Supermarket giants to feel more pain

AS much as Australia’s supermarket giants won’t want to hear it, price deflation in the shopping aisles is here to stay, according to ANZ research.

Despite the likes of Woolworths and Coles embarking on a bruising price war on items such as milk, bread, eggs and, of late, roast chooks, ANZ senior economist Jo Masters says domestic supermarket profit margins remain above global averages and have further to fall.

“Australia’s supermarket sector has been under significant price pressure from increased competition for some years,” Ms Masters said.

“As a result, supermarket prices are in outright deflation and margins are contracting.”

Figures from ANZ reveal Woolworths prices are being wound back by about 2 per cent a year. At arch rival Coles, prices are falling at a rate of about 1 per cent.

Both are far outpacing the 0.2 per cent annualised deflation for the supermarket category in the Australian Bureau of Statistics’ consumer price index.

“We’re not sure deflation in supermarket prices has to deepen, but we don’t expect negative 2 per cent to turn positive anytime soon — or increase to 5 per cent falls,” Ms Masters told Business Daily.

It comes a week after Woolworths chief Brad Banducci said he would be swapping the price-cut “sledgehammer” for a scalpel.

Mr Banducci said the biggest moves had been made and the grocer would be now taking a “more forensic, more thoughtful” approach to prices.