Making cents: Price gap widening, says report

THE price gap between the major Australian supermarket chains and the discount interlopers might be widening, according to a new analysis.

It comes as discounters such as Germany’s Aldi and US-based Costco keep prices low to fight off competition from Amazon and, from next year, another German chain, Kaufland.

According to an analysis by Morgan Stanley, a shopping basket at Costco was about 20 per cent cheaper than an equivalent basket at Coles or Woolworths last October.

But the investment bank’s most recent analysis, from July 25, showed a shopping basket at Costco was now about 27 to 28 per cent cheaper.

In a report for investors, Morgan Stanley said that previously – since beginning its Costco price comparisons in 2015 – the gap had been closing “presumably as the majors invested in price and improved their bulk pack offers”.

An analysis of 197 identical products at Aldi last month, comparing them with last year, showed reductions outnumbered increases two to one.

Eighty-four per cent of products remained unchanged year on year, while the average price reduction across the basket was 0.9 per cent.

“Since product sizes and labelling change from period to period, it’s difficult to get a full picture of pricing across the around 1500 (lines) that it stocks, but we think our sample is indicative of broader Aldi pricing trends,” the investment bank said.

On their estimates, Aldi and Costco spend about 5 per cent of sales on labour and electricity, compared to about 12 per cent for Coles and Woolworths, and are therefore better able to absorb rising costs.

Profitability might also be irrelevant to both companies for now as they play a longerterm game in Australia, they said.

Kaufland began in West Germany in the 80s.