Why Woolworths and Coles pricing matters

Supermarket expenses account for about 16% of our annual household expenditure for our family of 4 (2 adults, 2 children excluding mortgage costs). In cash terms, roughly $25,000 per year, and the second highest category of expenditure in the household after childcare. The Australian competition regulator, the ACCC, in an enquiry last year (2008) identified groceries as representing 12-14% of the average household’s after tax income.

The price of supermarket goods year-in year-out therefore has a quite significant impact on household savings.

Whilst there are new entrants coming in like Costco and Aldi the ACCC still considers the market ‘workably competitive’  but notes in its July 2008 report that there are “limited incentives for Coles and Woolworths to compete aggressively on price”.

Online supermarket shopping: checking the pricing of Coles Online versus Woolworths Homeshop

The increasingly sophisticated nature of Coles and Woolworths online shopping operations means you can monitor comparative pricing for the basket of groceries your particular home normally buys.  This is because both online websites enable you to save a ‘shopping basket’ of regular items. You can also see on the sites when goods are ‘on special’.

Unlike physically visiting a supermarket it doesn’t make a lot of difference to an online buyer where the food comes from e.g. you don’t have to understand the store layout and you basically don’t care whether the food has to travel 5 kilometres or 15 kilometres to get to you. So some concerns that have been raised about the limitations of the government’s ‘Grocery Watch’ price monitoring may not apply to online shopping so much.

Basically if you’re willing to recreate your normal shopping basket on “the other supermarket’s website” it’s easy to switch (and in our experience it may take you a couple of hours to do this once you print out your list and re-enter each item).

Who is really cheaper: Coles Online or Woolworths Homeshop?

The results from our household basket of about 54 branded items based on our last 6 months purchases (the absolutely identical item from both supermarket chains that you can find at the bottom of this article) was that although more of the items were slightly cheaper at Woolworths the difference was so marginal  that it’s not worth worrying about (the average item price difference across the two supermarkets was less than 1%).

In the end our 54 item basket came out at $334 at Woolworths and $333 at Coles (see below). However if one takes into account the delivery charges for the two chains (the minimum delivery charge at Woolworths is currently $5 and at Coles it’s $9) it all comes out almost identical again.

Are all online products similarly priced though? 

Despite the list below which suggests an average individual price difference of less than 1% (we’re sure the supermarkets themselves monitor eachother closely which may account for this extremely close pricing) we suspect that not all pricing is so equal.  

Our list was based on absolutely identical products. What we could not easily comparatively price, were goods like own-branded goods, and we’re sure the supermarkets are aware of this in the assumptions they make themselves about organisations like the ACCC trying compare their prices or even many individual shoppers comparing pricing.

In these areas the price differences can be much more marked. For example, Woolworths 3 litre milk is $3.95 where Coles 3 litre milk is $3.16, a 20% difference…

The ACCC’s report tends to bear this out:

“Price competition is strongest on promotions of key value items (which are products known by the supermarkets to be used by consumers to assess value). This is to be expected, given that the pricing of these products is most likely to encourage consumers to change where they buy
groceries.”

You need to check this with your own household basket and we suggest bread, milk, and salad may be where you find some of these more extreme differences (just don’t assume they apply across your whole groceries basket).

Are online supermarket shopping prices more expensive than in-store prices?

 We had heard this so we actually asked Woolworths by email:

“Hi, could you clarify how your Homeshop pricing compares to your in-store pricing? My assumption was that the pricing was the same with the exception of the delivery charge (which reflects your increased costs in terms of the delivery components). However I have been informed that Woolworths has a markup on online items over and above the in-store price. Is that correct? “  

 For what it’s worth this is Woolworths’ response:

“The prices charged online are comparable to that of a metro supermarket. Not all supermarkets charge the same prices in each store for all items, therefore the prices online may differ to that of your local Woolworths supermarket. Homeshop still offers a convenient, high quality and competitively priced service direct to your door. We regularly review our pricing against other online grocery services and generally find we are cheaper on the total basket. “

We have not validated this assertion about identical instore/online pricing (subject to ‘local’ variations) by checking Woolworths dockets versus their online pricing.

However we have looked at Coles docket pricing from our local Coles versus their online operation and there did appear to be some signficant differences (see the Online v Instore column in the table below) with items like bread and butter and pasta and yoghurt between 8% and 18% cheaper in-store than via Coles Online (in fact any items we directly compared, albeit on a small sample, the online pricing was always more expensive).

We’d be interested to hear what you’ve found!

The comparative online pricing for this article from Coles and Woolworths

Posted under savings levels

Whilst the more visible mass layoffs at banks like Citigroup, RBS and HBOS grab the headlines, there have also been some subtle changes at banks which are equally designed to shore up their balance sheets.

This time however they’re looking to you, the customer, to do it.

In Australia we usually hold the cash component of our super fund in St George term deposits (St George is soon to merge with Westpac).

The way that St George configures term deposits is, of itself, of some interest as the “12 month term deposit”, if you read the fine print, actually translates into an ‘indefinite deposit’ if you fail to give the bank “Notice” during a 14 day maturity window at the end of the term deposit. Put simply, if you don’t tell the bank that you wish the term deposit to mature at that point they will simply re-invest it for the identical term at whatever the prevailing interest rate is at that time. 

Leaving aside the somewhat misleading nature of a ‘term deposit’ with an indefinite term (which has always been the case at St George) what has changed with the onset of the credit crunch is that it has suddenly got considerably more difficult to give them the Notice in the form in which they require it…

“You are able to continue to send a signed fax to Fixed Terms with a copy of your passport and drivers licence, outlining your request.  A contact number is required in order for our staff to make a verbal confirmation of the request received.  The Bank’s decision to implement these additional safeguards is to protect your funds and personal information.  As your security is of the utmost importance to us, if we are unable to contact you or identify you once contacted, the request will not be actioned.”

So, for ‘personal security’ reasons you can no longer inform them, in advance, that you wish the deposit to mature as specified in the term (we used to be able to do this by email or using phone banking) and in their online banking system whilst you can extend or vary the term you cannot mature it.

They actually now require verbal instruction to mature a term deposit using their phone banking service.  Bad luck if you’re on holiday or you happen to overlook the maturity statement they provide you in the mail … or if, like us, you happen to be travelling in a different timezone expect to spend some time late at night making sure your term deposit matches the term you agreed in the first place.

Naturally, the real motivation here is likely to be that many clients will overlook the fine print, and the bank will end up with some percentage of term deposits renewing when their owners in reality had the intention of moving the money to a better return elsewhere.  As interest rates fall this is a good thing to keep an eye on.

Posted under Risk, Setup