Is the 'broken' Australian grocery system costing you money?

The Australian grocery market has been a battlefield for supermarket duopoly Coles and Woolworths, with both companies constantly trying to undercut each other's prices.

While this may seem like a win for consumers, it has exposed a significant issue that is impacting the budget of every Australian shopper.



In the past week, Coles and Woolworths have temporarily dropped the prices of hundreds of items, a move welcomed by Australians grappling with the rising cost of living.

An examination of two grocery baskets containing items for lunch, dinner, and other household items revealed that the disparity in cost between the two was minimal, amounting to just two cents.


franki-chamaki-ivfp_yxZuYQ-unsplash.jpg
Major Australian supermarket’s grocery system sparked a major problem. Credit: Unsplash



According to Matt Grundoff, a Senior Economist from the Australia Institute, ‘We've got a broken grocery market at the moment…certainly an uncompetitive one.’

He suggested that if there were six or seven major supermarkets in Australia, there would be more pressure on them to attract shoppers, leading to more significant price cuts.

The nostalgia of supermarket ads from the past, with jingles like 'Put more in your trolley for less' or 'Why pay more?' brings back memories of when there was more competition in the market.

Supermarkets like Bi-Lo, Franklins, and Safeway have long disappeared, swallowed up by the massive business machines that Coles and Woolworths have become.



German supermarket ALDI has proven that competition works. Since it arrived in Australia in 2000, ALDI has saved Australians over $675 million—which ballooned to $7.8 billion—by pricing some items so low that the major supermarkets had no choice but to lower their own prices.

ALDI has made its reputation as the store that provides the cheapest option over the past 20 years. While it installed self-serve checkouts to help with process improvements, its leaders considered introducing other trends, such as online shopping, to ensure prices remain low.

Despite being Australia’s favourite supermarket 11 times in total, and for the sixth time running, according to Canstar’s Supermarket Satisfaction Ratings, ALDI has only managed to capture 10 per cent of Australian shoppers, according to Finder’s Consumer Sentiment tracker.



Coles and Woolworths, which command 39 per cent and 49 per cent of the market, respectively, made huge profits. They have also been accused of passing on inflationary pressures to Australians.

Two in five Australians have admitted that their grocery bill is one of their most significant stressors.

The Reserve Bank also raised concerns about inflationary pressures passed on to consumers.

But despite inflation, the first quarter results revealed that these two supermarket giants claimed that the fresh produce prices in the first quarter of 2023 were lowered compared to the same period last year—particularly their meat, vegetable, fruit, and deli prices. Read more about the story here.

However, shoppers noticed decreased portions of grocery items, but prices remained the same, such as a bottle of Rose’s English Breakfast Marmalade, which downsized from 500 grams to 375 grams without any price reduction.

Other victims of ‘shrinkflation’ are Nescafé, Coke, Glad Wrap and Smiths chips.



Grundoff claimed that the supermarkets' profits in food sales and grocery divisions showed that they pushed 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 said.

‘They are part of what economists call an oligopoly. And, essentially, that's why they're able to earn these bigger profits.’

Both supermarkets have stated that deflation in the fresh food sector has led to price drops of up to 40 per cent on some vegetables. However, Grundoff warned that prices should continue to trend downward for Australian shoppers as 'cost shocks work their way through the system', but this will 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 noted.

‘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 will it take to bring prices down?



The answer is simple: competition.

It is understood that Coles and Woolworths have their own interests to protect, especially since they provide several jobs in Australia. However, neither is forced to take significant risks to cut into the other’s customer base.

Grundoff argued that it is the government's responsibility to step in and regulate to introduce more competition into the grocery market.

‘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.’

He suggested that Australia needed laws that would strengthen our policy, pointing to the US as an example, where they have broken up a major oil company into 43 companies.


atoms-VHMvdS720Hc-unsplash.jpg
Competition may bring supermarket prices down. Credit: Unsplash



‘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.’



Meanwhile, in the United Kingdom, shoppers have the option to track down better deals in Sainsbury's, Tesco, ALDI, Morrisons, Lidl, Waitrose and Co-op.

While pushing the government to introduce these laws may not help with the current price blow-out, it could protect Aussies down the road as they are running out of money as other costs mount.

