in our 2007 basket for comparison. Most items in the survey are familiar quality brands, but for bread, bacon, butter, milk and sour cream we price the cheapest products we can find, usually generic.

Fresh food staples

For the first time we included bananas, chicken breasts and tomatoes in this 2009 supermarket survey.

 
 

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  Grocery basket price - retailers compared

Aldi wins again

Given its impressive track record in our previous price surveys and promise of “permanently low prices”, it’s no surprise that Aldi’s basket is once again significantly cheaper than its competitors. It cost us just $94.30 – 25% less than a comparable basket from Coles and Woolworths (see table, right). 

Cheap and cheerful

Aldi’s philosophy is that all people “should have the opportunity to buy everyday groceries of the highest quality at the lowest possible price”. While we haven’t compared the quality of Aldi products with equivalent brands, Aldi is certainly hard to beat when it comes to low prices. So how do they do it? If you’ve shopped at Aldi, you’ll know it’s a no-frills experience. A spokesperson told us: “We can keep our prices low because we run a lean and efficient business, and concentrate on selling a select range of exclusive brand products. We don’t spend money on expensive brand marketing campaigns, customer loyalty programs or merchandising and point-of-sale displays.”   

‘Aldi effect’ equals 5% less

It’s not just Aldi shoppers who benefit from its low prices; the ACCC inquiry found consumers pay 0.8% less at Coles and 0.7% less at Woolworths if there’s an Aldi store within 1km, compared with no Aldi within 5km. Our results suggest shoppers in the eastern states (where Aldi has a presence) pay less for groceries, with the top 10 cheapest cities in our survey all located on the east coast.

Coles and Woolworths price-match Aldi on products they consider to be directly comparable to Aldi’s products – primarily their private label items. The ACCC inquiry found that on average Coles customers paid 5.1% less for these products if they shopped at a store within 1km of an Aldi, compared with Coles customers shopping at stores without an Aldi within 5km. Woolworths more recently extended its pricing strategy to apply to all its stores in the states where Aldi is present (except for the most remote stores), not just the stores located near an Aldi. There are more than 200 Aldi stores located in the ACT, NSW, Queensland and Victoria. When we asked about possible expansion to other states, Aldi told us that it’s “focused on its growth along the eastern seaboard for now”.

The “Aldi effect” is a positive one for consumers, but ultimately it’s limited in that it doesn’t benefit shoppers in all states and is only significant on prices of Coles or Woolworths brands comparable to Aldi’s 1000-odd products – minuscule in comparison to the tens of thousands of products stocked by the major chains.

Less than $1 difference for duopoly

While the ACCC report highlights Aldi as a “vigorous price competitor”, it concedes Coles and Woolworths face limited price competition from the independent sector. There’s also little incentive for the majors to compete aggressively on price, which is reflected in our survey results. As in previous years, there was no runaway winner from the duopoly, with less than $1 in difference between the basket price at Coles ($127.67) and Woolworths ($126.87). IGA and FoodWorks, the two independent supermarket chains surveyed, returned the most expensive baskets at $142.68 and $154.73 respectively.


 


 

03.Cost of groceries: states and cities compared

 

Our survey results show that residents of Geelong, the NSW Central Coast and Forster pocket more change from their weekly shop, while those who live in Hobart and Bunbury pay a premium. The results by state are along similar lines – NSW, Queensland, ACT and Victoria have the cheapest groceries, and Tasmania the most expensive. (See tables, below).

Paying dearly for where you live

Geographical price differences can be explained by a range of factors, including increased delivery costs to regional stores, regional differences in the size and characteristics of demand and differences in local competition. According to the ACCC, higher prices in Tasmania, WA and NT are largely the result of two factors: a higher cost of goods (due to greater transport costs and reduced economies of scale) and “perhaps” a less competitive environment (in Tassie, the average distance from a major chain store to its nearest competing supermarket is more than double the national average – and Woolworths has a majority share of the wholesale supply market). And of course, none of these states has Aldi.

To CHOICE, the need for more effective competition in these areas is obvious.

