Aldi drops its own price bomb in supermarkets’ targeted price attacks

Aldi has joined the Australian supermarket tit-for-tat price contest begun by major players Coles and Woolworths to ensure its discount gap stays in place.

The German multinational chain has lowered prices by about 1 per cent to ensure its discount bona fides in response to the premium supermarket chains’ recent price bombs.

It is all about the selective discounts for supermarkets.Credit: Getty

The price drop is Aldi’s largest in 18 months, according to JP Morgan’s price tracking analysis.

What we are seeing is a precision strike on prices of select and mainly home brands from Coles and Woolworths rather than store-wide discounts.

Sure, supermarkets want to help customers ease cost of living stress, but a series of selective price cuts has more to do with luring those large-trolley shoppers into their stores with, let’s say, cheaper nappies, and having them throw in items that are not discounted.

Woolworths fired the first salvo last month in a $100 million land-grab. Coles’ response of matching Woolworths was almost immediate, which brings into question the effectiveness of Woolworths’ move.

Supermarket shoppers are a promiscuous bunch and are even less loyal because times are tough.

“There is no material-sustained price advantage for Woolworths after investing $100 million into private-label pricing in May, given the quick responses from Aldi and Coles,” JP Morgan analyst Bryan Raymond said.

“It is more about getting value perception back with shoppers, and encouraging branded suppliers of products to invest along with Woolworths to help drive better value for consumers in both home brand and popular branded products.”

In supermarket-land, loyalty is elusive. Rather, supermarket shoppers are a promiscuous bunch and are even less loyal because times are tough. Both supermarkets admit customers are in peak shopping-around mode as they look for the best deals.

Customers love nothing better than a price feud between supermarkets, but as Raymond contends, this hasn’t escalated into a full-scale price war.

He believes the supermarkets are still behaving “rationally”. For shoppers to feel the love, supermarkets would need to be a bit crazy.

So who is winning?

This month, Woolworths prices were 8.6 per cent higher than those at Aldi, and at Coles prices were 8.2 per cent above Aldi. Raymond said this was a little below the two-year average of 9 per cent.

Woolworths has not continued with further private-label price investment following Coles’ and Aldi’s response. To do so would erode its profit margin – an unpopular outcome for shareholders.

What this burst of discounting suggests is that there is at least some level of competition in the sector.

This certainly plays well into the optics for supermarkets that have been roundly accused by politicians of price-gouging, and there have been calls to force store divestiture.

Both supermarket groups have suffered brand damage over the past year and been blamed (not always correctly) for the cost-of-living pain many customers have experienced.

But given the price retaliation from Coles and Aldi to Woolworths’ price grenade last month, further investment in lowering prices may strike all players as counterproductive.

“We would expect the next round of [Woolworths’] investment to be more nuanced, rather than a direct shelf -price reduction on commodity private label products, as we don’t believe Aldi will allow Woolworths or Coles to challenge their low price position,” Raymond said.

If the discounting is removed from the equation, a slightly different outcome emerges, according to the Choice Supermarket basket quarterly survey.

“Aldi had the best deal for shoppers looking to keep cosy this winter, with the full basket of 14 items without specials costing $55.35. Woolworths wasn’t too far behind at $58.92. The Coles basket without specials came in at $59.22, and the IGA basket would cost you $69.74,” says Choice chief executive Ashley de Silva.

Prices at Coles and Woolworths this month were more than 8 per cent higher than at Aldi. Credit: Getty

Without specials, Woolworths had the cheapest chicken breasts and pumpkin, while Coles had the best deal on apples. At IGA, you paid less for carrots and garlic than at the three other supermarkets, according to Choice.

“When taking into account specials, Aldi still came out on top, with its basket costing $54.44. Coles was next at $57.67, then Woolworths at $58.86, and IGA at $67.54,” says de Silva.

For the cheapest outcome, you need to shop around.

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