Yahoo Finance Nostalgic Aussie supermarket ads reveal 'broken' grocery system costing Aussie shoppers
Coles and Woolworths dominate the Australian grocery scene, but were things better for shoppers when there was a Bi-Lo, Franklins and Safeway to compete?
Supermarkets Coles and Woolworths have temporarily dropped the price of hundreds of items in the past week which is great for Australians struggling with the cost of living. But a tit-for-tat approach to undercut each other has exposed a major problem impacting the budget of every Australian shopper.
Yahoo Finance has reported extensively on the recent price battle between the two supermarket giants. One drops the price of lamb, and the other will meet them. One shares Christmas ham savings and, within hours, the other also reduces prices.
An analysis of two grocery baskets with ingredients for lunch, dinner and some household essentials showed the difference between the two was mere cents. (You can check it out here.)
So what would happen if there were six or seven major supermarkets in Australia? We'd see more pressure on them to attract shoppers and they would cut prices in a more meaningful way, according to a senior economist.
“We've got a broken grocery market at the moment … certainly an uncompetitive one,” Matt Grundoff from the Australia Institute told Yahoo Finance.
Remember Bi-Lo? Franklins? Safeway? There’s no denying the nostalgia from the grainy ads with jingles exclaiming, “Put more in your trolley for less” or, “Why pay more?” But they are long gone, falling victim to the huge business machine Coles and Woolworths run. Even the old corner store used to get far more action (the expansion of shopping centres where you can ‘get everything’ also aided in their demise).
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Competition works and Aldi has proven it. Just last year, the German supermarket claimed to have saved Aussies who didn’t even shop with them $675 million simply by pricing some items so low that the major supermarkets had no option but to bring their own prices down. That number balloons to over $7.8 billion since it arrived on our shores in 2000.
Over the past two decades, it’s based its reputation on providing the cheapest grocery shop and, while it recently installed self-serve checkouts, its leaders have spoken about bucking other trends - like online shopping - to ensure prices stay low.
But, despite its almost-cult-like following and being named Australia's favourite supermarket for the sixth time running and 11 times in total, according to Canstar’s Supermarket Satisfaction Ratings, it’s only managed to corner 10 per cent of Australian shoppers, according to Finder’s Consumer Sentiment tracker.
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Coles and Woolworths - which command 39 per cent and 49 per cent of the market, respectively - have both recorded huge profits and have been accused of passing on inflationary pressures to Aussies, two in five of which have admitted their grocery bill is one of the most stressful.
Even the Reserve Bank noted concerns about inflationary pressures being passed on to consumers. Grundoff claimed the supermarkets’ profits in food sales and grocery divisions just showed they were pushing prices higher than cost pressures in the economy.
“Inflation is higher because Coles and Woolies are increasing their prices more than they otherwise would be if they were just recouping their costs,” he told Yahoo Finance.
“They are part of what economists call an oligopoly. And, essentially, that's why they're able to earn these bigger profits.”
Both supermarkets said this week that deflation in the fresh food sector meant prices had dropped by up to 40 per cent on some vegetables. Grundoff said prices should continue to trend downward for Australian shoppers as “cost shocks work their way through the system” but it would all depend on “how big businesses react”.
“If they continue to profit take, then it's going to take longer for the inflation to wash through than if they were reacting in a competitive market,” he said.
“When the spotlight is on them on this issue, they're prepared to do something. 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.”
So, what’s it going to take to bring prices down?
‘Government’s responsibility’ to protect Australian shoppers from price rises
Competition. It’s that simple. Coles and Woolworths are running businesses and have their own interests to protect. This is important, considering how many jobs they provide in Australia (Coles more than 120,000 and Woolies about 128,000). However, neither is forced to take big risks to cut into the other’s customer base.
“Morally speaking, Woolworths and Coles shouldn't be profiteering at the moment. But, in this kind of market economy of ours, of course they are going to maximise profits for their shareholders,” Grundoff said.
“It’s the government's responsibility to step in and regulate, do all those things that Coles and Woolworths will scream and shout and say we shouldn't do in order to try and break up or introduce more competition into the grocery market because, ultimately, Coles and Woolworths couldn't do this if there was more competition.”
Grundoff said a push to introduce more competition regulation had largely dropped off but that, as a nation, Australia needed laws that would strengthen our policy. He said nations like the US were far more advanced than us in respect to this, breaking up a major oil company into 43 companies decades ago.
“Even the US, the land of the free against government interference, they're actually able to step in if competition is a huge problem and break firms up,” he said.
“Imagine if the government stepped in and said, ‘Coles and Woolworths are too large so we’re going to break them into four, or six, that are all competing against each other’. That's the kind of thing that we could do in this country, and this episode of inflation and profit gouging has shown that competition is a problem in Australia, and it needs a large response.”
Even in the UK, shoppers have the options to track down better deals in Sainsbury's, Tesco, Aldi, Morrisons, Aldi, Lidl, Waitrose and Co-op.
Grundoff thinks prices in Australia will never return to what they were - that’s not how normal inflation works. But they will likely grow at a slower, more manageable rate for a sad reason: Aussies are running out of money as other cost pressures mount.
While pushing the government to introduce these laws may not help with this current price blow-out, it could protect us down the road.
“There will be another inflation spike that will come along in the future,” Grundoff said. “And, to be clear, big businesses will resist this hugely because, at the moment, they can have very large profits doing very little."
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