COLES and Woolworths have both slashed private-label prices to drive sales and convert more shoppers to their home-brand products.
Woolworths took the scalpel to its premium private-label range in the three months to the end of September, said Deutsche Bank research, slicing 9 per cent off prices which Coles cut by 7 per cent in the same period.
The cuts compare with some big increases in the price of branded groceries for shoppers, including a 5.7 per cent jump in the price of these big name favourites at Coles. By comparison, the cost of branded groceries at Woolworths slipped by 0.8 per cent.
Deutsche Bank analyst Michael Simotas said the difference between the price of branded groceries at Coles and Woolworths suggested the Wesfarmers-owned Coles "had not responded aggressively" to Woolworths price cuts.
"Coles has continued to control its own pricing dynamic with branded goods showing strong inflation in line with the prior quarter," Mr Simotas said in the Deutsche Bank Supermarket Inflation Index.
The pain of the big cuts to private label prices is likely to have been shared between supermarkets and their suppliers, say market watchers.
And it points to the major supermarkets' determination to maintain their world-leading margins even if that puts pressure on suppliers.
Former Australian Competition and Consumer Commission chief Allan Fels said the rise of unbranded groceries was one of the biggest challenges facing many producers.
"And it's spreading across more and more product categories," Mr Fels said.
"If you don't supply [home-brand product] another supplier will be found and there are quite a number of suppliers that... run a supply business not linked to brands."
He said the role of private labels and the capacity of retailers to put pressure on suppliers, was amplified in Australia by the concentration of supermarket ownership. Despite beating Coles on price reductions to branded groceries in the quarter, Woolworths appears to have slowed its broader price cutting.
Deutsche's Supermarket Inflation Index shows Woolworth's branded grocery prices fell by 2.6 per cent in the June quarter compared with just 0.8 per cent in the September quarter.
It pointed to a willingness to simply match Coles' prices, said retail analyst Steve Kulmar, which would not be enough in the face of a "rapidly growing" Aldi or to win back market share from Coles.
"Once upon a time Coles and Woolworths spent their entire lives looking at each other and matching on prices," Mr Kulmar said. "At the moment, they both have very good supply chains and they are matching each other on price, but the perception is that Coles is still cheaper."
A spokesman for Woolworths said the supermarket chain had invested more than $250 million in reducing prices since February.
Deutsche's Supermarket Inflation Index shows a narrowing in the price gap, which has left the two majors almost inseparable on price alone, despite big increases in meat prices this year, a weak Australian dollar, and a fiercely competitive retail environment.
A spokesman for Coles said it had recorded average annual food and liquor deflation of 1.5 per cent over each of the past five years, at a time when overall food prices rose by an average of 1.5 per cent every year as measured by the ABS.
