Su­per­mar­ket prices yet to bot­tom

The Observer - - NEWS YOUR MONEY - Paul Gilder

Aus­tralia’s su­per­mar­ket sec­tor has been un­der sig­nif­i­cant price pres­sure from in­creased com­pe­ti­tion for some years

— Jo Masters

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 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 on Tues­day.

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

ANZ fig­ures show Wool­worths wind­ing prices back by about 2% a year. At arch-ri­val Coles, prices are fall­ing at a rate of about 1%.

Both are far out­pac­ing the 0.2% an­nu­alised de­fla­tion for the su­per­mar­ket cat­e­gory in the Aus­tralian Bureau of Sta­tis­tics’ Con­sumer Price In­dex.

“What we’re say­ing is we’re not sure de­fla­tion in su­per­mar­ket prices has to deepen, but we don’t ex­pect neg­a­tive 2% to turn pos­i­tive any­time soon – or in­crease to 5% falls,” Ms Masters told Busi­ness Daily.

It comes a week af­ter Wool­worths head 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 now be tak­ing a “more foren­sic, more thought­ful” ap­proach to prices.

Ms Masters said the Bri­tish ex­pe­ri­ence of­fered a guide to what could be in store for Aus­tralia’s su­per­mar­ket sec­tor.

Tesco’s mar­gins had been squeezed from 5% to 2% and Sains­bury’s from 3.5% to 2.5% “in just a few years”, she said.

US e-com­merce ti­tan Ama­zon – which is es­tab­lish­ing a distri­bu­tion hub in Dan­de­nong South, Vic­to­ria – could yet roll out its on­line gro­cery ser­vice, Ama­zon Fresh, in Aus­tralia, fur­ther dis­rupt­ing the du­op­oly, Ms Masters said.

“Ama­zon’s pen­e­tra­tion in on­line gro­ceries may take longer to reach crit­i­cal mass than for other cat­e­gories.”

Con­sumers have al­ready seen mar­gins squeezed and prices cut on goods such as tech­no­log­i­cal gad­gets, cloth­ing, footwear, fur­nish­ings and out­door prod­ucts, and on in­ter­net ser­vices.

Home build­ing costs were po­ten­tially next in line for a squeeze, Ms Masters said.

“What’s re­quired to turn the equa­tion around is stronger wage growth,” she said.

“We’ve only got core in­fla­tion squeak­ing back into the Re­serve Bank’s 2–3% target range by late 2018, so it’s hard to imag­ine re­tail­ers gain­ing sig­nif­i­cant pric­ing power any­time soon.”

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