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Supermarket competition: More discounts may be on the way – industry observer

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Further supermarket discounts may follow Foodstuffs’ move to cut prices by on selected food items, an industry observer says.

Supermarket giant Foodstuffs is cutting prices by an average of 10 percent on more than 110 everyday items, to 2021 levels.

Last week rival Countdown announced a temporary price freeze on 500 items over winter.

“Foodstuffs I would argue, has come out on top in the prices, so cheese they’ve got it down to $9.99 [from] $13 and bread’s down to $1.19 versus $2.”

The discounts on its own-brand products were aimed at price-conscious buyers, he said.

Foodstuffs had a double margin on store brands – a manufacturing and a retailing margin – and were driving customers to those products.

“Price-conscious consumers would move themselves across from the national brands to the store brands, and that’s where Foodstuffs will be able to gain from that because they get a double margin on it.”

Fresh vegetables were not store branded, so any price changes would mostly be on frozen vegetables.

Asked if Countdown now needed to respond with price cuts rather than a freeze, Gow said: “I would argue that they do – they’ve done that in Australia – they dropped prices in Australia, they haven’t done it in New Zealand. “

Reductions could be made on store brands where Countdown too has more “margin space”, he said.

The supermarkets’ profits are under scrutiny as the government prepares to respond to a Commerce Commission report which said competition in the industry was not working well for New Zealanders, with retail grocery prices high by international standardsand major retailers’ profits also appearing high.

Commerce and Consumer Affairs Minister David Clark said he had had not ruled out going further than the Commerce Commission recommendations.

Gow said the most effective way to drive down prices at the lower end of the New Zealand market would be to have a hard discounter in the country.

“Look at all across the world, whether it’s Europe, North America or even Australia. The introduction of a hard discounter like Aldi really puts pressure on the bottom end of the market and keeps all the margins down.”

Annual food price inflation at 6.4%

Food prices rose fractionally last month but are still more than 6 percent higher than a year ago.

Figures from Stats NZ show food prices in April rose a seasonally adjusted 0.1 percent on the month before, as cheaper fruit and vegetables were not enough to offset rises in takeaways and ready-to-eat meals.

Takeaways and ready-to-eat meals have become more expensive during April.
Photo: 123RF

But annual food price inflation remained high at 6.4 percent, compared with the record 7.6 percent increase seen in March.

Fruit and vegetables prices jumped more than 9 percent on last year, with groceries, meat and restaurant meals also recording steep annual rises.

Food prices make up nearly a fifth of the Consumer Price Index.

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