The cost of groceries - states compared The cost of groceries - states compared

While 70% of packaged groceries are sold through Coles and Woolworths, the major chains only account for about half of all fresh food (such as fruit, vegetables and meat) sold in Australia. This allows for greater competition, as farmers have the option of selling to export markets or wholesale markets (which in turn supply to independent supermarkets, butchers and greengrocers). In theory, this diminishes the buyer power of Coles and Woolworths in this category.

This year, for the first time, we included fresh foods in our survey – bananas, chicken breasts and tomatoes – and found prices were markedly lower in areas with a greater population density, indicating the pressure of local competition. In NSW Woolworths stores alone, for example:

  • chicken breasts ranged from $7.99/kg in outer Sydney suburbs Blacktown, Liverpool and Hornsby, to $12.98/kg in regional Wagga Wagga
  • tomatoes ranged from $1.78/kg in Tuggerah to $3.98/kg in Dubbo
  • bananas ranged from $1.95/kg in Belmont to $4.48/kg in Dubbo

Farmers the ultimate losers

But the price you pay at the checkout doesn’t always reflect farm gate prices, even after factoring in transport and other costs. Apple & Pear Australia says 2009 is a good year for apple production, and consequently apple growers are getting paid as much as a third less for their produce – yet consumers are paying just 5%-10% less. In spite of these and similar assertions, the ACCC found little evidence to suggest retail price hikes for fresh products exceed increases in farm-gate prices. Frank Zumbo, Associate Professor within the School of Business Law and Taxation at the University of NSW, is cynical. “Coles and Woolworths are paying farmers less and less, but retail price doesn’t fall in proportion to fall in the price that farmers get. So the reality is that Coles’ and Woolworths’ profit margins have been growing.”

Duopoly the big winners

Price promotions play a big part in moving fresh produce in the major chains, particularly when it’s a bumper season for a certain crop. But they can also have an insidious knock-on effect. The ACCC report explains how when promotional specials for apples, for example, are run by the major chains in periods when there’s no excess supply, shortages of similar quality apples in the wholesale markets can occur. This helps drive up wholesale prices, which means smaller supermarket chains and greengrocers (and their customers) may be forced to pay significantly higher prices – hardly a level playing field.

Changes-in-Avg-Price-tableHeadline inflation may have fallen to an annual rate of 1.3%, but despite a drop in the last quarter (largely due to a decrease in fruit and vegetable prices) food inflation is still running high at 2.5% – twice the general inflation rate.

Our survey found some packaged grocery prices have risen well above the rate of average food inflation; we paid 25.7% more for Sunrice Premium White Long Grain Rice (2kg), for example, than we did in our 2007 survey – more than four times the price increase for food generally over the same period. Chum Canned Dog Food (1.2kg) rose 22.1%, San Remo Large Pasta Spirals (500g) is up 19% and Sakata BBQ Rice Crackers (100g) cost 18.1% more. See the table, right. 

Who really profits?

There are many explanations for price rises in groceries, including higher costs caused by drought, quarantine restrictions and global commodity price increases. According to supermarket chains, the increasing profit margins of multinational grocery manufacturers are a major contributor to high food price inflation, while suppliers argue the opposite is true. There’s also speculation that major chains are raising grocery prices in order to fund their fuel and liquor discounts and the multitude of price promotions they use to lure customers into their stores (although the supermarkets reject such claims). The ACCC inquiry found only a small percentage of grocery price increases could be attributed to increased profits made by the major grocery chains and wholesalers.

 

Australia's soaring prices

Whatever the cause, there’s little doubt food prices in Australia have increased significantly in recent times. Australia has the tenth-highest food inflation of 30 OECD countries for the year to September. We may not be the worst off, but we’re unique among many OECD countries for having a rate of food price inflation that’s been consistently above our overall inflation over the last 10 years. There are limitations in making international comparisons due to differences in exchange rates, the role of tax in food prices, shopping behaviour and so on. But comparisons with New Zealand, considered reasonable given the similarities between our countries, show Australian food price increases are substantially higher than across the Tasman.

06.Changes in the supermarket landscape

 

The grocery industry has had a busy schedule since our last survey, with major changes impacting on the landscape. It’s not all good news for consumers, but a few of the changes should go some way to improve competition and price transparency.

