Craving for savings puts grocery suppliers on diet

CLAIRE ROGERS
Last updated 05:00 09/04/2013
Milla Baker
MAARTEN HOLL/Fairfax NZ
MILLA BAKER: "I'm definitely more tempted to buy something if it's on special."
Jude Hogan
MAARTEN HOLL/Fairfax NZ
JUDE HOGAN: "I'll often buy more of an item if it's on sale."
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Supermarket shoppers are cashing in on the highest level of discounts and deals in the developed world, with nearly 60 per cent of groceries bought on promotion last year.

But it has left supermarket suppliers feeling the pinch, with the five biggest together earning $45 million less last year.

Research firm Nielsen said 59 per cent of items in shoppers' trolleys last year were on promotion, up from 45 per cent in 2009. Managing director Rob Clark said that put New Zealand ahead of other developed countries by a reasonable distance.

By contrast, just 35 to 40 per cent of groceries were bought on promotion in Australia.

Generally, supermarket suppliers were innovating less on products and increasing promotions to drive growth, he said. "They default to do promotions to drive their volumes, but if everyone's doing that then the volumes don't change much.

"Retailers have chosen to promote aggressively and consumers are saying, ‘Thanks very much'."

So are the big two supermarket chains: Australian-owned Progressive Enterprises, which operates the Countdown chain, and the Foodstuffs group, which has 490 Pak'n Save, New World and Four Square stores, as both reported rising profits in the past year.

But the top 100 supermarket suppliers by turnover saw no sales growth last year, and the top five took a 2 per cent - or $45m - hit, Nielsen said.

Shoppers spent less on fresh milk and cream - down $25m on 2011 - followed by butter and margarine, down $24m, then bread, block cheese and beer.

Katherine Rich, chief executive of the Food and Grocery Council, said 2012 had been one of the toughest years for suppliers.

"New Zealand shoppers are the most price-conscious in the developed world. It's very difficult to drive sales without spending on major promotional activity. All this costs."

Supermarket shoppers in Wellington confirmed they kept an eye out for bargains in the aisles.

"I try to, though I didn't manage many today," said Jude Hogan, 45.

The price of groceries, especially vegetables, was often too high, she said, which made it even more important to be on the lookout for specials. "I'll often buy more of an item if it's on sale, especially if it's something we use a lot."

Milla Baker, 18, also said she always scanned the aisles for bargains. "I'm definitely more tempted to buy something if it's on special."

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Fonterra Brands New Zealand managing director Peter McClure said milk had dropped in price and that probably explained the fall in spending on milk and other dairy products, although Fonterra's sales to supermarkets rose marginally last year.

Suppliers also faced competition from supermarkets' own-label brands, such as Budget and Pams, he said. For example, home brands now accounted for 70 per cent of all the milk sold in supermarkets, although Fonterra did supply some of those brands.

Heinz Wattie's marketing general manager, Tim Skellern, said last year had been tough and the company had increased promotions to reflect the "new normal" trading environment.

- The Dominion Post

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