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Aldi's $3.4b challenge to Woolworths and Coles shoppers after Australia-first blitz

Coles and Woolworths came off second best when CHOICE sent secret shoppers to supermarkets around the country to crown the cheapest.

Aldi shop front and managing director Jordan Lack in a white shirt with his arms crossed.
Aldi has only cornered 10 per cent of the Aussie market and managing director Jordan Lack said that should change. (Supplied)

Aldi has responded with a $3.4 billion promise after beating Woolworths and Coles in the first government-funded quarterly supermarket report. Consumer group CHOICE sent mystery shoppers to 81 supermarkets to compare prices and Aldi was the "clear leader on value for money" with a $51.51 basket.

That's 25 per cent cheaper than the two supermarket giants, with Woolworths only slightly edging Coles out. The 14 everyday grocery items at Woolworths and Coles came to $68.58 and $69.33, respectively.

The two big hitters dominate Australia's grocery market with a collective 65 per cent share. And surprisingly, despite delivering consistently lower prices, Aldi has still only managed to corner 10 per cent.

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That's about five million shoppers in its 590 stores a month.

Aldi Australia's managing director Jordan Lack has thrown a challenge for shoppers.

"Our everyday low pricing model means customers have certainty when they walk through our doors," he told Yahoo Finance.

"We saved our customers $3.4 billion last year alone, so for Australians that haven't made the switch ... and are looking to reduce their grocery bill, we say give ALDI a go.”

He said the German supermarket "won't be beaten", with CHOICE's findings reflective of savings they deliver across their whole range of products.

"We take our role as Australia’s most affordable supermarket seriously and every day, every element of our business is oriented around how we can continue to deliver on our ambition to provide high-quality groceries at the lowest possible price.”

The report comes at a time when Australians are facing significant pressure on their weekly budgets.

A comparison of an average grocery basket has found Aldi provided better value than Coles or Woolworths.
A comparison of an average grocery basket has found Aldi provided better value than Coles or Woolworths. (CHOICE)

CHOICE pointed out a problem Yahoo Finance deep-dived into after seeing the tit-for-tat approach to price drops, which experts said exposed a major issue for all Australian shoppers.

“Grocery prices at Coles and Woolworths are very closely matched, with only 75 cents separating the prices of our basket of 14 items without specials," CHOICE CEO Ashley de Silva said.

In essence, a lack of competition. Neither of the big players really pushes the envelope in pricing because they already dominate the market.

CHOICE sent undercover shoppers to 27 Woolworths, 27 Coles and 23 Aldi stores across 27 locations with a good spread of socio-economic areas.

IGA got just four visits as they only sent shoppers there if no Aldis were in the area.

The comparisons were done on a basket of 14 items, including national brands and comparable supermarket or budget-brands. They included specials.

This is the list:

  • Apples

  • Carrots

  • Weet-Bix

  • Sliced white bread

  • Flour

  • Penne

  • White sugar

  • Tea bagsTinned diced tomatoes

  • Block of tasty cheese

  • Full-cream dairy milk

  • Frozen peas

  • Beef mince

  • Butter

The consumer advocacy group found those living in Tasmania and the Northern Territory were paying "around a dollar more" a week for their groceries. De Silva said this was due to "limited options for shopping.

And guess what? There's no Aldi in either area.

Aldi stocks fewer items, about 1800 products compared to the 25,000 products sold by its big competitors.

There's no loyalty program and the German supermarket doesn't try to compete in the online shopping sphere, instead claiming the focus is on all-year low prices and Special Buys.

Aldi has even claimed to have saved Australians who don't even shop with them more than $7.8 billion since arriving here in 2000 simply by pricing items so low major supermarkets have no choice but to drop theirs to compete.

Aldi's 10 per cent share in the grocery market is much smaller than Woolworths and Coles, with 37 per cent and 28 per cent, respectively.

That's why Matt Grundoff from the Australia Institute described the grocery market here as "broken".

“When the spotlight is on them on this issue, they're prepared to do something," he told Yahoo Finance.

"But, let's be clear, a sale is a temporary thing. And the moment the spotlight is away, they're going to happily let prices revert to going back up again."

And in the spotlight, they have been.

Coles and Woolworths have been marched out in front of inquiries and forced to defend their pricing, with an Australian Competition and Consumer Commission investigation underway.

This CHOICE report is actually a government measure to keep pressure on supermarkets over how much consumers have to pay at the checkout for weekly essentials and you will see one every quarter.

The Australian duopoly blamed inflation and external factors for price hikes, while claiming their profits are "razor thin". CHOICE did another analysis of their defences and here are the highlights.

Woolworths made a pretty sensational claim that if they dropped prices any further, making zero profits, shoppers would only save $5 a week.

The supermarket claimed it makes just $3.60 for every $100 of revenue.

Last year, Yahoo Finance revealed a claim made by Coles that it only makes "$2.60 for every $100 you spend". Here's a breakdown of where that other $97.40 goes.

Coles said riding grocery prices were linked to what they had to fork out for "commodities, shipping, oil and fertiliser" as well as the effects of wars and natural disasters.

Woolies told a similar tale, blaming food inflation on "international supply and demand dynamics, higher production costs, and weather events".

Both Coles and Woolies said competition is similar to other developed nations.

They pointed to IGA, Foodland, Drakes, Harris Farm, Costco, and Amazon.