The price of food is falling. Coles has followed its adversary Woolworths by handing down a disappointing sales result, though the bad news for shareholders of Coles owner Wesfarmers is good news for consumers.
Food price deflation was 2.4 per cent in the second quarter, after a 1.8 per cent fall in the first quarter. And despite the gnashing of teeth from the supermarket suppliers, the impending price war in fruit and vegetables is further good news for consumers.
There are few better barometers for the central bankers than Woolies and Coles.
And it is not just food and veg. Average shelf prices fell 2.4 per cent (Woolies reported a drop of 4.1 per cent). At some point, Coles will no doubt fatten its margins – already the sharemarket is asking for the next leg in Wesfarmers’ game-plan.
But, for now, its strategy of wresting market share from its longstanding foe is working. Its sales continue to rise at a faster rate.
As far as this great arch-rivalry goes, Coles still has the wood on Woolies. Yes, it was once bigger than Woolies but is now smaller, and bouncing off a lower base under the stewardship of new owner Wesfarmers and supermarkets boss Ian McLeod.
And yes, sales growth came in lower than the analysts had anticipated – at 3.7 per cent for the last quarter compared with 5.5 per cent market forecasts. All Wesfarmers’ retail sales results disappointed, including Bunnings.
Still, Coles has now whipped Woolies for 10 quarters on the trot. Woolies’ food and liquor sales had slowed from 2.5 per cent to 1.1 per cent in the December period.
As both supermarket giants reported total sales a tad below the level of growth experienced by the broader market in October and November (December data was unavailable) the growth of the entire market likely moderated in December, says Goldman Sachs research.
But because the duopoly so dominates the Australian market, it is unlikely they both lost market share.
And it is this market dominance which should slug consumers in the future. As anybody who has travelled recently will tell you, prices for most things in Australia are much higher than in the rest of the world – even after accounting for the rising $A.
While prices in the US and Europe have stagnated thanks to economic malaise, Australia’s resilience has kept inflation ticking over.
But for now, competition policy is working.
And the results from the supermarket duopoly this week, however, suggest there is further scope for the Reserve Bank to cut interest rates at its next meeting. There are few better barometers for the central bankers than Woolies and Coles. Deflation has arrived.