SMH: ‘More pain in store as grocery prices continue to rise’

The original article which appeared on SMH.com.au is available here.

written by Caitlin Fitzsimmons

The price of groceries is continuing to climb, putting pressure on household budgets and prompting one major supermarket to expand into bulk-buying.

As the cost of living gears up as a battleground this election, economists expect a sharp jump in the price of food in next week’s inflation figures, set to be released on Wednesday, and industry insiders warn there is more to come.

Commonwealth Bank senior economist Belinda Allen said the bank predicted the price of food and non-alcoholic beverages has risen 1.3 per cent in the March quarter, compared with the 0.7 per cent rise clocked in the December quarter.

Allen said the bigger bill at the supermarket checkout was noticeable for most people, although not as dramatic as big jumps for the price of petrol, and the price of constructing a new home.

“Because we purchase food so often, it’s the one that sticks out at the moment,” Allen said.

“Natural disasters in food-growing regions have led to higher food prices, and a rise in raw materials, including for how you store and transport food, are contributing to higher prices as well.”

Australian Food and Grocery Council chief executive Tanya Barden said the price of grain had increased 65 per cent year on year in the most recent quarter, while the global rise in the price of oil increased the cost of everything from transporting food on trucks to packaging.

The Herald has previously reported that canned goods manufacturer SPC has warned the rising cost of aluminium is forcing it to put up prices by 10-20 per cent.

Barden said another factor was labour and skill shortages in everything from horticulture to manufacturing was putting upward pressure on wages.

Barden said prices would probably increase again in the June quarter because costs were continuing to rise, and not all of that had been passed on to the customer.

“It is the most complicated, unprecedented set of cost drivers that the industry has ever faced,” Barden said.

“When I look back over the last decade, we saw the input costs had risen by 50 per cent over the decade, and wholesale prices had only risen by 25 per cent.

“So manufacturing businesses had already been absorbing a lot of cost, and now it’s got to a tipping point where they really need to be able to pass some of that on to remain viable.”

A nationally representative survey of 1005 Australians found nearly two in three are worried about the increase in prices for food and groceries. The survey, commissioned by comparison site Savvy, found 48 per cent of people planned to buy fewer groceries as a result, and 56 per cent planned to switch to cheaper brands.

Retail analyst Trent Rigby, the co-director of consultancy Retail Oasis, said: “The inflationary pressures on supermarkets are some of the worst we’ve ever seen, and it’s likely only the beginning.”

Rigby predicted supermarkets would respond by doing fewer price specials or discounts, and instead push cheaper alternatives such as private label and home-brand products, and bulk-size goods that are cheaper because of economies of scale.

Coles has taken a leaf out of the Costco playbook, and is marketing a range of 44 supersized items. For example, customers can now buy Bega Peanut Butter in a 2 kilogram tub at a 48 per cent saving, and Milo in a 1.32 kilogram tin at a 46 per cent saving.

Costco charges an annual membership that entitles customers to shop, and it carries about 37,000 different product lines with a specialty in bulk sizes. It is still relatively new in Australia, with only 13 stores.

Rigby said the Coles range was limited, and probably a way to test the concept, but the COVID-19 pandemic had made consumers more comfortable with bulk buying.

“Pandemic purchasing, or bulk-buying, was particularly popular during lockdowns,” Rigby said. “On average they say it takes 66 days for a new behaviour to become a habit. In Sydney last year, we spent 107 days in lockdown, or 29 per cent of the year, and Melbourne was even longer – 124 days or 34 per cent of the year.”

However, he said a Coles supermarket couldn’t stock as big a range of bulk items as a warehouse-sized Costco, so the move could backfire by giving its customers a taste for bulk buying that they then satisfy elsewhere.