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    Thread: Why Groceries are so much more expencive compared to UK


    1. #1

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      Why Groceries are so much more expencive compared to UK

      Blame it on the foreign food... Coles doesSaturday, 2 April 2011
      Source: Australian Financial Review
      When Coles's new managing director Ian McLeod and merchandise director John Durkan arrived in Australia from the UK in 2009, one of the first things they noticed was the high price of Australian groceries.

      Australian consumers pay at least 10 per cent, and as much as 100 per cent, more than their UK counterparts for packaged groceries, from bread and milk to pantry staples such as baked beans and instant coffee, household cleaners and little luxuries such as chocolate.

      In the UK, for example, shoppers pay 2.40, or $3.73, for 100 grams of Nestle's Nescafe instant coffee, which costs $5.34 in Coles supermarkets here.

      Brits can pick up a box of Mars Maltesers (100g) for 90p, or $1.40, while Australians pay $2.07. Heinz baked beans in tomato sauce cost a UK shopper 15.4p or 24c for 100g, almost half the price in Australia.

      McLeod and Durkan, who have the job of turning around the underperforming supermarket chain, acquired by Wesfarmers for $20 billion in 2007, have pointed the finger at multinational grocery companies. They claim multinationals have been making excessive profit margins in Australia, relying on annual price increases for margin growth.

      "In many instances we're seeing prices 50, 60, 70, even 100 per cent more expensive than Europe, and the US as well," Durkan tells the Weekend Financial Review.

      "There's no rationale for double pricing, apart from the fact you can do it, in my view."

      High prices in Australia are not solely due to the tyranny of distance, the small population and lack of economies of scale, Durkan claims. Rather multinationals are making higher margins here than they do in the UK, Europe and the US because of their own market dominance.

      While politicians and consumer advocates have accused Coles and Woolworths of using their dominance of the $80 billion grocery market to charge higher prices for groceries, Coles says it is the multinational grocery manufacturers who wield the market power.

      Unilever, for example, controls 76 per cent of the ready-to-drink tea market, Nestle more than 60 per cent of the coffee market, Arnott's, which is owned by Campbell's Soup, accounts for about 60 per cent of the biscuit category and Unilever 60 per cent of deodorant sales.

      Coles thought it had found an easy target in its battle for a bigger share of the grocery market. Over the last two years, Coles has reduced the prices of more than 5000 grocery products, forcing rival retailers to do the same, and triggering the first sustained drop in food price inflation for more than 10 years.

      Prices on a range of packaged groceries have been reduced, in some cases by more than 10 per cent.

      Reliant on Coles and Woolworths for 75 to 80 per cent of their Australian sales, multinationals such as Kraft, Cadbury, Mars, Unilever, Colgate Palmolive and Johnson & Johnson, were forced to cop the price cuts on the chin.

      However, when Coles turned its sights on local manufacturers, slashing the price of milk, bread, butter and eggs to deliver lower prices for its customers, the retailer wasn't prepared for the backlash.

      Now the fingers are being pointed at Coles, and to a lesser extent its larger rival Woolworths, which has cut prices on more than 4000 grocery prices. Dairy farmers claim Coles's Australia Day decision to reduce the price of house-brand milk by as much as 33 per cent to $2 for two litres will decimate the milk industry.

      Egg producers have described Coles's 20 per cent cut in the price of eggs as an "abuse of market power" that will reduce egg farmers' margins to "dangerously unsustainable levels".

      The chicken industry is next. Last week, Coles reduced prices for fresh chicken by about 16 per cent. The reaction from consumers, who, on Coles's calculations are saving $800 million a year on their grocery bills, has been mixed.

      While some have applauded Coles's moves, consumer advocates such as Choice have accused the retailer of throwing its weight around and cutting a swathe through the agricultural and food processing industries.

      Hauled before a Senate inquiry into the milk price reductions, McLeod and Durkan were forced this week to defend their moves.

      They came well-prepared.

      Durkan said since the supermarket cut its home-brand milk prices to $1 a litre, the amount of milk consumed nationally had risen by almost 2 per cent. Lower prices were encouraging consumers to drink more milk, he suggested, and that would benefit the dairy industry.

