Supermarket prices cheaper in NZ than Australia
While I was in Australia, I followed an interesting story - The Australian Competition and Consumer Commission is investigating possible price fixing and overcharging by Australian Supermarkets. So, the ACCC called Woolworths chief executive Michael Luscombe in to give his perspective on the matter. (Article here.)
And Woolworths admitted that it's New Zealand stores are selling items on less margin than it's Australian stores, meaning New Zealanders are paying less for groceries.
And the reason? According to Michael Luscombe, it's becuase Woolworths is not the market leader in New Zealand and has to price itself lower than it's competitors to attract customers.
The Australian media spun this as price gouging, going shopping in New Zealand and Australia for a few common items (like Vegemite) and showing the price difference after allowing for exchange rates and GST differences. However, I think there are different reasons for the difference in margins.
Firstly, the main reason I see New Zealand as a more competitive market is that so many supermarkets in are in each area - for instance, Lower Hutt has five big supermarkets, plus another three or four smaller supermarkets for one hundred thousand people. In Australia the supermarkets I've seen are smaller, and have less competitors nearby.
Another reason is NZers buy all our groceries from supermarkets, whereas Australians buy a lot of fresh produce (fruit, veges and meat) at markets. This reduces the overheads per item sold.
Finally, there are differences in overhead costs. The wage gap between New Zealand and Australia is well documented, and in New Zealand GST is simply charged on everything. In Australia GST differs from item to item - for example, hot cooked chicken attracts 10% GST, but cold cooked chicken is exempt.
Because of this competition and other factors, the supermarkets know that raising prices will mean that customers will just go a few doors down and save money. So prices in New Zealand stay lower.
And Woolworths admitted that it's New Zealand stores are selling items on less margin than it's Australian stores, meaning New Zealanders are paying less for groceries.
And the reason? According to Michael Luscombe, it's becuase Woolworths is not the market leader in New Zealand and has to price itself lower than it's competitors to attract customers.
The Australian media spun this as price gouging, going shopping in New Zealand and Australia for a few common items (like Vegemite) and showing the price difference after allowing for exchange rates and GST differences. However, I think there are different reasons for the difference in margins.
Firstly, the main reason I see New Zealand as a more competitive market is that so many supermarkets in are in each area - for instance, Lower Hutt has five big supermarkets, plus another three or four smaller supermarkets for one hundred thousand people. In Australia the supermarkets I've seen are smaller, and have less competitors nearby.
Another reason is NZers buy all our groceries from supermarkets, whereas Australians buy a lot of fresh produce (fruit, veges and meat) at markets. This reduces the overheads per item sold.
Finally, there are differences in overhead costs. The wage gap between New Zealand and Australia is well documented, and in New Zealand GST is simply charged on everything. In Australia GST differs from item to item - for example, hot cooked chicken attracts 10% GST, but cold cooked chicken is exempt.
Because of this competition and other factors, the supermarkets know that raising prices will mean that customers will just go a few doors down and save money. So prices in New Zealand stay lower.
posted by Michael at
7:47 PM
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