Grundoff warned, 'There will be another inflation spike that will come along in the future. And, to be clear, big businesses will resist this hugely because, at the moment, they can have very large profits doing very little.'
Key Takeaways

  • Supermarkets Coles and Woolworths are in a price battle, temporarily dropping the price of hundreds of items, but it has exposed a problem in Australia's grocery market.
  • ALDI's low pricing strategy has forced major supermarkets to reduce their own prices, saving Australian shoppers significant amounts of money.
  • Despite ALDI's success, Coles and Woolworths still corner the majority of the market, controlling 39 per cent and 49 per cent, respectively.
  • According to economist Matt Grundoff, Australia's grocery market is 'broken' and 'uncompetitive', and he suggests further competition regulation is needed to address this issue.
What are your thoughts on the current state of the Australian grocery market? Have you been affected by the recent price war between Coles and Woolworths? Let us know in the comments below.
 
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Really, Bi-Lo (was owned by Coles group), Franklins (Metcash IGA so technically a national rebranded name) and Safeway (pretty much only Victoria called it this, was Woolworths in most other states). There's a reason why they no longer exist, both Bi-Lo & Franklins sold predominantly (inferior) generic house brand labelled products that was poor quality and poor value for money. There has never ever been competition in the food retail market. What most people did would be scourer the weekly letterbox pamphlets and just buy the 'specials' from each site. Not sure too many working people have that sort of time. If they do, then maybe some gig economy work would be a better use of the fuel it takes to go from 1 site to another. Will question the 'expert' economist being referenced. Economy of scale seems to be missing here. Comparing Aust (26m), Britain (65m) the US (335+m) distance to transport also seems to be missing from his 'expert' analysis. Everyone knows the current cost of fuel is also at record highs (diesel in particular).
 
My ‘excuse’ for not shopping at Aldi is most products are inferior to the other supermarkets. Could save money by buying home brand products which are the same quality as most of Aldi’s products. But I prefer to pay a little extra for better quality. I actually do the reverse of what you do, I get my main shop at Coles or Woolies then get a few bits occasionally at Aldi. Even their middle isle has lost appeal to me now. But each to their own, we all do what works for us
Home Brands are made for the store by Market leaders. The same products without the fancy labels & packaging. Nestle, Schweppes, Cadburys, Heinz. just a few that do it.
 
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I have to confess that I am not a fan of ALDI. Maybe if you have a big family and do a mega weekly shop you can save some money but, as somebody living alone with a couple of canine companions, I do 2 or 3 small shops each week and buy what I need. My dogs and I eat well and I enjoy the outing. I shop at my local IGA and also Woolworths and always watch for specials. It really is a case of doing what suits the individual.
BTW I have to add that ALDI deserves the award for this year's most annoying Christmas advert. They have butchered one of my favourite 90s songs. I'll never be able to watch Dirty Dancing again without cringing 😖😖😖
 
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I can imagine that
My niece has a degree in marketing, I
I told her it might be a good idea for the supermarkets but it's bloody annoying for the shopper.
I do agree the prices are not as good as in the past, but I worked out I save about $30 or so a fortnight. I guess it depends on what you're buying.
Must admit have only been into an Aldi store a couple of times. Did not like it. Also do not want to pack my own bags or pay fees for using my credit card.
Meant to hit reply, not agree
Obviously your choice, if you prefer to pay more that is your prerogative.
You don't need to pay fees, use a debit card, not a credit card or pay cash. I prefer to pack my own bags at least I don't get squashed bread and broken eggs.
 
I have to confess that I am not a fan of ALDI. Maybe if you have a big family and do a mega weekly shop you can save some money but, as somebody living alone with a couple of canine companions, I do 2 or 3 small shops each week and buy what I need. My dogs and I eat well and I enjoy the outing. I shop at my local IGA and also Woolworths and always watch for specials. It really is a case of doing what suits the individual.
BTW I have to add that ALDI deserves the award for this year's most annoying Christmas advert. They have butchered one of my favourite 90s songs. I'll never be able to watch Dirty Dancing again without cringing 😖😖😖
Agree about the ad lol
 
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Higher taxes for higher profits. If the government were to heavily tax high profits, then use these taxes to improve housing, medical and other things to make Australia the best in the world. Not the Albo government of course, their too stupid.
The higher the profit the higher the tax. Nobody needs to make such high profits.
 
