Wednesday, July 11, 2007

Hiding cheap groceries?

No I am not going to post on the nonsense economics of Kevin Rudd.

One of the household magazines I subscribe to is Choice. It’s a consumer magazine that gives you product information and helps you, well, choose. This month it discusses shopping for groceries and does a nationwide test by buying a fairly standard basket of 33 grocery items across 23 cities. In all 111 stores are sampled.

One obvious conclusion – almost suppressed in the Choice write-up – is that Coles stores are, on the basis of this survey, a lot cheaper than Woolworths. It is true in every one of the cities examined without exception. Why is Choice being so coy about this?

The report stresses that Aldi is the cheapest of the lot – true but Aldi has a very limited range of products. The Aldi basket cost just over half the average of all other baskets. But the real comparison for most of us lies between Coles and Woolworths and Coles stores were 7.7% cheaper – over a year a household spending $200 weekly on groceries would save $770. This is a lot – particularly given that margins in this type of retailing would not be expected to be that great. Choice suppresses the finding stating that the Coles items included many ‘specials’ and that, with specials removed, the difference is only 2.6%.

It is difficult to see the point here if the basket chosen was representative given that so many stores were sampled. If it wasn’t representative the Choice survey can be criticized. If it was representative why should a higher incidence of specials be seen as anything other than something positive?

Indeed, to the contrary, the report states ‘There is no runaway winner in terms of the cheapest major supermarket’. On the basis of the data presented by Choice that is not true. Moreover, it is difficult to see the point of a cover story titled ‘Which supermarket costs less?’ if the cheapest major supermarket is not clearly cited.

I wonder what drove Choice to compile this type of report. Markets need good price information for efficiency and this does not help. The online summary of the Choice conclusions is admittedly clearer than the magazine version.

Is our fearless consumer affairs advocate Choice frightened of making clear its findings to major market players? Is it concerned that the representativeness of its survey might be challenged? I’d like a snoopy newsletter, like, to do a bit of probing and – in the meantime - welcome suggestions from readers.

Coles has had a hard time over recent years and ownership looks like it will be transferred to Bunnings. I wonder if the better deals offered at Coles were a symptom or a cause of its lower profitability.


Sam Ward said...

My mum also subscribes to "Choice" and I used to read it religiously when I was a kid.

It has quite a few flaws.

Most glaring is the staggering technophobia of their reviewers - when reviewing any electronic products they always put an extremely high weighting on "ease of use", even though nothing you can buy is so complex that anyone would be unable to use it after reading the manual.

I am guessing that their primary market is pensioners.

The other issue is like you said. Despite claiming to be a fiercely independent consumer advocate, they can't come out and say things like "Coles is cheaper than Woolworths" because they'd get sued to Kingdom come if they did.

FYI, the main reason Coles is cheaper is because Woolworths stores are located in more upmarket areas than Coles are, as a general rule.

That said, Choice is a great tool for when you need to buy something that you know nothing about, especially if it's an expensive purchase.

Mark U said...

Another reason Coles is cheaper in my experience is that their deli, fruit and vege sections are often grotty because they don't appear to employ enough staff to keep the place clean. Also they don't keep their shelves stocked properly - there seems to be a problem with their inventory control. This would not show up in the Choice survey and is a reason why I have recently stopped going to Coles despite it being cheaper.

conrad said...

I wonder how much is due to store placement and size as well. I have a Coles and Woolworths near my work and near my home (the wonders of choice...), but Coles is more expensive in both cases. Alternatively, the Woolworths stores are both more obscurely located.

lesleym said...

I gave up on Choice quite some years ago, mainly because of the shallowness of their research. Most of the time it was because the model/make that I could obtain wasn't featured at all in the article!
Re Coles<>Woolies, as a person on a restricted diet, I have found Coles more likely to carry the items I need. I am concerned that recent introduction of "home" brand products to the exclusion of other brands has not only left me with no choice (eg. I don't buy vegetarian products from a certain church-connected business) but I hsve been concerned about reports of Coles' "standover" tactics with its own suppliers. It's all enough to make me want to go feral in the rainforest!

Sir Henry said...

I am comparing like with like here: Woolworths at Frenchs Forest and Coles at Forestville, an adjoining suburb. The demographic is the same, the size of the store is pretty much even steven.

Coles does have cheaper groceries from my observation and from what Lady Fiona tells me.

But I think the key to that is that Coles has a more limited range of products compared to Woolies. Also its base price for brand name packaged goods is more at Coles but it puts more goods on special as a matter of its marketing policy.

Coles just does it to sell more product, Woolies does it to get rid of the stock it does not want, such as lines that do not move or items that are about to go rotten or get out of their use by date.

So, in all, I think Choice has a valid argument there; I wouldn't subscribe to Yob's paranoid theory of shopping if I were you.

BTW, H. Offthread for this but here is a link to a story that may be right up your alley:

hc said...

Sir Henry, That's a great link. I saw Jay speak at the AEA meetings in Chicago in January. He is a real livewire.

In US firms fat people earn less than thin people so obesity issues are internalised. That is not the case in Australia with a public health scheme.

But while I am sure people do order expensive lobster only when they go out for a meal because the bill is shared I doubt that the effect is empirically that large. This is one of Jay's point.

This is a nice paper and I will post on it eventually.

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