Prices at IGA supermarkets will come under closer scrutiny in future taxpayer-funded research, Competition Minister Andrew Leigh says, after a new report on prices at Woolworths, Coles, and Aldi considered just four independent grocers.
The federal government has supplied consumer advocacy publication CHOICE with $1.1 million to produce quarterly analyses of supermarket pricing over the next three years.
Its first edition, released Wednesday, shows a basket of 14 items costs an average of $69.33 at Coles stores nationwide, and $68.58 at Woolworths.
A comparable basket of items comprised of Aldi products cost $51.51.
The 25% price difference between Coles and Woolworths compared to Aldi — and the small gap between prices at Coles and Woolworths themselves — is useful information for consumers, Leigh said.
“Information is power, and we’re putting that power in the hands of consumers,” he said.
“Helping shoppers find the best deal makes the family budget stretch further and puts more competitive pressure on the supermarkets.”
While the new research shows broad pricing disparities across the major players, its first edition only skirts the edges of the independent grocery sector.
Only four IGA locations were assessed in the survey of 81 supermarkets, and only in Tasmania and the Northern Territory, where Aldi does not operate.
That limited scope did show higher prices at IGA locations.
Using a smaller sample basket of ten items, CHOICE found shopping at IGA in the Northern Territory would cost a consumer $46.75, compared to $33.54 at Woolworths, and $33.79 at Coles.
A significant disparity also exists in Tasmania: $41.05 for the IGA basket, compared to $33.50 at Woolworths, and $34.40 at Coles.
Discussing the data, Leigh said pricing variability across IGA locations may account for differences at the checkout.
“IGA is trickier, CHOICE acknowledges, because they don’t have a statewide pricing policy,” he said.
“Stores can vary a lot in terms of whether they’re focused on a boutique high-quality niche, or whether they’re focused on providing value.”
For its part, Metcash, which owns the IGA banner, says the behaviour of the big two supermarkets plays its own role in independent grocery pricing.
In its submission to a Senate inquiry on supermarket prices, Metcash said it was concerned about “creeping acquisitions”, where dominant supermarket businesses are able to amass locations and squeeze out competitors like IGA.
With consolidated market power and influence over supply chains, bigger supermarket chains are able to offer prices that independent grocers can’t match, Metcash said.
The company is “concerned that the major chains are continuing strategies involving the acquisition of independent stores, with a resulting increase in their market powers without constraint, to the long-term detriment of consumers,” Metcash said.
As lawmakers and regulators ponder the issue, future editions of the CHOICE research will take a closer look at IGA pricing, deepening the understanding of pricing differences across the country.
“One of the things that we will see in future editions is more comprehensive analysis of IGA prices, we welcome that,” Leigh said.
“CHOICE has announced that they’re going to be looking at the methodology for analysing IGA.”
Beyond household consumers and independent supermarkets vying for market share, the grocery pricing data has downstream effects on other small businesses.
“We know that many small businesses are sourcing at supermarkets, so supermarket prices will have an impact in many other stores,” Leigh said.
Supermarket suppliers, including fresh food producers, are watching the data closely.
Jolyon Burnett, chair of the National Farmers Federation’s horticulture council, said producers are also keeping a close eye on prices at Woolworths and Coles.
“One of the significant concerns currently being investigated by the ACCC as part of its supermarket inquiry is whether the major supermarkets are truly competing on price or if their price matching and promotional strategies are limiting genuine competition,” Burnett said in a statement.
“While we’ll have to wait and see what picture future CHOICE quarterly reports paint, and in time the ACCC itself, this first report is telling.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
