Grocery gripe: Why does food cost so much more?

With everything from fuel, utility, to grocery bills rising constantly, Australians are watching their pennies – cutting back on luxuries, leaving heaters off, adding more blankets in winter, and catching the bus instead of driving.

But food isn't just another bill—it's a necessity. We have to eat, ideally healthily - shunning fast food and snacks in favour of fruit and vegetables, lean meat and seafood. But with food prices increasing an average of eight percent a year (many items have risen a lot more), the grocery bill is taking a bigger and bigger slice out of household budgets each week.

So what is behind this and is there anything we, as consumers, can do about it?

What are the price increases?

Food prices have risen significantly, increasing at an annual rate of about eight percent. Some products, notably dairy, are experiencing almost double that rate, rising by almost 16 percent. Other food items that have had dramatic price rises include:

• • Sweet potatoes: From $1.88 to $4.24 per kilo in the last six months
  • Continental cucumbers: From $1.50 at the beginning of 2023 to $3.50 each
  • Broccoli: From $3.90 per kg in 2018 to $9.90 now

With food comprising about 17 percent of an average household's budget, families are finding it increasingly challenging to maintain their regular grocery shop without stretching their finances. For many, this means either forgoing certain items or opting for cost-effective alternatives which might not always be as nutritious.

 

 

Whatsmore, rising grocery prices influence broader economic markers. Food accounts for a substantial part of the consumer prices index basket. So price increases in food directly affects inflation. Major supermarkets, with their high-profit margins, further amplify this trend, resulting in 'profit-led inflation' that typically benefits retailers the most.

Predicting how long this trend will continue is tricky. Some triggers might be short-lived, like global incidents and supply chain issues. Yet, tactics employed by big supermarket chains could persist. Even though improved growing conditions, labour availability and fewer disruptions are forecast in the coming months, experts advise to brace ourselves for continued price hikes.

What are the causes of the price increases?

Several intertwined factors have contributed to rising food prices in Australia. Here are some of them:

Supply chain disruptions

The onset of the COVID-19 pandemic disrupted global supply chains, leading to shortages and delays in the delivery of essential goods. This trickled down to our local grocery shelves, making some items pricier.

The war in Ukraine is causing significant energy disruptions and affecting global food supplies. Known as the "breadbasket of Europe”, Ukraine is a major exporter of several agricultural products. The conflict means fewer exports and, you guessed it, higher prices for us.

Dependence on imports

Even though we grow much of our food in Australia, we’re still affected by global market fluctuations. The inputs required for agriculture — such as seeds, fertilisers, machinery, and fuel — are invariably imported, for example.

Natural disasters

Natural disasters have also exacerbated the problems with supply. Floods, particularly those that affected northern NSW and Queensland, damaged crops and reduced local food supplies, increasing prices.

Changing consumer mindsets

During the early pandemic days, those with savings didn’t feel the immediate brunt of rising costs. As we were stuck at home during lockdowns and couldn’t go out, we had more disposable income, this allowed companies to hike prices.

Retailer operating costs

Growing rental costs nationwide are impacting food retailers. Even not-for-profit food co-ops struggle with pricey commercial leases.

External factors

Other global events, such as lockdowns in major producing nations and skyrocketing fertiliser prices (a staggering 120 percent rise over two years) are driving up costs.

Supermarket tactics

 

 

Dominant players like Coles and Woolworths not only saw increased sales during the pandemic but also amplified their profit margins. Their influence on the market means they have significant power in price-setting.

Are supermarkets playing fair?

Coles supermarkets’ reported a gross margin increase from 24.7 percent pre-pandemic to 26.5 percent. Woolworths saw theirs rise from 29.1 percent at the onset of the pandemic to 30.7 percent. This uptick in margins by major supermarket chains has sparked a spirited conversation.

Detractors believe that the pricing strategies of these supermarkets border on profiteering— making undue profits, especially during challenging times.

In defence, supermarkets highlight several factors for the price hikes. They cite increased costs post-farming, encompassing energy, processing, and transportation. Furthermore, they attribute the higher margins to efficiency measures implemented over “a four-year program designed to save costs”, like faster checkouts.

Yet, with such pronounced profit margins, many wonder if these price boosts are wholly warranted. If there's a downward trend in global wholesale food costs while retail prices are on an upswing, it's a discrepancy that demands attention.

Another less-known strategy supermarkets deploy is "shrinkflation." Here, a product's size or quantity is trimmed, yet its price remains static or might even climb. This subtle manoeuvre allows supermarkets to hike prices discreetly. Over a period, these slight adjustments can culminate in a notable revenue bump without transparent price escalations.

These practices are not illegal in Australia. But ethical? That’s another debate.

Where do we sit on the global front?

It's clear that the strain of rising grocery prices isn't exclusive to us. Across the world, countries are dealing with similar challenges. Notably, Hungary has reported a whopping 42.6 percent surge in food prices as of March 2023, making it the frontrunner among high-income nations. While some countries experience moderate hikes, others are left baffled during their grocery shopping.

Different nations have adopted unique approaches to counteract these rises. In France, the government has taken a strict stance, warning manufacturers of potential penalties if prices aren't moderated. Over in the UK, it's the supermarket heads that are feeling the heat, with increased scrutiny on their pricing strategies.

What can I do?

Although it feels like rising supermarket prices are out of our control, there are steps we can take, from our shopping trolley selection to making smarter choices in the aisles.

Voice your concerns

Noticed your go-to snack has diminished in size yet retained its price or perhaps even become pricier? Don’t stay silent. Companies are more attentive than ever, thanks to the power of social media. By drawing attention to tactics like shrinkflation, you can drive meaningful changes.

Shop strategically

Understand that there is a science behind selling you groceries. Shop smarter by:

• • Buying seasonally - Make it a habit to buy what's in season. Not only is it fresher, but abundant supply usually means more pocket-friendly prices.
  • Opting for alternatives - If certain fresh items are proving too costly, frozen vegetables can be an equally nutritious, yet more affordable choice.

Support Local

Consider diverting your shopping trips from big chains to local vendors. Local markets often have:

• • Lower operational expenses - which can translate to savings for you.
  • Direct-from-farm products - bypassing middlemen costs.
  • Less expenditure - on transportation and packaging.

 

 

Local sellers might also provide seasonal items at more competitive rates and be more open to bargains or discounts.

What should authorities be doing?

There's mounting demand for transparency regarding how supermarkets determine their prices. The Australian Competition and Consumer Commission (ACCC) is central in upholding equitable market conduct. Empowering the ACCC with additional capabilities would allow for an intensive investigation, ensuring consumers are getting value for their money.

The ACCC has consistently monitored major supermarket chains and has highlighted the significant market share held by Coles and Woolworths. However, they stress that we consumers play an indispensable role in driving competition, which subsequently helps regulate prices.

Furthermore, the Reserve Bank has identified the upward trend in grocery prices and its implications for inflation. They recognise the multifaceted challenges involved but underline the wider economic elements influencing these price hikes, indicating that the blame can't solely be placed on supermarket policies.

In other words, the government still needs to do more.

It is easy to despair at the cost of living crisis, but it is far better to take action. Vote with your dollars and direct your money to smaller operators if you feel like the larger companies are profiteering at your expense.

And don’t be quiet about it. Speak out, write to your retailer and lobby your local politicians. If you have an issue with a retailer, lodge a complaint with us and we’ll help you handle it.