Price cuts to shave less than $1 off average grocery bill
Foodstuffs’ decision to ‘‘roll-back’’ the prices of 110 of its mostcommonly bought groceries by 10% for 13 weeks from Monday is a step in the right direction but should be put in context.
The North and South Island Foodstuffs co-ops estimate the price cuts will save customers about $500,000 a week over the period of the promotion.
New World, Pak’n Save and Four Square’s store sales account for about $10 billion of New Zealanders’ total $22b annual spend on groceries.
That is a rule-of-thumb estimate based on what can be gleaned from their annual reports and a 2020 study from market researcher Canstar, and the Commerce Commission’s estimate of the total size of the industry. But it won’t be far out. Based on those numbers, the ‘‘roll-backs’’ are equivalent to Foodstuffs reducing the average price of its entire product range by 0.26%.
That amounts to about 57 cents off the average household’s $226 weekly grocery bill, given that Stats NZ estimates there are just over 1.8 million households in the country to spend that $22b.
There is another way to put the price cuts in context.
The Commerce Commission estimated in its final report into the groceries industry that Countdown and Foodstuffs were making about $8 million a week in excess profits.
So assuming that those were split evenly between Countdown and Foodstuffs, the roll-back would see Foodstuffs shed about 12.5% of its share of those excess returns over the period of the promotion.
That is not to rubbish the initiative.
It should be noted that Foodstuffs disputes the Commerce Commission’s estimate of excess profits and the $6.5m total estimated saving from the 13-week promotion is more than chump change from Foodstuffs’ bottom line.
The roll-back promotion is believed to be only first of what is understood be a few initiatives from Foodstuffs to provide its customers with a better deal, with others in the pipeline.
It is also the case that because Foodstuffs has selected some of its most popular products for the promotion – including some brands of basic items such canned tomatoes, butter, tea and toothpaste – the roll-backs are likely to disproportionately assist families who are doing it the toughest.
Foodstuffs seems to have read the public mood far better that Countdown, whose promise to freeze the price of more than 600 ‘‘essential’’ items over winter seems to have fallen rather flat with shoppers who want to see prices fall, not stay the same.
But the cold numbers probably explain why Finance Minister Grant Robertson described Foodstuffs’ roll-back as a ‘‘gesture’’, though a welcome one, after making a pre-Budget speech yesterday.
‘‘We believe that there’s a significant amount to be done in terms of reforming the supermarket sector’’, he said, also calling the moves made by the supermarket groups ‘‘not sufficient’’.
All the indications are that the price cuts have come too late in the day to dissuade Commerce Minister David Clark from recommending that the Government forces Countdown and Foodstuffs to wholesale groceries to rivals on terms underpinned by regulation, when it decides on its response to the commission’s study later this month.
The jury seems to be out on whether the ‘regulatory backstop’ being contemplated by Clark will have the effect of improving competition and bringing down prices, or could even backfire on consumers.
The commission expressed doubts in its final report into the groceries industry, despite appearing to initially favour the measure as its most likely main regulatory intervention when it kicked off the study.
But by now the die may have been cast.
Foodstuffs may be ready to roll back some of its prices, but there is no sign yet that ministers are persuaded to roll-back Clark’s proposed response to the tepid recommendations set out in the commission’s market study.