GST Countdown: Staying under a $20 icecream lid

Greg Hall says the GST rise pushes his boutique product close to the price point where consumers could be turned off. Photo / Natalie Slade

Greg Hall, founder of New Lynn's boutique Kohu Road Icecream Company, says he's "a bit fearful" of how his customers will react to a price increase as a result of next month's GST rise.

A one-litre tub of Kohu Road currently retails for around $18.90.

The new GST rate will make the price $19.32, which Hall said pushed his products towards their ultimate price barrier of $20.

"For us, that $20 barrier is significant," he said. "A lot of people who analyse retail think there are those price points and they are a sort of psychological barrier [for consumers]," he said.

Hall, who founded Kohu Road three years ago, believed there would be an initial reaction by consumers to the GST rise in October, but they would quickly get used to the new prices.

Katherine Rich, chief executive of the New Zealand Food & Beverage Council, said the GST change could force some products past their "magic price point".

To make matters worse, she said, many consumers had chosen to "trade down" during the recession.

"This has affected the sales of a number of boutique-style products."

But Rich said other boutique food manufacturers had benefited from the recession because their products became an affordable splurge at a time when more expensive luxuries - like flat-screen televisions and fancy cars - were out of the question.

"Predicting consumer behaviour is never an exact science. I imagine there'll be a whole range of reactions [to the GST increase]."

The main outlets selling Kohu Road's products were supermarkets.

Progressive Enterprises - which owns Foodtown, Countdown and Woolworths supermarkets - said it would pass on the GST rise to its customers on most products from October 1.

Rob Chemaly, general manager of retail for Foodstuffs which operates Pak'nSave, New World and Four Square supermarkets, said the company's owner-operated stores also intended to pass on the new GST rate to shoppers, rather than absorb the increase themselves.

"However, we would like to reassure our customers that our stores will not be using the rise in GST as an opportunity to increase margins," he said.

Hall said Kohu Road had little say in what retailers eventually charged for its products.

"All we can do is give a recommended retail price and what [retailers] do is up to them."

It wouldn't be commercially viable for Kohu Road to lower its price to retailers to compensate for the GST rise, he added.

As a supplier, Kohu Road would be required to charge retailers a 15 per cent GST rate after October.

"Our product gets hit with GST twice," said Hall.

A survey by accounting firm Accomplish found almost half the 500 New Zealand companies canvassed intended to raise prices by 5 per cent or more after the rise.

More than 60 per cent said they would be affected by the GST rise next month.

Eleven per cent of firms intended to raise prices by more than 5 per cent come October.