      Coles and Woolworths also said they were absorbing the house-brand milk price cuts and rejected claims they were squeezing out branded products in favour of higher-margin house brands.

      McLeod told the inquiry the price reductions were part of his five year plan to turn around Coles and restore consumer trust in the brand.

      "Our pricing strategy has been central to attracting customers back to Coles," he said.

      "Only three years ago our stores were woeful. Prices were too high. So we embarked upon a plan to change all of this and to create a real alternative in the supermarket industry to Woolworths."

      McLeod said the price reductions were genuine cost reductions they had not been absorbed by a higher amount of product cost increases.

      "We calculate that this pricing strategy has saved Australians over $800 million over the last year on their shopping bills from Coles ... and have actually had a deflationary impact on the cost of food with food deflation of between 1 and 2 per cent over the past 24 months, compared to food inflation of between 4 and 5 per cent over the preceding decade," he said.

      However, Coles's defence received short shrift from the politicians who initiated the milk inquiry.

      Independent Nick Xenophon and Liberal Senator Bill Heffernan called for Coles and Woolworths to be broken up to rein in their power over suppliers, while the Australian Food and Grocery Council (AFGC), which represents grocery manufacturers, has called for the appointment of a retail ombudsman.

      Similar calls were heard at the grocery prices inquiry in 2008, but were rejected after the Australian Competition and Consumer Commission found grocery retailing was "workably competitive".

      The competition watchdog has been keeping a close watch on the latest debate about the power of the major retailers but sees no reason to intervene.

      "There's a lot of well-heeled, vested interest groups who are protecting their own patch," one commission source says.
      As for McLeod and Durkan, survivors of the UK grocery wars, they have no intention of backing down from their hard-line approach with suppliers. And it's not just the promise of the multimillion-dollar payouts they stand to pick up if they meet Coles's five-year performance targets.

      "I think the market has been driven by cost inflation over many years and it's been a well-known fact that Australia has had the highest food inflation in the developed world," Durkan says.

      "The industry has survived not on innovation but has been allowed to pass on cost prices to consumers even when the [commodity-based] costs weren't necessarily there," he says.

      "Everyone told me when I arrived ... they needed a strong No. 2 player - we're becoming a strong No. 2 player and they don't like it ... we're providing a level of competition for the bigger retailer in Australia and we're getting slammed for that," he says.

      "I think we're picking the right product, and we'll continue to pick the right products and we'll continue to pick the right thing for consumers. We're going to continue."

      While politicians have been quick to leap to the defence of the dairy farmers and egg producers, the only one standing up for the multinationals is Kate Carnell, the chief executive of the Australian Food and Grocery Council.

      She agrees that grocery prices are higher in Australia than the UK but says it reflects the high cost of manufacturing in Australia compared with other countries in the region such as New Zealand.

      "It's not appropriate to blame manufacturers for prices in Australia, they [the retailers] set them," Ms Carnell says.

      "Woolworths is the fourth most profitable supermarket retailer in the world and Coles the seventh most profitable. They punch well above their weight in terms of their profitability with the supermarket chains, in terms of their size and Australian rank in the global market," she says.

      European prices are lower because of the size of the market in Europe (62 million in the UK and 730 million in Europe versus 22 million in Australia), she says, and because retailers can source product from offshore.

      "The cost of manufacturing is higher in Australia but profitability certainly isn't higher and in fact many of our companies would say the reason more products are being manufactured offshore and more companies are looking at offshore options is because margins are low, not high," Camel says.

      Major grocery processors, including McCains, Simplot, Safcol, Heinz and Kraft have closed plants in Australia or shifted manufacturing of some products to cheaper markets in Asia and New Zealand.

      However, Durkan says the plant closures and offshore manufacturing shift have nothing to do with Coles's recent price cuts.

      "That's a convenient excuse from the AFGC," he says. "If you dig into how many people have moved offshore since we've been reducing our prices, it won't be in categories where we have reduced prices - there are other factors. Suppliers want to make more money."

      Durkan also rejects suggestions from major brand owners such as Reckitt Benckiser that the intense pricing pressure could cramp product innovation and category development.

