When customers benefit from price wars

Prices between Coles’ and Woolworths’ private label brands and those at discounter Aldi have gone down by as much as 70 per cent in the past two years. According to the AFR, this reflects the major chain’s $1.6 billion investment into reducing prices.

At the moment, many private labels are under 10 percent pricier at Coles or Woolworths than one in Aldi. This is in comparison of the price gap of 23 per cent when Choice conducted a similar survey two years ago. This is reported as part of the larger strategy of neutralising competition from Aldi by trimming the prices of private label brands to appeal to bargain-hungry shoppers. Coles and Woolworths have also re-engineered their private label ranges to better compete with Aldi, improving packaging and product formulations to overcome consumer perceptions that their own-brand groceries were inferior to those at Aldi.

In addition, the price gap on leading national brands has also fallen, from 99.5 per cent at Coles in 2015 to 66 per cent in 2017, and from 101.6 per cent at Woolworths to 64.6 per cent, according to AFR.

 Even though Aldi still remains the cheapest option, the price differential has narrowed significantly across the board as the major chains attempt to claw back market share from the discounter, which is now estimated to account for about 10 per cent of food and grocery sales on the eastern seaboard.

 Citigroup analyst Bryan Raymond said Coles and Woolworths were attempting to minimise the loss of customers to Aldi by demonstrating better value with a mix of national and improved private label brands.

“In some respects it’s about slowing (Aldi’s) growth,” Mr Raymond said.

“Aldi has made material market share gains and Woolworths and Coles need to be careful they don’t lose shoppers because they don’t have a good value offer – they’ve made good progress on that over the last two years.”

 “Aldi is still growing but the loss of customers from Woolworths and Coles has moderated and some of that is rightly attributable to their private label positioning,” he said.

 According to Coles managing director, John Durkan , Coles was prepared to cut prices ahead of cost savings to ensure the supermarket chain stayed cheaper than Woolworths, which has invested about $1 billion into prices over the last 18 months.

“We’re going to carry on investing in lower prices to make sure we do what we said we’d do, which is to be the cheapest supermarket,” Mr Durkan said.

“We’re going to do it in a measured way [and] eventually our cost savings will pay for our investment in our business.”

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