SUPERMARKET WARS: Ominous change in catalogues for big three
SUPERMARKET specials catalogues could feature far fewer specials in future, as Coles, Woolworths and Aldi bolster the bottom line at the expense of rock-bottom prices.
"Lower prices" are out and the far vaguer "value" is in. But we're part of the reason, as shoppers prioritise Little Shop over big savings.
An analysis has revealed competition has become more "rational" in the grocery sector with specials down by 17 per cent.
That could be good news for big business bean counters but bad news for shoppers who rely on weekly discounts.
In a commentary released on Tuesday, market researchers Ibis World said the big grocery players were "shifting away from discounting and towards profit". And that can only lead to one thing: higher prices.
Indeed, scouring through the latest supermarket catalogues, news.com.au has seen a number of products whose prices haven't been cut in years. Others aren't on special at all yet appear on a page that says "1/2 price".
LITTLE SHOP IN, BIG SPECIALS OUT
The analysis revealed that since the start of the decade, strong price-based competition has made price discounting the typical strategy for supermarkets looking to boost market share. But this has led to "untenably low margins".
Last year Coles' profits fell 6.8 per cent but were still a healthy $1.5 billion; Woolies' Australian supermarket profits rose 9.6 per cent to $1.8 billion.
Ibis World senior industry analyst James Caldwell told news.com.au the industry was now focused on plumping up its profitability.
"Changes in the pricing strategies of Australia's major supermarkets are likely to lead to higher prices for consumers," he said.
"Australia's major supermarkets are increasingly focusing on improving the experience of their shoppers as opposed to generating revenue."
And for many shoppers, that was absolutely fine, said Mr Caldwell.
"Australian consumers are increasingly seeking high-quality food products and are willing to pay more for this quality," he said.
"Low-cost products will still be available in the form of supermarket own-brand products. However, it is expected that supermarkets, including traditional low-cost supermarkets such as Aldi, will increase the availability of premium products."
Meal kits were an example, he said. They cost more than buying the ingredients separately but offer convenience.
The report also noted loyalty campaigns involving collectables, such as Coles' Little Shop, have become more prevalent: "These strategy changes underline the industry's shift from chasing revenue growth to increasing profit margins," Mr Caldwell said.
LOW PRICES VS VALUE
Ibis World pointed to recent ad campaigns by both Aldi and Woolies that were less about low prices and more about quality and range.
Aldi, in particular, used to do very little marketing and preferred to let its prices do the talking. Now its TV ads implore customers to give them a second chance on the quality of their fresh produce.
At an investor strategy day last month, the newly listed Coles Group talked up the three activities that will bring the supermarket future growth. One aim does reference "value" but none reference lower prices.
In a presentation to analysts, the firm spruiks "price" three times but "value" 33 times. It's an important distinction given "value" is defined as something's worth and has nothing to do with it being cheap.
The world's most expensive caviar can be good value if the ingredients are of the finest quality.
SHOPPERS 'PESSIMISTIC' ABOUT SPECIALS
Coles makes no bones that limited-time specials are being squeezed. In the same presentation it said the brand's aim was to "move towards everyday low pricing and reduce ineffective promotions".
Speaking at lobby group the Australian Food and Grocery Council's conference in May, Coles grocery general manager Anna Croft said the business had become too reliant on promotions, and customers had developed discount fatigue.
"We have to work on how to develop everyday low prices - we have spent 10 years trying to crack this and haven't done it yet," she said according to the The Australian Financial Review.
"We know it's hugely important to customers and we need to do it in a sustainable way and manage the decline (in promotions) over time versus going cold turkey."
Woolworths director of buying Peter McNamara told news.com.au prices customers could "trust" to be lower for longer were increasingly of more importance than limited-time sharp cuts.
"When it comes to specials, customers see them as one way of delivering a great deal for that week, however we know that over time specials are eroding price trust, so we continue to work with many suppliers on a more sustainable model of fair and consistent pricing and reducing our reliance on short-term specials," he said.
In addition, shoppers were also looking for choice, quality and healthier options, he said.
According to the Australian Bureau of Statistics, food prices have generally been static or on the rise. Increased competition can lead to an overall drop in prices.
Food and drink inflation, excluding alcohol, went up by 1.3 per cent in the March quarter and 2.3 per cent year-on-year - the latter figure slightly higher then overall inflation.
One of the biggest rises was in fruit and vegetables that have gone up 7.7 per cent, partly due to the drought.
A recent analysis by Swiss bank UBS said shelf prices were now more "rational" due to a lessening in the number of promotions.
It's "grocery price tracker", which looks at 55,000 supermarket prices, found prices were still falling. At Woolworths, they were down by 0.4 per cent in the most recent quarter. However that was less than the almost 1 per cent drop in prices from the previous quarter. Woolies said its internal price inflation figure was flat, but excluding tobacco and fruit and veg, prices were down 1.7 per cent in the March quarter.
"We were most surprised by the size of the fall in promotional intensity across (Coles and Woolworths), particularly Woolworths. But this trend is consistent with comments from Woolworths that promotional intensity is down 17 per cent in the past two years," the UBS report stated.
CATALOGUES NOT ALL SPECIAL
Pick up a supermarket catalogue and they are still full of price cuts, with half off here and multi buys there. But there are some more curious items featured. Increasingly, the specials catalogue includes products that aren't limited-time specials at all. Instead, they might be listed as "prices dropped" - but that price may have dropped years ago.
In this week's Woolies catalogue distributed in NSW, a pack of Maggi noodles is listed as $8, down from $9. But the small print shows it's been more than three years since it was last on sale for $9. Woolworths keeps products under the "prices dropped" banner for as long as they remain below what they were previously.
The Coles NSW catalogue has a page of vegetables with seemingly no price cuts. The company said that was because fresh produce prices can fluctuate from week to week and store to store.
On another page, a large "1/2 price" graphic features on the page. Strepsils are featured on the page but, look closely, and they appear to have no reduction despite the pricing displayed in a similar style to the other products on special.
"At Coles, there are thousands of items on everyday pricing delivering exceptional and trusted value to customers year-round," the firm said in a statement.
"However, weekly specials are also very important to our customers, and we work hard to make sure we have a great selection of discounted products so our customers can save even more."
Snap up your specials while you can - they could all be a limited-time offer.
- Additional reporting by James Hall