Agree about the ad lol
Some of ALDI’s ads aren’t too bad. The ones that really grated on my nerves, were the ones with the narrative voice that sounded like the pedo from Family Guy. I always had to push mute when those ads come on. Thankfully I haven’t seen them for awhile.
 
Meant to hit reply, not agree
Obviously your choice, if you prefer to pay more that is your prerogative.
You don't need to pay fees, use a debit card, not a credit card or pay cash. I prefer to pack my own bags at least I don't get squashed bread and broken eggs.
I find the quality is better, buy meat from a butcher, know what I am getting. I put a bag in front of what I want packing in it. Works well. If I have my mum with me in a wheelchair cannot pack myself. Same with self service.
 
As long as only 10% of people are supporting Aldi what can you say. 90% of people are the whingers and groaners complaining about prices, apart from the people who do not have access to an Aldi store
If more people supported them they would open more stores.
I do my main shop at Aldi and only buy the few things that Aldi don't have at Coles.
I save plenty and perfectly happy with Aldi. Used to always shop at Woolies for years, until I woke up to myself.
I have a friend who complains all the time how much more her shopping is than mine. Her excuse for not shopping at Aldi is she doesn't know where anything is??????
I do my green grocery at my local fruit shop, l shop mainly at Aldi, and what l can't get there, l shop Coles.
 
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The Australian grocery market has been a battlefield for supermarket duopoly Coles and Woolworths, with both companies constantly trying to undercut each other's prices.

While this may seem like a win for consumers, it has exposed a significant issue that is impacting the budget of every Australian shopper.



In the past week, Coles and Woolworths have temporarily dropped the prices of hundreds of items, a move welcomed by Australians grappling with the rising cost of living.

An examination of two grocery baskets containing items for lunch, dinner, and other household items revealed that the disparity in cost between the two was minimal, amounting to just two cents.


View attachment 36300
Major Australian supermarket’s grocery system sparked a major problem. Credit: Unsplash



According to Matt Grundoff, a Senior Economist from the Australia Institute, ‘We've got a broken grocery market at the moment…certainly an uncompetitive one.’

He suggested that if there were six or seven major supermarkets in Australia, there would be more pressure on them to attract shoppers, leading to more significant price cuts.

The nostalgia of supermarket ads from the past, with jingles like 'Put more in your trolley for less' or 'Why pay more?' brings back memories of when there was more competition in the market.

Supermarkets like Bi-Lo, Franklins, and Safeway have long disappeared, swallowed up by the massive business machines that Coles and Woolworths have become.



German supermarket ALDI has proven that competition works. Since it arrived in Australia in 2000, ALDI has saved Australians over $675 million—which ballooned to $7.8 billion—by pricing some items so low that the major supermarkets had no choice but to lower their own prices.

ALDI has made its reputation as the store that provides the cheapest option over the past 20 years. While it installed self-serve checkouts to help with process improvements, its leaders considered introducing other trends, such as online shopping, to ensure prices remain low.

Despite being Australia’s favourite supermarket 11 times in total, and for the sixth time running, according to Canstar’s Supermarket Satisfaction Ratings, ALDI has only managed to capture 10 per cent of Australian shoppers, according to Finder’s Consumer Sentiment tracker.



Coles and Woolworths, which command 39 per cent and 49 per cent of the market, respectively, made huge profits. They have also been accused of passing on inflationary pressures to Australians.

Two in five Australians have admitted that their grocery bill is one of their most significant stressors.

The Reserve Bank also raised concerns about inflationary pressures passed on to consumers.

But despite inflation, the first quarter results revealed that these two supermarket giants claimed that the fresh produce prices in the first quarter of 2023 were lowered compared to the same period last year—particularly their meat, vegetable, fruit, and deli prices. Read more about the story here.

However, shoppers noticed decreased portions of grocery items, but prices remained the same, such as a bottle of Rose’s English Breakfast Marmalade, which downsized from 500 grams to 375 grams without any price reduction.

Other victims of ‘shrinkflation’ are Nescafé, Coke, Glad Wrap and Smiths chips.



