Should Supermarket Prices Be The Same Everywhere?

Coles attracted lots of attention this week by announcing that it would standardise prices for most goods in its supermarkets. Cheaper shopping is always welcome, but is it really realistic to expect nationally consistent prices?

Picture by mythoto

Shopping for food is something we all have to do, so any time pricing policies change at the major supermarkets, it's the subject of national discussion. So it's no surprise that when Coles (one of the two dominant supermarket chains in Australia along with Woolworths) announced that it would be standardising prices across all of its stores, the announcement got lots of attention. Common reactions included "I didn't realise their prices varied that much", "It's about time" and the more cynical "I bet that means prices will go up on some products rather than down".

If you pause to think about it, it's not necessarily logical to assume that prices would be the same at any given store. It's going to be more expensive to transport goods to remote locations, and while Coles doesn't operate in tiny communities, if something gets delivered in bulk to (say) Brisbane, it's going to cost more to transport it to Perth than to Sydney.

The company's own announcement in fact makes this point in a subtle way, highlighting two issues in the process. Here's what managing director Ian McLeod said:

From 1 February, Coles will apply its lowest prices to more than 8,000 grocery products including meat, seafood, dairy, deli and bakery products across the country and the remaining grocery products will be matched to our lowest prices in each State.

The first thing to note is that fresh fruit and vegetables (which have much more variable pricing on a week-to-week basis) are not included in the national pricing policy; those prices will vary on a statewide basis. I know from my own travels that pricing in that sector can vary in the same chain depending on whether you're in a capital city or elsewhere, so that still represents something of an improvement.

The second thing to note is that the national price consistency guarantee only applies to 8,000 products, and we're not told whether these are "core" products or relatively obscure lines. Yes, we're still told these prices won't vary within a given state, but there's no promise they won't be hugely different between states.

University of New South Wales professor Frank Zumbo argues that this is the biggest potential problem with the deal. "With these types of announcements the devil is always in the detail and the onus is on Coles to tell consumers which products will be affected and by how much retail prices will change on the affected items," he said in an analysis of the deal.

Major supermarket chains have to be cautious with their pricing policies, as some activities attract the attention of the ACCC. While both Coles and Woolworths were allowed to proceed with major fuel discounts for big-spending customers last year, any activities deemed anti-competitive would be pounced on quickly.

Come February 1, will you be carefully checking the prices at Coles, or are your budgets more influenced by other factors? Share your thoughts in the comments.

Coles statement [PDF link]

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Comments

    Coles?...

    Shop at Aldi mate! or Woolies or Franklins..or IGA etc.

    IF you shop at the one place (which is what Coles is trying to do with that marketing), then you need stop being pansy and go to few shops and grab bargain.

    go to the markets for fruit & vegies..dont shop from coles/woolies for fresh fruit etc..(lol fresh fruit..you never get fresh nowadays, unless you grow it in your backyard).

    But yeah, with dominant market share along with Woolies, Coles can do what they want.

      With regards to fresh fruit, I've always been more disappointed with what I get at markets. In my experience, the fruit/veg at Supermarkets tends to get a higher turnover, whereas at the markets it sits in the bottom of a bin for days before finally being thrown out.

      I can imagine that it's somewhat of a lucky draw either way - get there when fresh stuff is delivered and you're set, but so far I've had bad experiences with Markets and (mostly) good ones with Supermarkets.

    In answer to your headline no. Do you know how much it costs to transport produce from QLD to WA?

    Yes, They should be consistent. Grocery suppliers are required to supply the products to these major supermarkets on a national pricing. Doesn't matter if you deliver it to NSW, WA or Tas the price that the supplier gets is the same. They insist on this and should do the same to the consumer. But instead we see massive differences between the price in VIC and the price in TAS. The retailers claim its the cost of transport but its the suppliers which pay this cost when they deliver to the retailers state warehouses.

    As Coles now have higher prices for staple products in Sydney than in say Queensland, which price are they going to apply? The higher NSW price, or the lower Queensland price? On past performance, Coles will opt for the dearer price, you could bet on that!

    both woolworths and coles should be taken to the consumer protection for falce advertising. example how many times do we see special 5$ save 2$ its never been 7$ so how can you be saving 2$

    "It’s going to be more expensive to transport goods to remote locations, and while Coles doesn’t operate in tiny communities, if something gets delivered in bulk to (say) Brisbane, it’s going to cost more to transport it to Perth than to Sydney."

    By 40%? A roll of King Peppermints (imported from Holland) cost approx $1.75 at Woolies in WA, and we saw them for approx $1.25 in Noosa, QLD.

    In my opinion, supermarkets do what every good capitalist does and charge what the market can absorb.
    If people in WA are prepared to pay 40% more for lollies than those in QLD then the retailer will charge the premium.

    Coles would like you to believe that making prices the same across the country also makes the prices fair or cheap. Neither is necessarily true. It could mean they'll now screw us all equally.

    The big problem as I see it is a lack of competition. Coles and Woolies operate a duopoly which effectively keeps other retailers out. Even Wal-Mart won't come here because the big two have the market sewn up.
    If you want to pay lower prices for your groceries then it'll take government intervention to disallow protectionist practices between Coles and Woolies. As soon as the likes of Wal-Mart, Carrefour and Tesco are allowed in you'll see prices come down and quality go up.

    In the UK you've got Tesco ruling the root, but you've also got Sainsburys, Morrisons, Asda/Wal-Mart, Waitrose, Costco, Aldi, Lidl and Netto.
    The UK has to import most of its goods and is suffering an exceptionally weak pound at the moment, yet prices are still incredibly low compared to here. I have a completely new winter wardrobe mostly from Tesco where quality jeans were £7 (AU$13). We ate salmon whenever we wanted because salmon trimmings were less than 80p (AU$1.50) for 100g.
    I didn't care whether somebody in Inverness, Belfast, York or Llanfairpwllgwyngyllgogerychwyrndrobwllllantysiliogogogoch was paying the same as me -- what mattered was that the supermarkets gave me what I wanted at a very low price.

    So I'm wary of national pricing because it makes no guarantees about the prices I'm paying being fair or low.

    The answer, of course, is no they shouldn't be the same everywhere. I don't want to pay higher prices for my weet-bix to subsidise someone that chooses to live in a remote area. I already subsidise their postal and telephone costs, thanks very much.

    A model with the usual variable pricing for goods is pretty normal and reflects the costs of goods. So some of what Coles are doing is a bit of stunt.

    The article notes that Coles doesn't say on which types of good it will be based on but that already seems obvious. They will of course be linked closely to basic or core items that you can also find at Aldi and Costo and others. Such items, like say a can of beans or some pasta, are commoditised and the prices are easily compared, especially with the advent of unit pricing.

    Make no mistake that this is essentially a response to the expected growth in the other supermarkets. Aldi for instance is on the record saying that they are looking to add at least another 200 supermarkets, and Costo didn't just come to Australia to open one giant-sized supermarket. Coles is throwing down the gauntlet to put pressure on the new entrants and their other main competitor, Woolworths, whilst also signalling to their suppliers that costs and prices will be driven down. All of that is a good thing, but a form of national or state based pricing is not really necessary and is unlikely to be something customers really asked for in the first place.

    Of course, one trick they use to get around this is simply not to stock the cheaper brands. For instance, Coles does not always stock all the 'smart savings' brand items at all their stores.

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