Australian shoppers can expect grocery prices to keep coming down as Coles and Woolworths battle it out to prevent more Australians defecting to Aldi, one retail expert has predicted.
Ron Wood, director of retail consultancy PricingInsight, said shoppers could expect to see continued price pressure on “selected categories” as Coles and Woolworths battle to hold share.
“Customers are going to be trialling and adopting Aldi products more regularly.”
“There’s a viral movement where people are trying and being surprised by the quality. The marketing of price that Coles has so successfully executed will diminish as an effective lever to drive sales.”
Mr Wood, a former commercial director with Goodman Fielder, described claims by the big two to be constantly driving down grocery prices as “smoke and mirrors”, with basket staples kept artificially low while high-value items increase.
“For the last 10 years I’ve been tracking 1kg plain flour at Woolworths. It has not changed its price from 85c. The reason it stays at 85c is because it’s one of the basket items measured by companies like Choice.”
“But when it comes to high-value items like specialty cheeses, dairy, chilled yoghurts, where you’ve seen a premiumisation of those categories, prices have all gone up. Overall grocery prices have actually increased over the last three years.”
Mr Wood said Aldi had managed to strike deals with local suppliers for products like potato chips, dairy, cheese, pastry and tinned tomatoes at anywhere up to 30 per cent lower than the supermarkets.
“Suppliers are happy to do this because any dollar they make from Aldi is adding profit, and if they don’t do it someone else will,” he said. “Aldi’s been able to bring a completely different economics to the table.”
But as Aldi puts greater pressure on Woolworths and Coles, they in turn will put greater pressure back on the suppliers to reduce their prices. By “feeding the Aldi machine”, they have unwittingly hurt themselves, Mr Wood argues.
“The tailwind behind Aldi is the that salaries and wages have not increased anywhere near the cost of living.”
“Aldi represents a real solution for people who have budgetary issues.”
The German discount chain is on track to increase its share of the Australian food and liquor market from 6 per cent to 10 per cent by the end of the decade, according to new analysis.
Investment bank Morgan Stanley has tipped Aldi chain to reach $15 billion in sales in 2020 as more Aussies make the switch from the big two.
According to Morgan Stanley’s analysis, Aldi customers spend just more than $100 in a four-week period, compared with $220 at Coles and $258 at Woolworths.