Competition drives down supermarket prices in WA

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The establishment of international supermarkets chains in Western Australia has caused fresh fruit and veg prices in supermarkets to drop by the greatest margin across the country, according to the ‘Bankwest Future of Business: Focus on Supermarkets’ report.

The report shows Perth has the country’s lowest CPI for food and non-alcoholic drinks, with Perth shoppers spending one per cent less in September 2017 compared to the previous year.

Prices for Perth fruit and vegetables declined by 6.9 per cent in the year to September 2017. Similarly, prices for bread and cereals dropped 1.6 per cent, meat and seafood prices fell by 0.2 per cent and dairy products were down by 1.4 per cent.

“The supermarkets industry is now one of the most fiercely competitive industries in the nation due to the rapid growth of international retailers competing for a share of the $100 billion industry,” Bankwest General Manager of Business Banking WA Richard Bator said. “Discount retailers are all rapidly growing their market share and the effect is being seen nowhere more than in WA.”

According to the report, Australian prices for food and non-alcoholic beverages declined by 0.7 per cent in the year to September 2017 compared with Australia’s Consumer Price Index (CPI) growth of 1.8 per cent. Notably, Perth’s CPI also was the lowest across the country:

City One-year change Five-year change CPI
Sydney -0.5% 2.3% 106.4
Canberra -0.8% 0.5% 104.7
Melbourne -0.8% 1.2% 104.9
Darwin -1.3% -0.1% 104.5
Adelaide -0.9% 0.1% 103.9
Hobart -1.2% 1.1% 102.9
Perth -1.% -1.4 101.6
Food and non-alcoholic food and beverage CPI (September 2017) (ABS 6401)

 

The report also highlights the effect the increased competition is having on smaller retailers.

“The grocery price war, caused by this intense competition, is making it difficult for the smaller businesses in the sector, with the number of grocery retailers employing fewer than 20 staff, declining by 10.6 per cent in the year to June 2016,” Mr Bator said.

“However, opportunities remain for smaller operators to diversify into more specialised markets ⎼ a move which has proved successful for those retailers who’ve already made the switch. The growth in demand for gourmet, organic and gluten-free products present opportunities to differentiate and meet changing customer needs.”

The report predicts a positive outlook for Australian supermarkets and grocery stores with the authors projecting revenue growth of 9.3 per cent in the five years to June 2022.

“Technology and big data will become increasingly important as companies seek to better understand their customers and offer greater convenience,” Mr Bator said. “However, success hinges on their ability to provide customers a seamless digital experience and maintain a high level of trust in these channels.”