Big supermarket revamp lays groundwork for postcode price wars

The Australian-owned Woolworths grocery chain is getting ready to compete head-to-head with locally-owned New World and Pak’nSave supermarkets – good news for some communities, but bad for others.
The giveaway to the company’s big strategic change was a small box that appeared at the top of its online shopping homepage this week, quietly but firmly asking that customers select their local store “as prices and range may vary by location”.
Until now, Woolworths prices have been the same online and at its 185 stores nationwide, with the exception of some seasonal produce and meat. The members of the Foodstuffs co-op, by contrast have had greater freedom to set higher or lower prices dependent on supply, demand and competition in their communities.
A Newsroom survey of 23 supermarkets, assisted by Consumer NZ and accompanied by comprehensive data analysis from Ordian Price Pulse, reveals the winners will be North Island customers who can choose between shopping at Woolworths or New World, depending on who’s cheaper on the day.
But the losers will be South Island shoppers, who now have no choice but to pay more at all major supermarkets.
Woolworths NZ commercial director Pieter De Wet confirms to Newsroom that the company introduced localised pricing this week, on Monday, for both in-store and online shopping.
“We know many New Zealanders are struggling with the ongoing cost of living crisis,” he says. “We’re focused on winning and keeping customers by offering more competitive prices on everyday items and better specials and rewards.
“We’ve dropped prices on household favourites like Woolworths baked beans, Woolworths self-raising flour and chicken breasts, as part of a focus on everyday items our customers buy most often.”
What he doesn’t say, however is that South Islanders are now paying more for grocery foods like Woolworths tinned tomatoes, toiletries including Woolworths baby wipes, Lynx antiperspirant and Olay moisturiser, as well as produce like bananas, carrots, leeks and capsicums.
That’s according to Newsroom’s survey of prices for an atypical basket of 23 identical or comparable items at 12 Woolworths stores, seven Pak’nSaves and four New Worlds, in both the North and South Island.
For what it’s worth, the survey also found that Woolworths brand potato chips are presently 20c cheaper in the South Island. And some items like tinned tomatoes are now more expensive in both the South Island and smaller North Island towns, ranging from 95c to $1.30.
But overall, mainlanders are now paying about $5 more than their North Islands friends and family, for the same basket of items.
It’s a similar story at New World, where South Islanders already pay up to $15 more for the same basket, and at Pak’nSave, where they pay $5 to $7 more.
De Wet also didn’t answer questions about how Woolworths reconciled its strategic change with the findings of the big Commerce Commission study in 2022, which found that the two big supermarket groups were pulling in excessive profits at the expense of shoppers and suppliers.
“Some prices are nationwide,” De Wet says. “But now, to be more competitive for customers no matter where they live, we will vary more prices locally to ensure we are competing effectively. We already do this successfully on some products like meat and produce.
“This isn’t a move to lift our margins, it’s about offering better value to our customers.”
In busy North Island cities with Woolworths and Foodstuffs supermarkets near each other, the change is likely to mean more competitive prices for shoppers.
But in the South Island and some provincial North Island towns, where there is less direct competition, local stores will be able to raise their prices.
Intriguingly, at the same time that Woolworths is devolving more pricing autonomy to local stores, Foodstuffs has applied to the Commerce Commission for approval to merge its North and South Island co-operatives into one big co-op, though each member would still have a significant degree of autonomy.
Foodstuffs’ response to this week’s sudden pricing change from its opposition is mostly deadpan. “The battle on price isn’t new,” says Stefan Herrick, the head of external communications. “Groceries is an intensely competitive business.”
The Commerce Commission had criticised the supermarkets for not blocking competition. And without referencing that report, Herrick uses variants on the word “competition” no fewer than six times in his emailed statement.
Asked whether there will be localised price wars, he replies that Foodstuffs’ 500 grocers all have “latitude to compete with other grocery retailers in their area”.
“We compete hard every day to deliver the best value groceries, the most choice and the best service. That’s competition.”
He says Pak’nSave is consistently cheaper, so Woolworths may be playing catch-up.
“Competition benefits everyone. It drives innovation, leading to new products and services that elevate the entire industry. Healthy competition expands the market by attracting more consumers and increasing demand for quality products.”
Consumer NZ, which assisted Newsroom with its survey, says shoppers are used to paying different prices at different Foodstuffs stores.
But Woolworths’ adoption of the same strategy changes the playing field for consumers, according to Gemma Rasmussen, the consumer watchdog’s head of research and advocacy.
Just this week, Consumer NZ noted an 86 percent price variance with the same block of Anchor 500g butter across different Foodstuffs supermarkets. At Woolworths, the price of butter is one thing that’s still the same from store to store – except that many stores are out of stock.
Rasmussen says: “While price variances can be argued as a sign of healthy competition, when some New Zealanders face limited options as to where to shop due to only one supermarket in their town, or limited transportation options, it can leave them vulnerable to the pricing a supermarket chooses to set.”
Many supermarket shoppers are habitual, she adds. The majority have their preferred supermarket and a set shopping list. “The reality of going to different supermarkets is not a luxury many can afford, but it does pay to remember that apps like grocer.nz enable shoppers to do a quick comparison of supermarkets in your area to give you the best understanding of who is bringing the most competitive offers each week.
“For dedicated Woolworths shoppers, such a tool may be increasingly important with the introduction of price variances within stores.”
She notes that the Newsroom/Consumer NZ supermarket price survey found capsicum now varies from $3.89 to $4.39 this week, and the same Woolworths home brand tinned tomatoes now range from 95c cents and $1.10.
It seems likely that the Woolworths home brands are where they will adjust prices most dramatically, because they’re not constrained by price margin agreements with suppliers, and because they will want to go head-to-head with Foodstuffs’ resurgent Pams home brand.
“Looking to Australia, major players Coles and Woolworths have been pushing homebrand products aggressively in pricing and product placement,” Rasmussen says. “In New Zealand, a similar strategy could be at play with our duopoly with Foodstuffs now promoting Pams as ‘the most popular brand in the land’.
“While this may be welcome news to shoppers who enjoy a high-quality low-cost product that is consistently stocked, there are concerning competition aspects at play.
“When a supermarket has the ability to deploy dynamic pricing, they can prioritise the appeal of their homebrand product in placement and price point, expanding prominence. The downside of this can be the slow chipping away of alternative product selection on grocery aisles.”
“In a country where our duopoly holds 85 percent market share, we need to keep a close eye at further grabs for power.”