Flight to value for shoppers as food costs soar

Australians facing steeper interest rates and soaring cost of living are switching to cheaper cuts of meat and private label groceries to make their dollar go further.

Woolworths chief executive Brad Banducci.

Australian households under intensifying pressure from steeper interest rates and the soaring cost of living are pulling back on eating out to opt for cooking at home, and are filling their shopping baskets with cheaper private label groceries, like canned tuna and tinned tomatoes, to save money.

This shift in consumer spending patterns has accelerated since the start of the school year as many parents face fresh education bills – from school fees and uniforms to fees and packed lunches – with cheaper frozen food becoming more popular and many women choosing supermarket beauty and cosmetics products rather than more expensive branded make-ups.

A decision by Australia’s largest pizza chain Domino’s to add a surcharge to its deliveries triggered a fall in pizza sales as diners baulked at the cost impost.

But money saved at the supermarket or restaurant is being spent by some on travel with Flight Centre, the nation’s biggest travel company, revealing consumers are happy to pay abnormally high airfares. “The leisure business is currently trading at post-Covid highs and corporate travel activity escalated after the traditional holiday period,” Flight Centre managing director Graham Turner said on Wednesday releasing the half year results. “This underlines both the significant pent-up demand that still exists for travel in this early recovery phase and the sector’s proven resilience.”

Reporting season for Australia’s companies listed on the stockmarket, which began this month and is now almost at an end, has revealed for the first time consumer spending habits for the six months to Christmas and the willingness of people to spend at the shops into January and February.

Woolworths Group, Australia’s biggest retailer whose stores include No.1 supermarket chain Woolworths as well as discount department store Big W, unveiled its latest financial results on Wednesday and its chief executive Brad Banducci said he had witnessed a flight to value by the shopper in the face of rising cost of living expenses.

This has seen a large rise in the sale of private label or own brand groceries, which traditionally are cheaper than branded groceries.

“What we have seen inside our business is material growth in own and exclusive brands when they really do overdeliver for the customer. And they can either overdeliver at an entry prices … or in some cases actually be inspirational at an affordable price,” Mr Banducci said.

“If you just take a look at long life (packaged groceries) our growth in the owned (private label) and exclusive brands was just over 5 per cent. But in that context there were categories that were very, very hard double-digit growth.

Mr Banducci’s comments come a day after Coles confirmed the rush to value by shoppers as they tighten their belts, with Coles’ private label groceries up 12 per cent in the September quarter, which Coles’ outgoing boss Steven Cain called out as a “big number” and one of the biggest jumps in private label sales he had seen.

Woolworths and Coles have also seen a switch to cheaper meats, from beef to white meat such as chicken, or shoppers picking cheaper cuts of steak as well as much cheaper mince.

Canned and frozen foods were also filling shopping baskets.

“When you get to some other categories, the growth (in private label) has been extraordinary,” said Mr Banducci. “Whether it’s our canned tuna … just amazing in some key categories, you know, whether it’s canned tomatoes, or whatever the case may be.”

Mr Banducci said as the school year had begun, he had noticed a step change in demand for cheaper groceries.

“Customers have come back as kids have gone back to school, we are seeing an acceleration in our value-added own brands.”

Australians were also saving money by eating out less at restaurants and cafes to instead cook at home, making the family budget stretch further.

“In January we still saw a lot of eating out … but there seems to be a slow move back to trading into the home.

“That would appear to be the trend, and that includes across all of the demographics across Australia,” Mr Banducci said on Wednesday.