Grocery Prices

Reporter: Helen Wellings

Producer: David Dutton

You've no doubt noticed the discount wars between Coles and Woolworths - luring customers with masses of special offers, multi-buys, giveaways, petrol discount vouchers and frequent flyer points. But while you might be getting a good deal on specials, industry observers say overall we're being forced to pay far too much at the supermarket checkout.

Helen Wellings' exclusive investigation reveals exactly what we're being charged for our daily food and groceries - compared with prices overseas shoppers pay.

"The Australian consumer is being ripped off and paying too much for grocery prices and competition has collapsed in the market" says Craig Kelley.

"Australia must come out at Number 1 as being the most expensive place to do your grocery shopping. And the real challenge is to find somewhere more expensive" says Nick Stace.

Three identical baskets of groceries from Coles, Woolworths, and supermarkets in the United Kingdom. What's not identical is the price. Australian shoppers pay more, far more than UK shoppers. We pay up to $2,000 extra a year for exactly the same items. Here's how massive mark-ups are hitting your wallet.

"It's incredibly expensive... your evidence today shows that is exactly the case that even with a loaf of bread, nearly 2 and a half times the price here than it would be in the UK … Vegemite for example .. $2.99 in Australia, Coles and Woolworths. Here at Sainsbury's it is $2.54 and ASDA it is $2.86" says Nick Stace.

When Nick Stace, CEO of Choice saw the results of Today Tonight's latest expose on the prices of everyday supermarket items he concluded ... we're being conned.

"I think the supermarkets here particularly Woolworths and Coles have tried to deceive people really over the last few years by saying that consumers in Australia are getting good value for money. Well they are not" adds Nick.

To compare prices, we bought 31 food and grocery items, brand-names only, from Coles and Woolworths. We chose the equivalent item from the UK's big 4 supermarkets. First, some true blue Aussie products - Milo - in the UK it's $1.77 - in Australia $3.26 at Coles and Woolworths .. 84% dearer here! Vegemite - the Brits enjoy it at $2.54 but even though it's made in Australia, we pay $2.99.

"It's 18% more expensive here than in the UK and it has to be exported to the UK and all the taxes and all the other things involved in that. It is unbelievable and just demonstrates the complete rip-off that Australian consumers have to put up with" says Nick.

"Every working family should have at least 3 to $4000 extra in their pocket which they don't have because of inflated grocery prices in Australia" says Craig Kelly.

Craig Kelly of the Southern Sydney Retailer's Association says our grocery prices should be going down, not up. For a start, the cost of raw materials, oil and packaging have fallen. And our annual inflation rate's dropped to a low 1.5%, but food inflation's three time's that - 4.7% increase a year.

"Some of the items can be a bait and switch. They can put one item up the front that appears to be a very good price but as soon as you move away from that item you're being ripped off on everything else you touch" says Craig.

Our basic family staples - ordinary sliced white bread. UK shoppers pay $1.63, we pay $3.89 - more than double. 1 litre of Milk just $1.49 in the UK, at Coles $2.24, Woolies $2.09 up to 50% more expensive. 1 dozen free-range eggs $5.56 compared to $6.38 at Coles, $6.32 at Woolies.

"For some reason the ACCC refuses to acknowledge the facts and wants to keep it's head buried in the sand. That is a question you will have to ask the ACCC" says Craig.

We asked the Australian Competition and Consumer Commission's, Graeme Samuel, why we're paying so much, particularly as he publicly declared "some commentators should take a Bex and a good lie down when it comes to the activities of major supermarkets".

"Well he has been taking his own medicine and he's been asleep on the job" says Nick.

Graeme Samuel emphatically refused our interview saying it was not the ACCC's job to monitor grocery prices.

"If it's not the ACCC's job to monitor grocery prices whose is it?" says Federal Minister for Competition Policy and Consumer Affairs, Craig Emerson.

But the proof is in the prices you pay. Baked Beans in the UK cost $1.30, but $1.59 at Coles and Woolworths, 23% more. Butter, $2.50 against $4.22 at both Coles and Woolworths a 69% loading. Sardines jacked up by 152%. Dove soap, $2.10 there, $4.49 here, an extra 114%.

"The big problem in Australia is that it is basically just 2 players and those 2 players, as your survey shows, actually often have the same prices, so in effect it is one player. There is no choice, no competition" says Nick.

Overall we found more than 90% of the items we bought at Coles and Woolworths are more expensive than in the UK. The total cost - our UK trolley is $105.25, compared with Woolworths, $131.85, 31% more expensive, Coles at $135.20 - 34% more expensive than the UK supermarkets.

'That is 31c to 34c in ever $1 that the consumer pays at the supermarket that they are paying too high a price" says Craig.

