Supermarket Prices Rise as Aldi Reaches Critical Mass

As competition from discount retailer Aldi waned over the past 12 months, prices at Coles and Woolworths supermarkets have increased marginally. A study by Deutsche Bank found that prices at the two supermarket giants rose 0.4% in the year to May 31, a stark contrast to the 1.2% decline recorded in the previous 12-month survey. The increase in prices is attributed to Coles and Woolworths regaining pricing power now that Aldi has reached a critical mass in its roll-out.

Key Takeaways:

• Prices at Coles and Woolworths supermarkets rose 0.4% in the year to May 31, according to Deutsche Bank's Tim Tam price check study.
• The study found that prices at supermarkets adjacent to recently opened Aldi stores experienced the biggest price rises, implying that the Aldi impact is not permanent.
• Coles' premium-location stores were notably more expensive than Woolworths, with a average basket of goods costing almost the same in suburban outlets of both Coles and Woolworths.
• Woolworths' prices have dropped 0.8% and Coles' tariffs have declined by 1.9% since the survey started two years ago.
• Deutsche Bank is forecasting the grocery sector to outperform expectations, with Coles and Woolworths registering 16% annual growth over the next three years.
• The analysts' "buy" rating on Coles but "hold" rating on Woolworths is due to the valuation difference between the stocks.

Statistics:

• 0.4% increase in prices at Coles and Woolworths supermarkets in the year to May 31.
• 1.2% decline in prices recorded in the previous 12-month survey.
• 16% annual growth forecast for the grocery sector over the next three years (Deutsche Bank).
• 4-4.5% negative price impact on adjacent supermarkets from the opening of Aldi stores (Deutsche Bank).
• 75% market share held by Coles and Woolworths in the grocery sector.
• $16.13 per share value of Woolworths shares (Monday's closing price).
• $9.21 per share value of Coles Myer shares (Monday's closing price).

Sources:

• "Coles, Woolworths supermarket prices rises by 0.4pc" - Compiled by Deutsche Bank, as reported by Stephan McMahon, Retail Writer.
• Tim Tam price check study by Deutsche Bank.
• Deutsche Bank's forecast on the grocery sector.
• Latest market price of Woolworths and Coles Myer shares (Source: Australian Financial Review).