Aldi joins the meat price war

ALDI has given meat prices the chop with cuts to lamb legs and other fresh meat products. And it’s not done yet.

EXCLUSIVE

ALDI has moved to cement its price-leading position with cuts to lamb legs and other fresh meat products, as a new basket comparison reveals Woolworths still lagging behind Coles.

From Wednesday, Aldi has slashed its lamb legs by 50c to $9.49 per kilo, its chicken drumstick 2kg packs by 50c from $6.49 to $5.99 per kilo, and its whole chickens by 20c from $3.99 to $3.79 per kilo.

The cuts of between 5 to 8 per cent come after Woolworths last week announced significant cuts to its lamb legs and other fresh meat products, which were immediately matched by Coles.

The 28 per cent reduction in Woolworths’ regular price for lamb leg roasts was part of a $45 million spend on lowering prices in the meat category. Coles immediately followed suit with a 30 per cent promotional discount.

Both supermarkets said they were dipping into their own profit margins to pay for the price cuts. Aldi would not say how much it is spending on the latest round of cuts, and said only that it was working to “minimise” the impact on suppliers.

“Aldi is and always will be the price leader in the Australian market,” a spokeswoman said.

“Our unique business model and streamlined operations ensure we continue to maintain this position, even when there are fluctuations in the economy and product pricing adjustments.

“As a discount retailer, Aldi will not be beaten on price. However, as a business, we do not support the introduction of pricing levels that are unsustainable in the long term and may put pressure on the supply chain.

“When pricing adjustments are needed with any of our suppliers due to changes in the market, we work closely to minimise any negative impact and achieve the best outcome for their operations and our customers.”

National Farmers’ Federation chief executive Tony Mahar last week warned farmers could not afford to absorb any price cuts due to increasing energy and transport costs, commodity price fluctuations and the impacts of droughts and floods.

“We’d be concerned if there was an ongoing approach from retailers to discount meat and that flowed back to farmers,” Mr Mahar told AAP.

“It’s fine for retailers to drop their prices periodically, and they have done that in the past, but if there were any moves towards a more sustained price reduction then we’d want to make sure it comes from the retailers’ margins.”

PERTH NOW / THE SUNDAY TIMES generic Aldi image. Inside the new Aldi supermarket in Kwinana. It is the first self standing Aldi in the state (others are inside shopping malls). Lots of local meats and dairy can be found inside.

Forager Funds senior equities analyst Daniel Mueller said the risk — which had now played out — of Woolworths cutting meat prices was that “it just creates another deflationary price spiral”.

“Coles followed suit, now Aldi, in which case the only real beneficiary is the consumer,” he told news.com.au. Mr Mueller said the Woolworths’ prices had come down significantly over the past 12 months but it was still battling perceptions that it was more expensive.

“By cutting the price of meat it made the headlines, but given how quickly its competitors have moved, the value from the perception being addressed is more than offset by the lost revenue,” he said.

On the question of how low prices can go, Mr Mueller, said it “depends how low Woolworths’ margins can go”. “They were over 7 per cent just over a year ago, at their half-year result they guided 5 per cent,” he said.

Looking at global comparisons, Mr Mueller said EBIT margins for a lot of UK retailers peaked in 2012 and were “still trying to find a bottom”.

“In the case of Tesco and Morrisons, they’ve gone from mid- to high-5s to mid-1s. Carrefour in France peaked in 2004 and it took them eight years to find the bottom,” he said. “If this kind of deflationary price war continues, the consumer is the big beneficiary and the shareholder has the most to lose.”

A comparative basket analysis — conducted by Aldi — of eight everyday meat items including chicken wings, sausages and beef mince, found the German discounter was nearly 20 per cent cheaper than Woolworths and 17 per cent cheaper than Coles.

Based on prices in NSW as of June 22, the meat basket came out to $93.52 at Aldi, compared with $112.55 at Coles and $114.94 at Woolworths, meaning customers would save between $19.03 and $21.42.

However, Coles and Woolworths both hit back, claiming some of Aldi’s prices were wrong. According to Coles, the actual figure should be $110.25, or $16.73 more expensive. Woolworths says its basket should be $112.95, or $19.43 more expensive.

Last month, an analysis by Credit Suisse found Woolworths was 23 per cent more expensive than Aldi, while Coles was 26 per cent more expensive.

Inside the new Aldi supermarket in Kwinana. It is the first self standing Aldi in the state (others are inside shopping malls). Lots of local meats and dairy can be found inside.

Credit Suisse’s basket of 110 packaged and fresh items was $573 at Woolworths in the last week of May, compared with $586 at Coles and $465 at Aldi.

“Aldi has consistently led the market on pricing, with independent research finding shoppers save up to 30 per cent when comparing like-for-like single items and the full weekly family shop,” the Aldi spokeswoman said.

It comes after Coles boss John Durkan hinted at the possibility of a full-blown price war, which UBS has warned would only benefit Aldi, with IGA the most vulnerable.

Price cuts across a range of items helped lift Coles’ comparable food and liquor sales by 4.9 per cent during the third quarter of the current financial year, while rival Woolworths’ food and liquor sales declined 0.9 per cent.

In a statement, a Coles spokesman said all Coles brand chicken was “100 per cent Australian RSPCA approved”.

“[That] means the chickens and their barns have been independently audited by the RSPCA to ensure that the birds have the correct quality and quantity of room, lighting, perching and the their welfare is being maintained,” he said.

“Our fresh pork is 100 per cent Australian, sow stall free pork.

“[And] unlike other value-priced sausages which are simply labelled ‘meat’ and can contain any variety of animal, our bulk pack beef sausages are made with no added hormone Australian beef and are completely gluten free.”

A Woolworths spokesman said the supermarket “works hard to ensure our customers get high-quality meat products at great value”.

“As part of our ‘Price Dropped’ commitment we recently reduced prices across many favourite meat items, including a beef or pork sausages 680g pack down to $5, regular beef mince down to $8 per kilo, and lamb leg down to $10 per kilo,” he said.

“We are committed to lowering prices across the store for our customers including many big brand items also recently reduced.”

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