Is Aldi the fix for NZ's supermarket pricing issues?

Wednesday, 29 September 2021

OPINION: Following the Commerce Commission's retail grocery sector draft report, I read a couple of articles comparing overseas food prices to New Zealand, and, unsurprisingly, we did not come out well.

One article concluded that once UK prices were converted to our dollar, we are paying approximately double.

Food prices overall in the UK are lower, as might be expected in a country with a much larger population, but as one who lived in the UK for many years, I observed many New Zealand food items that were cheaper to buy in the UK than here where they are produced.

This may be partly influenced by the fact that UK groceries are not subject to VAT (their equivalent to GST), which is the case in most countries, including Australia.

* NZ supermarkets - the illusion of choice when there are just two big players

* NZ too small for another supermarket to break Foodstuff and Countdown duopoly**

Apparently the prevailing view in New Zealand is that this is too hard to implement.

So, how come everyone else can do it?

It’s pretty obvious that prices of anything are affected by lack of competition, and the cosy duopoly which owns all of New Zealand’s supermarkets doesn’t appear to try very hard to sell at lower prices than their competition.

When we first moved to the UK in early 1999, the supermarket sector there was dominated by a few (not two) big players. Tesco was the market leader, followed by Sainsbury’s, Asda, Safeway, and Morrison’s, plus a few small 'discount' supermarkets.

Eventually, Morrison’s bought out Safeway and Asda bought out Netto, so then we had the 'Big Four', with Aldi, Lidl and the Co-op the main smaller operators.

The Big Four had the usual 'specials' with prices increased for a couple of weeks then advertised as 'on special' when they dropped back to normal price.

Sound familiar…?

BOGOF’s (Buy One Get One Free) were common, probably indicating that the real value per product was about half what you were paying.

Aldi and Lidl mostly just had cheaper own brand prices.

There was a bit of a reluctance to shop at a 'discount' supermarket where there was a perception you might not find everything you wanted, and the stores were basic with a quirky middle specials aisle where you could find anything from a dishwasher to clothing items to pots and pans to a battery-operated screwdriver, depending on what was on offer that week.

When we first visited Aldi for a test shop, there was no problem finding a space in the car park, most of the cars were older family sedans and the aisles were relatively empty of shoppers.

Then came the GFC, which affected the UK severely, and suddenly Aldi and Lidl became very popular to the extent that even mighty Tesco suffered a hit in sales and profit, sending shockwaves through the supermarket sector.

By the time we left the UK in 2015, you couldn’t get into the Aldi car park for the late-model Range Rovers, Audis and Mercs.

The aisles were crowded, the stores had had a facelift and the price for your weekly shop was still about 20-30 per cent cheaper.

Lidl was similar.

Aldi is a German budget supermarket chain opens that operates in Australia - so why not New Zealand?

Aldi is a very successful German discount supermarket group and a decade ago was the UK’s tenth largest food retailer, accounting for less than 2 per cent of the grocery market.

In December 2020, its UK market share was nearing 8 per cent, on track to overtake Morrison’s for fourth place.

Aldi regularly win awards for 'Best Supermarket' and many of its products are declared better than branded items in blind tests.

I’ve focussed on Aldi for good reason. It’s the only one to enter the market down under, in Australia, and has had a similarly disruptive influence on the formerly comfortable duopoly of Coles and Woolworths.

Aldi launched in Australia in January 2001 and by 2020 had a market share nearly half of Coles Group.

It is now Australia’s third biggest player in the supermarket sector.

Anyone who has shopped for food in Australia can see the effect Aldi had on the supermarket sector: It’s evident that grocery prices in Australia decreased once Aldi entered the market.

The same could happen here.

I regularly visited Australia before Covid-19 and was always astonished at the low price for my trolley of staple products.

Again, lack of GST on groceries is a factor, but having a successful third operator keeps the market honest.

The answer for New Zealand is clear.

Many ex pats have been calling for years for Aldi to come to New Zealand.

There’s even a 'Bring Aldi to NZ' facebook page.

Given the infrastructure required, they would need considerable persuading to enter the tiny New Zealand market, as well as a local distribution centre or two given the separate islands.

But if the government is serious about sorting out the supermarket sector, now is the time to take positive action and invite Aldi in, and make it easy for them.

Just do it.

The families of New Zealand would thank you.

Don Douglas is a retired Broadcaster from Christchurch.