Say goodbye to cheap roast chooks at Coles and Woolies
After years of Coles and Woolworths slashing prices in a bid to gain market domination, the two major supermarkets are employing a new strategy that strays away from discounted prices.
The roast chickens at Coles and Woolworths have increased from $8 to $9, with this $1 raise being described as an “industry-changing event” which could signal the end to of the “race to the bottom”, according to a retail analyst.
On Wednesday, Bank of America Merrill Lynch analyst David Errington said Coles tested the new price at a select number of regional stores a few weeks ago, prompting Woolworths to follow suit.
Coles then rolled out the increased price nationally and Woolworths followed.
“From our estimates, at $8 no supermarket makes any profit from selling barbecue chickens and Woolworths sells around 50 million chickens annually and Coles sells just over 40 million,” Mr Errington said in the note, reported by The Australian.
“A $1 price move is material but more importantly to us is a likely symbol that Coles and Woolworths are now looking at ways to improve profitability without compromising competitiveness.”
Mr Errington said the $1 increase was an indicator of broader price rices to come in the grocery sector.
“Australian food retailers show they don’t ‘hate’ money,” he said. “We believe the margins in the Australian supermarket industry have fallen too aggressively in the past two years, and that all participants are likely to allow price inflation to modestly return after a lengthy period of deflation.”
This change follows Wesfarmers announcement to spin off Coles as a stand-alone ASX-listed entity.
Mr Errington said this move would result in broader price increases as a stand-alone Coles will be unable to aggressively discount.
“An ongoing strategy of price deflation has been damaging to the industry as earnings across Coles, Woolworths and Metcash have decreased by 30 per cent between 2015 and 2017 and margins have contracted from 5.7 per cent to 4.1 per cent over the same time,” he said.
“In appears to us that the industry has now rebased and is currently in a position where price increases that support higher sales, earnings and cash generation, can be reasonably expected.’’
Coles has also made the decision to halt its “Down, Down” campaign, which first appeared in 2010, in order to talk about the positive role the supermarket plays in the community.
However, both stores have stressed that their prices overall will continue to fall.
A Coles spokesman said, “We dropped the price of whole hot roast chickens from $11 to $8 more than two years ago and as with all of our Down Down and Every Day price drops, the intention is for these prices to stay down for a minimum of six months.
“Hot roast chickens are still almost 20 per cent cheaper than they were two years ago, and this change allows us to invest in lowering prices on other products that are important to our customers.
“In the past 12 months, we’ve cut prices on thousands of products including sliced ham, fresh salmon and cleaning supplies and we now have more than 4000 items on Every Day pricing so customers can be sure they will get great value every time they shop with Coles.”
A Woolworth spokesperson said, “At Woolworths, we understand that every dollar counts and work hard to provide a more affordable weekly shop for our customers.”
“In 2016 we dropped the price on our hot roast chickens from $11 to a market leading price of $7.90. Earlier this month we reluctantly moved the price to $9 due to an increase in input costs, particularly feed cost, which is a key component of producing chickens for our suppliers.
“The new price still represents a $2 saving on the everyday price of two years ago. In the last few months at Woolworths, we’ve dropped the price on hundreds of products, with a real focus on family essentials such as salads, biscuits, pastas, nappies, meats as well as household cleaning items.
“As we continue to keep prices low on as many everyday family essentials as possible, we are also focused on dropping the price on healthier alternatives to ensure all Australians have access to making better food choices.”