Supermarket competition: More discounts may be on the way - industry observer

Supermarket giant Foodstuffs is cutting prices by an average of 10 percent. Photo / File

By RNZ

Further supermarket discounts may follow Foodstuffs' move to cut prices on selected food items, an industry observer says.

Supermarket giant Foodstuffs is cutting prices by an average of 10 per cent on more than 110 everyday items, to 2021 levels.

Last week rival Countdown announced a temporary price freeze on 500 items during winter.

"Foodstuffs, I would argue, has come out on top in the prices. So cheese, they've got it down to $9.99 [from] $13 and bread's down to $1.19 versus $2," said Hamish Gow, Professor of Agribusiness at Massey University.

The discounts on its own-brand products were aimed at price-conscious buyers, he said.

Foodstuffs had a double margin on store brands - a manufacturing and a retailing margin - and were driving customers to those products.

"Price-conscious consumers would move across from the national brands to the store brands, and that's where Foodstuffs will be able to gain from that because they get a double margin on it."

Fresh vegetables were not store-branded, so any price changes would mostly be on frozen vegetables.

Asked if Countdown now needed to respond with price cuts rather than a freeze, Gow said: "I would argue that they do - they've done that in Australia - they dropped prices in Australia, they haven't done it in New Zealand."

Reductions could be made on store brands where Countdown too has more "margin space", he said.

Supermarkets' profits are under scrutiny as the Government prepares to respond to a Commerce Commission report which said competition in the industry was not working well for New Zealanders, with retail grocery prices high by international standards, and major retailers' profits also appearing high.

Commerce and Consumer Affairs Minister David Clark said he had not ruled out going further than the Commerce Commission recommendations.

Gow said the most effective way to drive down prices at the lower end of the New Zealand market would be to have a hard discounter in the country.

"Look, all across the world, whether it's Europe, North America or even Australia the introduction of a hard discounter like Aldi really puts pressure on the bottom end of the market and keeps all the margins down."