Getting Ripped Off Again

Happy Duopoly

Here's an interesting article worth a read.

Ever wondered why you pay $3 for a toothbrush at Woolies and Coles when a toothbrush costs all of 20c to produce, after packaging?

The latest market research from this bureau into the price of toothbrushes, arising from a trip to the local Coles supermarket last night, showed there was one item - an Oral B toothbrush - ''on special'' at $3.99, down from $5.25.

When you consider that you can buy a whole set of steak knives from the $2 shop for $2, forking out $3.99 for a toothbrush is about as ''special'' as being pick-pocketed.

And of one thing you can be sure, Woolies pricing will not be far from the Coles mark. Most toothbrushes it seems are still manufactured in the US, Germany and even Switzerland so first-world costs are factored into the price. Besides, trust and branding are paramount with a product one puts into one's mouth. Hence the brand premium.

For some time I've noticed I've been paying some insane prices for some pretty basic things at the supermarket. One of the first to really tick off my radar was toothbrushes. How can bits of molded plastic with bits of brush be that expensive when an ipod nano is like 200bucks? It just doesn't make any sense in a world where manufactured goods should be getting cheaper.

Anyway, the other thing that I've noticed over the years is that Woolworths shares have been considered very good shares to own for some time, and that reputation would not have happened had they not been turning extraordinary profit over a sustained period. Even allowing or a 4-5% inflation in the last year, some of the prices they are charging for staples such as rice or fruit and veggies is a little outlandish. The article then goes on to talk about this:

In 1975, Woolies had 17.7% of the branded grocery market and Coles had 17.5%. Franklins, the third player, had 4.8%, wholesaler Davids had 6.3% and the numbers trailed off from there with the state-based supermarket chains which were swallowed up in the 1990s.

Remember Composite Buyers (3.3%), Foodland (1.7%), IHL (4.1%), QIW (5..6%) and TIW in Tasmania? Half the market was small, family owned supermarkets and corner stores.

In 1975, the dominant chains - Woolies and Coles - controlled 35% of the market. Now they control 80% - roughly 43% to Woolies and 37% to Coles. You won't hear that from them though. Neilson stopped providing figures in 1995 after being leant on by Woolies.

As demonstrated by the ACCC inquiry, Woolies and Coles prefer to use their own, specially concocted, measure to evaluate market share. ''Share of stomach'' it is called. And it is sheer nonsense. Woolies relied on research from retail data consultant Anthony Dimasi to come up with its ''share of stomach'' research. It also commissioned Dimasi.

Their argument is that Woolies competes against the local hotdog stand, restaurants and any other vendor of foodstuffs, presumably the lady who sells fairy floss at the local fete too.

The reality is that Woolies and Coles stores are in every town in the country and when a customer walks in there to buy packaged groceries that customer is highly likely to buy fresh food - okay, recently unfrozen food - too, for the sake of convenience.

Almost everyone goes to Woolies and Coles to buy packaged groceries and while some consumers may buy their fairy floss elsewhere, they will spend most of their food dollar at one of the two chains.

And the pricing is neck and neck. See the table attached from retail trade publication, Retail World. The most result pricing for a broad basket of goods, calculated this month, shows Woolies's basket cost $100.22 and Coles $101.04.

It's a little bit like the banking sector. If you really want to win back your banking fees, you need to own shares in your own bank and collect the dividends. If you want to win back some of the money disappearing in your grocery bills, you have to own shares in Woolworths and Coles.

The crappy thing is, there's so little competition now, they can afford to dictate the price and even if there isn't collusion, there may as well be collusion because a Duopoly like this simply does not have to make concessions. Unless the government is willing to break up such duopolies - which they clearly are not - then these artificial prices are here to stay. The joke is that we have a government that's been elected to help 'working families', but they won't even do the most basic things that could help them. I didn't think my inner glow in seeing a Labor Government would vanish so fast, but it has.