Grundoff claimed that the supermarkets' profits in food sales and grocery divisions showed that they pushed 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 said.

‘They are part of what economists call an oligopoly. And, essentially, that's why they're able to earn these bigger profits.’

Both supermarkets have stated that deflation in the fresh food sector has led to price drops of up to 40 per cent on some vegetables. However, Grundoff warned that prices should continue to trend downward for Australian shoppers as 'cost shocks work their way through the system', but this will 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 noted.

‘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 will it take to bring prices down?



The answer is simple: competition.

It is understood that Coles and Woolworths have their own interests to protect, especially since they provide several jobs in Australia. However, neither is forced to take significant risks to cut into the other’s customer base.

Grundoff argued that it is the government's responsibility to step in and regulate to introduce more competition into the grocery market.

‘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.’

He suggested that Australia needed laws that would strengthen our policy, pointing to the US as an example, where they have broken up a major oil company into 43 companies.


View attachment 36299
Competition may bring supermarket prices down. Credit: Unsplash



‘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.’



Meanwhile, in the United Kingdom, shoppers have the option to track down better deals in Sainsbury's, Tesco, ALDI, Morrisons, Lidl, Waitrose and Co-op.

While pushing the government to introduce these laws may not help with the current price blow-out, it could protect Aussies down the road as they are running out of money as other costs mount.

Grundoff warned, 'There will be another inflation spike that will come along in the future. And, to be clear, big businesses will resist this hugely because, at the moment, they can have very large profits doing very little.'
Key Takeaways

  • Supermarkets Coles and Woolworths are in a price battle, temporarily dropping the price of hundreds of items, but it has exposed a problem in Australia's grocery market.
  • ALDI's low pricing strategy has forced major supermarkets to reduce their own prices, saving Australian shoppers significant amounts of money.
  • Despite ALDI's success, Coles and Woolworths still corner the majority of the market, controlling 39 per cent and 49 per cent, respectively.
  • According to economist Matt Grundoff, Australia's grocery market is 'broken' and 'uncompetitive', and he suggests further competition regulation is needed to address this issue.
What are your thoughts on the current state of the Australian grocery market? Have you been affected by the recent price war between Coles and Woolworths? Let us know in the comments below.
It's just not the supermarkets but also the resources and multinationals that need to be regulated.
 
It is not the lack of supermarkets, it is the way supermarkets are allowed to operate. They are the ones that dictate just what products from suppliers they will stock - and charge them accordingly. We do not have a free / open market here. They pick and choose what companies / products they deem should be provided - nothing to do with the customer, only the bottom line.
We all used to be happy to pay that bit extra for the convenience of the 'corner shop' - they mostly been whittled away and we are forced to smaller (cheaper?) choices. However in this day - people view 'convenience' as a one-stop huge shop. So it is the consumer habits that have enabled the big ones to survive and prosper.
Yes it is difficult at the moment for a lot of people to make ends meet, however the people with the $'s could assist by doing part of their big shop elsewhere (IGA, Aldi, small mum & pop green groceries & butchers etc). The need to keep these smaller businesses afloat also assists the entire poulation.
And if it was my business l would be doing the same. We are all in business to make a profit. You just don't know about Aldi, as it is a private company and doesn't tell it's profit to the public. Coles and Woolwoths are public companies, and have to. Coles and Woolworths have supported many farmers over the years, and kept them in business.
 
Went into online half price items for curiosity. First up was box of 10 cans coke 1/2 price $9.50. Searched my previous buys to 2 Dec 2022 & they have always been that price.
 
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I would shop at
As long as only 10% of people are supporting Aldi what can you say. 90% of people are the whingers and groaners complaining about prices, apart from the people who do not have access to an Aldi store
If more people supported them they would open more stores.
I do my main shop at Aldi and only buy the few things that Aldi don't have at Coles.
I save plenty and perfectly happy with Aldi. Used to always shop at Woolies for years, until I woke up to myself.
I have a friend who complains all the time how much more her shopping is than mine. Her excuse for not shopping at Aldi is she doesn't know where anything is??????
I would shop at Aldi but Aldi is hundreds of kilometers away. Mackay was to get an Aldi but that is still 800kms from Cairns. We have no choice but to shop at the 2 big ones. IGA closed at Innisfail.
 

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