How do Australian grocery prices compare to the rest of the world?

I’ve had this idea of analysing our ‘totes awesome’ country against the rest of the world for a while.  Having done some travel over the past few years to Europe and the USA, I thought to myself, why do we rave about how great it is is this country? I mean why are Australian grocery prices, so damn expensive.  Don’t get me wrong, I do love the lifestyle one can lead here, but lets be honest, it’s not perfect and anyone who thinks that it is perfect, probably lives by that silly mantra of, ‘if you don’t love it, leave it’.  In Australia we live in such a small cocoon away from the world, having to travel hours upon hours to get to other parts of the world (and we love doing so), we sometimes forget that there is a bigger world out there.  Today I will compare the world of groceries and see what really is the difference between Australia and the rest of the world, well a couple of countries at least.  Personally I have been employed by the industry for a fair chunk of my life in the areas of Merchandising and Marketing, so I have a fair understanding of the ins and outs.

Lets start by looking at the current landscape of the Australian supermarket world.  Everyone knows that we have two dominant retailers, Coles and Woolworths, who make up a whopping 78% of the total market share.  Then we have the newest player in the market Aldi who makes up 10%.  Aldi in my opinion are an impressive story, it is amazing that in a very short time they have made such major in roads to the Grocery industry, and with their expansion from being predominantly east coast based, they are now also spreading their wing across South Australia and Western Australia.  Then of course you have the other players, such as IGA and other independent grocers, who work under a very inflexible co-operative business model.  This model unfortunately has too many levels of margin in the supply chain and by the time it hits the end consumer, pricing will continue to be more expensive in comparison to the the bigger players.

The size of the grocery market in Australia is $92B dollars and projected to grow year on year by 2.3% over the next 5 years. In 2011, Australia had 8.18 million households, but more interesting is that a quarter of these households only have one person occupying the residence. So with some simple maths it tells me that Australians spend just over $11,000 per year on groceries or $220 a week.  With the average Australian household income being $58,000 a year, this means that almost 20% of Australians income goes to buying their groceries, making the grocery industry quite an important part of the social fabric of Australia.  Not just in spend but in employment, as it also employs over 500,000 people.

We all hear amongst our family, friends and peers that our grocery prices are so expensive.  It would seem we spend a hell of a lot on our groceries, right? But how do we compare?  Until we compare we, don’t really know.  But my gut, judging from my travels, can only hypothesise, that we would be on average more expensive than most of our comparative living standard countries.

Well lets take a few examples. Firstly our ‘big brother’, the USA, the land of the free, the place where 60% of the population is currently overweight.  Food must be cheap? Firstly, their total market worth in 2013 was $620 billion.  Nearly 7 times the size of ours. Although, what is interesting, is that America’s population is 319 million people, which is  13 times the size of Australia.  So instantly you can see just from this small stat, that something seems a little out of whack! But lets break it down a little more.  They have 115 million households, which means the average household spends just over $5,000 a year on groceries, less than half of what we do, at $103 a week. But what is there average household income? Well its below Australia’s of course, but not by much.  Their average income is $51,000 a year. So in this case, they only attribute 10% of their household income to their groceries.  Post grocery expenditure, Australians sit at $47,000 a year and Americans sit at $46,000 a year.  So we are even? Hardly! So why do we pay so much more? (Oh and by the way I have not adjusted for exchange rate, over the past 4 or 5 years we have typically been around the same level, so just be aware of that.)

One more comparison for some perspective, lets go with something random like Denmark.  Why Denmark? Well it is regarded as the happiest country in world.  There has to be something good going on there, how can you be that happy when you are getting taxed on average 49%. The Danish grocery market is worth 105 billion DKK and the DKK is approximately valued at 20% of the AUD. Their population is 5.6 million with approximately 2.6 million households. So per househould they spend around 40,000 DKK ($8k AUD) or 776 DKK per week ($155 AUD).  The average Danish household income is 322,000 DKK ($64k AUD).  So their grocery expenditure as a percentage of their household income sits at just over 12%.  So again this percentage pales in comparison to what Australians spend on their groceries.

So the bigger question is why do we have such expensive groceries?  Well the first thing is clearly the market dominance of the two major players in the market have got to do something with it.  According to  Jean-Yves Huede, the former CEO of Kelloggs ANZ, believes that Australian Shoppers are probably paying about 3 percent more due to the dominance of Coles and Woolworths.  The other major cost driver, is the spread of our small population across our huge country.  The logistical and freight costs would dwarf many across the world.  Also the production costs, due to scale of our nation, these larger populations like Europe and American would have more efficient product manufacturing, scale and size plays a major factor in efficiencies. It is not surprising that in Australia, so many products are so much cheaper to import then manufacture locally.  Whilst protecting minimum wages is a great thing, it has truly impacted the manufacturing side of the grocery industry, with many of the larger companies making the decision to move their manufacturing offshore.

But is there a way we can change this? Of course there is.  We can be smarter with our purchase decisions, when it comes to our groceries. Whilst most people say they don’t have enough time to shop around, you’re going have to change that mindset.  Dedicating time to your shopping will save you, I guarantee it.  Give Aldi a go, the reality is most of their products, whilst they don’t have the everyday household brands you are used to, quite frankly from experience, most of the products simply come from the same factories of your own favourite brands.  It doesn’t take much to swap labels you know?  Shelley at Moneymummy.com.au, did her own experiment and it seems her experiment demonstrates a 28% savings, whilst some things were more expensive, overall the savings were quite evident. Her advice is to generally be aware of pricing across the market.

Other things to keep in mind is visiting your local fruit and vegetable grocers.  We are creatures of habit and the convenience of getting your fruit and vegetables from your supermarket can lead you to paying a fair bit of a premium for your fresh produce.  We found a super little grocer and whilst I haven’t done any analysis, I love the fact that I walk away with 4 bags of fresh produce typically for around $20.  The other is visiting meat wholesalers (for those of you who eat meat) because the ability to buy in bulk will save you a lot of money.  I know Coles and Woolworths will get you on their cheap mince meat, a product from memory, which I believe is in the top 5 products purchased at the supermarket, but hey, it doesn’t hurt buying your other meat from your local meat wholesaler.  Do the comparisons for yourself, you will probably be surprised.

So just think about it, just a little bit.  The Aldi experiment suggested 28% savings, even if we trim back those savings to a conservative 10%.  If the average Australian household was to save 10% off their annual grocery bill, that would be $1,100.  If it was 20% that would equate to $2,200.  So you get my drift? Dedicating a bit of extra time and ignoring all the BS advertising that the two juggernauts of the supermarket world, throw at you into convincing you to shop there, ignoring this could really save you some money. Do it, it can’t hurt can it?

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