Woolworths, Coles and Aldi could wage new price war after supermarket leader slashes chicken schnitzel, Coke prices

Woolworths boss Amanda Bardwell this month unveiled a $100m investment in lower shelf prices to bolster its competitive credentials, but this could drag Aldi and Coles into battle mode.

Woolworths CEO Amanda Bardwell has invested $100m into lower shelf prices. Picture: Renee Nowytarger

Woolworths’s $100m pitch to shoppers that it can deliver savings at the checkout by reducing the shelf price of more than 400 groceries from Greek yoghurt to tomato sauce could set-off a price war with Coles and German discounter Aldi.

The nation’s largest supermarket chain reduced prices this month funded by its $400m in targeted cost savings in a bid to cool the growth of Coles.

A new report from JP Morgan analyst Bryan Raymond on the state of play in the Australian supermarket sector has revealed that Woolworths’s traditional price premium to Aldi was broadly stable at 7.7 per cent in May, against 7.6 per cent in April, despite Woolworths promising on May 12 that prices on nearly 400 pantry essentials will fall by an average of 10 per cent.

Aldi is expected to defend its price discount to Woolworths and Coles. Picture: Evan Morgan

However, at a 7.7 per cent premium to Aldi, Woolworths is narrowing the gap from a blow-out to above 10 per cent last year. The JP Morgan report notes that Coles’s price premium to Aldi remains in the middle of the range at 8.4 per cent in May, against 8.7 per cent in April and 8.6 per cent in March.

However, Aldi is yet to respond to Woolworths’s gambit.

The broker is expecting a competitive response so Aldi can defend its credentials as a low-price supermarket that offers a compelling advantage over both Woolworths and Coles.

“Woolworths’ lower shelf price program has generated uncertainty amongst the market given it is clearly designed to drive value perception and halt the loss of value shoppers to Aldi with a shift in behaviour around the core weekly shop a concern,” Mr Raymond said.

“Small shelf price reductions of around 5 per cent to around 10 per cent for products in the LSP (lower shelf price) program are typical, largely eliminating the price premium to Aldi that was seen prior to the price change.

“While generally not moving below Aldi, this is likely to drive a price response from Aldi given their need to demonstrate relative value, and significant room to move on price given healthy margins. Concerns will ratchet higher if Woolworths continues to drop shelf prices in response. While the magnitude is uncertain, the gross margin cycle has likely turned, where reinvestment in value for shoppers is the focus for Woolworths and Coles, funded by cost-out.”

A new price war at the supermarket checkout could be brewing. Picture: Monique Harmer

Earlier this month, Woolworths boss Amanda Bardwell announced her maiden pricing strategy since taking the reins of the supermarket giant last year, unveiling a more than $100m investment across 400 mostly private label grocery products.

The retailer also engaged with its suppliers to reduce shelf prices across a basket of other items.

At the time, Ms Bardwell said she had “listened to customers” and Woolworths was now acting “to do more” on grocery bills. Woolworths said the lower pricing schedule would run every week until 2026, and was not just a one-off or seasonal promotion.

Woolworths 600g chicken schnitzel was reduced to $9 from $10.50 and 2L Coke $3.70 from $4.20.

The pricing strategy was seen by analysts and investors as partly a response to the recent outperformance by Coles in terms of sales growth, and which saw growing pressure on Woolworths.

Not to be outdone, Coles has also announced new lower prices for a bulk of grocery items to lend further credence to discussion of a price war between the major supermarket players.