Woolworths states its costs account for "around 25% of the product" and that Vegemite may be more expensive here because it is "such a staple brand which everyone loves."

Coles states its profit margin is only 3%. Both chains told us they weren't responsible for the full shelf price and to ask manufacturers like Kelloggs, Nestle, Unilever and Coca Cola why they charge more for the same products in Australia than in the UK. We did - they say higher costs are due to transport, distribution, a smaller market size and import costs.

"There is a really question mark over whose interest the ACCC actually represent. Are they representing the interest of consumers and competition or representing the interest of Woolworths and Coles" adds Craig.

And the word is that our food prices are set to increase again up to 7%, under the Government's emission's trading scheme, and even further if we suffer another drought.

Choice website for the grocery story www.choice.com.au

Below are statements from the ACCC and companies:

ACCC

"We don't have a role in monitoring grocery prices here or overseas, nor expertise in international comparisons. Perhaps the best people to speak to would be the chains - Woolworths, Coles, Aldi - who make the pricing decisions?"

COLES

Food prices can be volatile, and recent OECD data showed that UK food prices increased by 7.2 percent in the past year, compared to a 4.7 percent rise in Australia.

"As has been noted by the ACCC, supermarkets are not the drivers of food price rises in Australia. Fresh food prices in Australia are largely driven by production issues such as drought and production costs including fertiliser prices and transport costs which are much higher here than in the UK.

"The other major driver of fresh food prices is global prices because a much higher proportion of food produce is exported from Australia than in the UK. As a result, prices tend to rise when global demand is high and fall when global demand falls, as in the current recession (see current milk prices).

"Production costs of groceries are also affected by the small scale of the Australian market compared to a much bigger market in the UK. Economies of scale therefore mean the UK grocery prices can be lower in the UK than in Australia.

"However, product manufacturers such as Kelloggs, Nestle, Unilever and Coca Cola should be asked directly why they charge more for the same products in Australia than in the UK.

"In the case of Coles, our profit margin is about only three percent. This shows that Coles is not making huge profits and depends on offering customers the best value we can to earn a little bit on each product sold."

WOOLWORTHS

The price of products on the supermarket shelves reflects the costs paid to suppliers. Woolworths' costs directly account for less than a quarter of a product's on shelf cost. Our average profit is about 3 cents in the dollar.

According to our figures Vegemite is only two percent cheaper in the UK than Australia. The price of products on the supermarket shelves reflects the costs we pay to suppliers. Suppliers are free to charge retailers in different countries different prices for similar products. A supplier may have many reasons for doing this e.g. differing input costs such as labour, transport, packaging etc.

Our internal inflation figures (based on what people actually buy) showed a drop in the last quarter - between April and June. Shelf price increases and decreases largely reflect the changing cost of the products we buy from our suppliers.

The price rises and falls Woolworths customers experience in store are similar to all retailers across the developed world and in that regard Australia is no different from other countries.


John West

Quotes attributed to Terry O'Brien, managing director of Simplot Australia, the owner of John West Foods which sells to the Australian and Asian markets.

"I have to make the point that John West in Australia is a completely different company to John West in the United Kingdom. Our products are different. We have nothing to do with each other."

"We are unable to buy sardines caught in Australia so we buy them from Scotland. That means freight charges can potentially be much greater than those paid by John West in the United Kingdom."

"Our company also buys many products on an annual basis and therefore prices can be affected by the exchange rate depending on what the exchange rate was at the time of the the initial supply order."

"There are also other factors. For instance, you can purchase different quality fish and pay accordingly. I really don't know what standard of fish the UK arm of John West purchases but I know we purchase high quality fish."

"Another variable is oil. Sometimes the kind of oil used can have a big impact on the price. Using olive oil can force a big increase in price comparied to vegetable oil which is relatively cheap."

MILO

Consumer products simply don't cost the same all over the world. There are huge differences driven by population size, competition and transport costs to name a few. Australia is often more expensive because of these factors.

I note you've compared the 200gm to the 400 gm size, which doesn't help, since smaller sizes are always more expensive, for obvious reasons. If you compare like for like (400 gm in the UK to 440gms in Australia), you will find that the difference per 100gm is about 35%. We can't tell you why retail prices differ because we have nothing to do with setting them; we don't know if that price you sourced at Tesco's, for example, was a loss leader or a promotion. What we do know is that formulations for the same branded products vary from country to country to take account of local taste preferences. These formulation differences apply across a host of products.

We make our Milo at our Smithtown factory on the mid-north coast of NSW with milk solids. The UK formulation, which is not made in Australia, does not use milk solids and the ingredients happen to less expensive.