Are Coles and Woolworths ripping you off? To find out, we compared prices across Australia, New Zealand, UK, and Ireland.

By A/Prof Flavio Macau and Dr Alex Wang - September 26, 2024

Food prices in Australia continue to escalate, with a 7.5% increase last year contributing to an unexpected rise in inflation, indicating that the cost-of-living crisis is far from resolved. This multi-faceted issue encompasses geopolitical tensions, global supply chain disruptions, and government spending. This week, however, attention is particularly focused on supermarkets, notably Coles and Woolworths. The forthcoming supermarket review is a much-needed evaluation of how market concentration may be disproportionately impacting consumers and suppliers in Australia. Even before its official release, public opinion has largely concluded that Coles and Woolworths reap excessive profits at the expense of the greater good.

Evidence appears to support this sentiment. Choice , in its inaugural quarterly report tracking the prices of 14 grocery items, discovered a mere 75-cent difference between the baskets of Coles and Woolworths. In contrast, the Aldi basket was 25% cheaper, offering consumers significantly better value for their money.

But what if there's more to the story? To gain a deeper understanding, it's essential to compare Australian food prices with those of similar countries and examine the effects of market concentration on consumers in those regions. To address these questions, we analysed food prices for 49 products across four countries between April and May. Additionally, we evaluated the performance of Coles and Woolworths from November 2023 to April 2024.

Guilty as Charged

Our first stop was the Grocery Price Index , which compares prices between Coles and Woolworths over the months. Data indicates that prices are always nearly identical (Table 1). Out of 50 products, typically 45 would cost the same, regardless of the supermarket. While a basket of these products would cost just under $300, the overall price difference would be less than a dollar in most months.

We corroborated these findings by collecting our own data at different times of the month and found similar results. This evidence suggests that Coles and Woolworths consistently set similar prices, limiting consumers' ability to benefit from competition. Except for fresh produce, consumers usually pay the same amount regardless of where they shop.

But are these prices similar because they represent the lowest possible cost? To investigate this, we collected data from three other countries comparable to Australia in terms of economic development, market concentration, and cultural background: New Zealand, the UK, and Ireland. This broader analysis aims to determine whether Australian consumers are truly getting an unfair deal.?

Differences Overseas

We collected online prices for an equivalent basket of products in New Zealand, the UK, and Ireland. Our primary goal was to assess whether competition is more intense in these countries compared to Australia. In New Zealand, Pak’n’Save and Countdown (Woolworths) hold over 70% of the market share, which is higher than the combined 65% share of Coles and Woolworths in Australia. In the UK, Tesco and Sainsbury's account for about 42% of the market, while in Ireland, Dunnes and Tesco hold a 45% share.

From the outset, it was evident that prices vary significantly more overseas (Table 2). In the UK, over half of the products showed differences between the two main players. Where prices were identical, it was typically to match Aldi, a robust third competitor. In Ireland, prices differed for two out of every three products, while in New Zealand, all but one product had different prices when we collected our data.

While differing prices suggest more choices for consumers, this alone does not confirm that Australians are worse off. The final step of our analysis was to compare these prices while accounting for purchasing power parity in these countries.?

A surprising outcome?

Comparing prices across countries presents challenges due to differences in package sizes and product availability. For instance, the closest equivalent to a 375 ml Coke in Australia and New Zealand is the 330 ml Coke in the UK and Ireland. In Australia, Jumbo Size 1 packages of nappies contain 108 units, whereas in Ireland, they contain 150. Even for widely recognized products like cereals, brand differences can complicate direct comparisons. Only a few products, such as the Extra Spearmint Sugar-Free Chewing Gum Bottle (64 g), remain consistent across these markets.

To ensure accuracy, we converted prices to Australian dollars and standardized quantities to the same unit (kilograms, litres, units). The resulting heat map provides a comparative snapshot (Table 3).

This analysis reveals that while Australians may not be receiving the best possible deals, they are not in the worst position either. Specifically, the cost of this product basket ranges from $324 to $332 in Australia, $342 to $409 in New Zealand, $313 to $345 in Ireland, and $283 to $297 in the UK.

While consumers in the UK look like winners in terms of lower prices, Ireland does not take second place when considering wage levels. Although prices may be slightly lower in Ireland than in Australia, so is the minimum wage (Ireland $20.75; Australia $23.23). One would need to work an additional one or two hours there to afford the same basket of goods here.

Using the median wage as a reference, Australia ($65,000) aligns closely even with the UK (56,700). Annually, both UK and Australian consumers spend slightly over 13% of their wages on these groceries. This data illustrates that while supermarket checkout prices are a genuine concern, Australians are not alone in facing this issue; similar countries are experiencing comparable struggles.

Implementing radical solutions, such enforcing as divestiture powers on supermarkets, might have counterproductive effects, potentially increasing prices due to rising costs. Despite the perception that their profits are substantial, those are relatively modest compared to overall costs and revenue. In 2024, The earnings before interest and taxes (EBIT) divided by sales - a common business KPI - showed that the performance of Coles (4.8%) and Woolworths (4.7%) ahead of Pak’n’Save (2.6%) and Countdown (1.3%). Tesco , after a difficult year in 2023, had an EBITDA/Sales rate of 7.1% this time, marking a significant recovery in this financial year. Dunnes, being privately owned, does not publicly release this data.?

What can you do to ease the cost-of-living pain?

Supermarket checkout prices are indeed a complex issue with no straightforward solutions. In the absence of a magical fix, the best strategy for consumers is to compare prices at every opportunity. Taking advantage of promotions and buying in larger quantities when feasible can help mitigate costs.

Monitoring new online entrants, such as Amazon Subscribe & Save , may also lead to better deals. Additionally, leveraging your network of family and friends, and employing good management skills, can enable you to buy in bulk directly from wholesalers and local farmers, potentially securing lower prices.

Investigations prompted by the Australian Competition and Consumer Commission (ACCC) now delve into allegations of consumer deception and supplier mistreatment by Coles and Woolworths. Accountability is key and supermarkets must face any measures outlined in the Australian Consumer Law. However, vilifying them is not a fix for the cost-of-living crisis. A strategy that empowers consumers with smart shopping practices and encourages strategic purchasing could offer a more immediate and effective solution.