Written by Nina Kraskov & Sandra Salomon
It all started on Australia Day 2011. Coles fired the first shot at its arch rival Woolworths, announcing that it was cutting the price of its private label milk to a $1 a litre. Of course Woolworths followed suit, as did all the other supermarkets.
Supermarket shoppers were ecstatic! Especially mothers of children who drank gallons, (or litres) of the stuff. So while consumers were the winners who were the losers?
The Supermarkets have been focusing their marketing campaigns on lower prices, which at the end could be a risky move. The psychology of pricing suggests the direct relationship that customers make with price and quality, having more expectations for products with higher prices.
The enormous amount of publicity that has been generated during the last year with lower prices, are in effect giving results to these companies. They are approaching customers with offers that impact directly on their psychological make up, showing for example, attractive numbers or great discounts.
Aldi started with a different way of informing customers about the lower prices, comparing some of the products and their prices. This plan has generated a price war and now these three giants have to work hard in the way they communicate, since there are not really clear differentiation.
Back to where it all began. Did anyone stop to consider the farmers? We did. However, we did not give a thought to the companies who bottled and distributed milk. According to Hawthorne (2015), retail prices hit a 20 year low, and processors and farmers were espousing the death of the industry.
So what are the consequences for years into the milk wars? At a grassroots level, its tangible. Just ask the 50 Queensland dairy farmers who walked away, most for good (Hawthorne 2015). And the milk processors? Lion (Pura and Dairy Farmers) and Parmalat (Pauls), have had the sales of their key domestic brands dive by $175 million a year. Can you believe milk is now cheaper than bottled water? In 2008, Lion and Parmalat controlled almost half of Australian milk sales, sharing the combined $660 million share of the $1.44 billion fresh milk industry in Australia (Hawthorne 2015). Given that they also produced the private labels, this was a nice little duopoly, back then.
At the end of last year Pauls share of the market had dropped from 20 to 17.2 per cent, Pura went from 14.4 to 6.4 per cent and Dairy Farmers from 11.5 to 10 per cent.
So what has happened since?
The price wars continue, and have expanded to bread and sausages, 85 cents and $6.99 for 2kg tray respectively. This shot was fired by Woolies, in an attempt to try and win back customers, and thus its dwindling market share. Of course, everyone plays follow the leader and joins the fray. According to McCrann (2013), the price wars are great news for consumers and not so great for suppliers. Some one has to pay for the savings, and McCrann (2013) and Robb (2013) both say that Coles and Woolies are putting the squeeze on suppliers. Whilst both Coles and Woolies have lost some of their market share, they are still able to report an increase in dollar sales and revenue (McCrann 2013) and their profit margin (Reid 2014). Aldi’s arrival in 2001 has probably had the biggest impact on market share, largely at the expense of the “other” supermarkets. The graph shows just where consumers are doing their supermarket shopping.
Don’t forget that Woolies has more supermarkets in Australia than any other chain. Robb (2013) suggests that whilst Coles and Woolworths are two of the most profitable supermarkets in the world, their profit margin will begin to drop, especially as competition hots up, with Aldi planning to expand into South and West Australia. According to the ACCC, Woolworths has the highest profit margin of any supermarket chain in the world. So while consumers pocket the savings, what happens to the suppliers? Have the price wars changed the way or where you shop?
In the end, is this really `safe` competition between these companies in which the customers are actually receiving benefits? Or is it just a strategy to retain market share and profitability?
Robb, K(2013),Supermarket wars: Aldi takes on market share as Woolworths drops prices Smart Company Monday, 09 March. Retrieved 30/04/15 at 0845 hours
Reid, W (2014), Market share narrows between Coles and Woolworths, while ALDI makes important gains Roy Morgan Research February 12 2014. Retrieved 30/04/15 0850 hours
Hawthorne, M, (2015), Milk wars likely to claim more victims yet, The Sydney Morning Herald, Business Day, January 24, 2015. Retrieved 30/04/15 0853 hours
McCrann, T, (2013), Who pays for the Coles and Woolworths price war? Sunday Herald Sun, Business, 1st September 2013. Retrieved 29/04/15