      "There's been a lack of innovation here in the last eight years despite price growth," Durkan says. "If you can get price increases every year ... why would you want to bring products in or develop new products?

      "A more intensively priced market makes us innovate. If you go to Europe where there's a lot of price intensity and the US where there's a lot of price intensity, that's where you get all the innovation."


      http://www.billheffernan.com.au/news...article&ID=231
      Last edited by Aldo; 23-04-2011 at 01:00 PM.
      it happens a lot everywhere in the world...

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    3. #2

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      Australia is soooooo expensive 5 for a schooner which aint even a pint.....do not get me on second hand cars.

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      Personally we found it to be about the same when we looked after ourselves for three months in the UK last year. It really depends on what people buy. Most of the items mentioned we do not buy. Those that we do buy seemed about the same price. Give you bread and milk, however could not get the bread we eat which is Rye. We have a better variety of breads here in Aus like the Americans. Spelt, Rye etc. Only Rye I could find in Uk was a tiny little very expensive loaf.

      Its horses for courses. We shop around for specials, wait till they reduce the meat etc. Go to markets. Grown veg etc. Buy local fruit from local growers.

      What people forget is that Supermarkets are only part of the picture and the more we use them the less choice we have.

      Off to the Supermarket now ....................................
      Petals

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      I found the majority of food to be cheaper, much of it as the story says very much cheaper. Several things I had to look at a few times as I thought the price was wrong. I'm not sure why things have turned around like they have in the last 5 or so years but before then if anyone had said that a trolley full of shopping would be noticeably cheaper in the UK I would have said they were on drugs but it certainly seems to be the case now.

    6. #5
      Verystormy
      I was curious a couple of weeks ago and re did our shopping that we had just done at Woolworths back into Tesco online to compare the difference. Now obviously some of the brands were different, but we tried to chose the same sort of quality level and things. At Woolworths we had spent $607. On Tesco.com when i ran it through the currency conversion it worked out at $202. So Oz was 3x as expensive for the same shop.

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      Quote Originally Posted by Verystormy View Post
      I was curious a couple of weeks ago and re did our shopping that we had just done at Woolworths back into Tesco online to compare the difference. Now obviously some of the brands were different, but we tried to chose the same sort of quality level and things. At Woolworths we had spent $607. On Tesco.com when i ran it through the currency conversion it worked out at $202. So Oz was 3x as expensive for the same shop.

      Thats a good experiment and its comparing apples for apples rather than the usaly retort of "yeah but if you go to farmer joes meat shed bla bla bla" Its like doesn't the uk have farm shops or meat wholesalers....
      it happens a lot everywhere in the world...

    8. #7

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      Thats a really useful thing to do and I will do it myself I think, I do think you have to remember brands etc and not compare a kilo of scotch fillet to a kilo of rump etc...also once you're here and earning in $ is it relevant at all? An item costs what it costs and the real issue is how much disposable income do you actually have...does it compare to when in the UK. Thats the only real comparison of cost of living I think, not the price of a loaf of bread etc....thats far too simplistic....makes good headlines though!
      Aldo likes this.

    9. #8

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      This is just madness

      who in their right mind would pay that!!
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      it happens a lot everywhere in the world...

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      I do agree with what you are saying for sure. The mistake I often see is when people say 'well yes food might be more expensive but everyone earns more money in Australia'
      Obviously that isn't the case, some earn more, some less and some the same but it's amazing how many assume everyone earns more.

      Quote Originally Posted by Tillyfloss View Post
      Thats a really useful thing to do and I will do it myself I think, I do think you have to remember brands etc and not compare a kilo of scotch fillet to a kilo of rump etc...also once you're here and earning in $ is it relevant at all? An item costs what it costs and the real issue is how much disposable income do you actually have...does it compare to when in the UK. Thats the only real comparison of cost of living I think, not the price of a loaf of bread etc....thats far too simplistic....makes good headlines though!

    11. #10
      nanga
      isnt some of this down to huge country ( costs a fortune to transport stuff ) and small customer base ( only 21 million people in oz ) ??

     

     
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