JULY 08

  • ACCC publishes its grocery prices inquiry report, with the verdict that grocery retailing in Australia is “workably competitive”. Despite this, it points out that Coles, Woolworths and Metcash (Australia’s largest independent grocery wholesaler and distributor) have significant buyer power in relation to many packaged groceries; there’s limited incentive for Coles and Woolworths to compete aggressively on price; and the independent sector poses limited price competition for Coles and Woolworths.

MAY 09

  • Woolworths acquires organic food retailer Macro Wholefoods. The eight stores are currently being rebranded as Thomas Dux, an up-market subsidiary that competes against gourmet grocers but isn’t focused on organic food.

JUNE 09

  • The government pulls the plug on GroceryCHOICE, depriving consumers of timely and accurate information on 35 million grocery prices and local supermarket comparisons.
  • Coles sells 45 stores to independent supermarket chain FoodWorks

AUG 09

  • Costco Wholesale, a giant US-based retailer, opens its first Australian store in Melbourne. The “membership warehouse club” sells a range of products, including groceries, at substantially lower prices than are typically found at conventional wholesale or retail sources.

SEP 09

  • Metcash reaches agreement with Foodworks to supply its 45 newly acquired stores.
  • ACCC strikes a deal with Coles and Woolworths to phase out restrictive lease terms that have prevented shopping centre landlords from allowing competitors to open stores in the same centres. However, it fails to use its regulatory powers to prosecute supermarket chains it knows has engaged in as many as 700 potentially restrictive leases.

OCT 09

 A report into the ACT grocery sector finds little competition between Coles and Woolworths when it comes to large full-scale supermarkets, and recommends the ACT government prioritise land sales to competitors of the major supermarket chains.

DEC 09

  • Unit pricing becomes mandatory in large supermarkets, making it easier for consumers to compare the price and value of similar products in-store.
CHOICE grocery basket 2009
Products
Size
Heinz Greenseas Tuna in Brine 425g
San Remo Large Pasta Spirals 500g
Sunrice Premium White Long Grain Rice 2kg
SPC Baked Beans in Tomato Sauce 425g
Goulburn Valley Sliced Peaches in Natural Juice 825g
Dolmio Bolognese Classic Tomato Pasta Sauce 550g
Private label (e.g Woolworths Select or Coles brand) canned whole peeled tomatoes (not Roma) 400g
Lipton Quality Black Tea Bags 100 bags
Cottee’s Strawberry Conserve 500g
Moccona Freeze-Dried Coffee Granules – Classic 100g
Nestlé Milo 450g
Sakata BBQ Rice Crackers 100g
Arnott's Tim Tam Originals 200g
Cadbury Dairy Milk Chocolate 200g
Cheapest available middle rasher bacon 250g
Cheapest available full fat sour cream 300g
Cheapest available full cream milk 2litre
Kraft Singles Cheese Slices 24pk
Ski D'Lite Yoghurt 2 x 200g
Cheapest available butter 250g
The Laughing Cow Cheese Spread Triangles 140mg
Chum Canned Dog Food 1.2kg
Libra Ultra Thins regular Pads with wings 14pk
Kleenex Cottonelle Toilet Rolls 6 pack
Cheapest available sliced white bread 700g
McCain Frozen Peas (not baby peas) 1kg
CSR White Sugar 1kg
Coca Cola 2litre
Just Juice Orange Juice 2litre
V Energy Drink 4pk - Original 4 x 250ml
Kellogg's Nutri-Grain 560g
Private label (e.g. Woolworths Select or You'll Love Coles, not generic) free-range eggs Large 12pk
Bananas, loose, cheapest available, not Lady Finger unit price
Tomatoes, loose, cheapest available excluding Roma, Cherry and Truss unit price
Cheapest available fresh chicken breast fillet - cannot be free range, grain fed, organic or pre-packed unit price


Table notes

We collected price data on 35 different products. All Aldi and non-Aldi products are matched as closely as possible. Sixteen of the items in the CHOICE basket were kept the same as in our 2007 basket for comparison. Most items in the survey are familiar quality brands, but for bread, bacon, butter, milk and sour cream we price the cheapest products we can find, usually generic.

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