Image: Toby Morris
Image: Toby Morris

MoneyMay 10, 2022

A deep dive into the Countdown price freeze

Image: Toby Morris
Image: Toby Morris

It scored them plenty of media coverage, but did Countdown’s ‘winter price freeze’ live up to the hype? Former Countdown retail worker Jacob Flanagan runs the numbers.

When Countdown supermarkets announced last week that they were temporarily freezing the price of hundreds of goods to help counter the rising cost of living, it raised a few eyebrows.

At first glance it’s a sensible and compassionate move – having a selection of essentials locked at the same price all winter could help people plan their budgets in a time of high inflation, and food prices are usually slightly higher in June, July and August.

“We want to help Kiwis’ money go further despite the pressures everyone is facing with increasing costs, and that’s why we’ve pledged that the price of these 500-plus essentials won’t change,” said Spencer Sonn, managing director of Woolworths New Zealand, which owns Countdown supermarkets, when the freeze was announced.

Stats NZ estimates the cost of living was 6.9% higher in March this year than in 2021, the largest annual jump since 1990, and it will likely hurt low-income households the most. One area where New Zealanders are particularly feeling the pinch is in supermarkets – food prices have risen a whopping 7.6% since last March.

Combine this with high petrol prices causing high transport costs for supermarkets, and recent increases in the minimum wage that many Countdown staff are paid close to, and it may seem Woolworths is making a real sacrifice by freezing prices.

However, a closer look at the Great Winter Price Freeze reveals some odd inclusions. As other media have pointed out, fresh fruit doesn’t appear on the list of essentials at all, while bacon and smoked salmon are the only meats. One “essential” pack of salmon is price-frozen at $90 per kilogram, making it one of the chain’s most expensive items by weight.

Almost a fifth of the items are herbs and spices, and while they may be a common purchase, New Zealanders struggling with inflation are hardly able to use paprika or nutmeg as the essential ingredient in dinner.

Pasta, cooking oil and toilet paper are all things you might include on a list of essentials, yet Countdown hasn’t. They have found room, however, for a total of 37 dessert items, as well as 29 different snacks and lollies. If you’re thirsty, you can quench your thirst with one of the 19 “essential” wines that have been price frozen.

Health-conscious readers may notice one other glaring omission so far: vegetables. While there’s no fresh fruit whatsoever on the list, there are also just three varieties of veges – pumpkins, onions and carrots. These may be winter staples, but there’s only so much pumpkin soup you can feed your kids. Countdown has included carrots and onions only from their “Odd Bunch” initiative, what they call “ugly” produce, sold in 1.5kg plastic bags at a small discount. Based on this author’s experience working in Countdown’s produce department, there are often fewer of these Odd Bunch bags in stock, so they sell out first, leaving just the more expensive options – which Countdown can raise the price of as they wish.

A deeper investigation into the price of those three veges – which will likely be among the most bought of the price-frozen items – is revealing. It’s important to note here that Countdown has frozen selected prices, rather than simply promising not to increase them; they won’t go up or down in price.

Stats NZ data shows carrots, onions, and pumpkins usually go down in price in winter, before rising again in summer.

This data is what we’d expect for vegetables that grow better in the colder months: higher supply leads to lower prices. The timing of the freeze means these vegetables have been frozen at the higher May price, and so they won’t decrease like they usually do*. Countdown’s freeze might therefore keep prices of carrots, onions, and pumpkins artificially high – meaning that from June to August, consumers could possibly be worse off when buying these veges at Countdown than they would be without the freeze.

Countdown will then be removing the freeze at the end of winter – just as the three vegetables go up in price again nationwide, including at Countdown stores.

Meanwhile, many of the other goods have recently become more expensive shortly before being price frozen. Woolworths announced on Tuesday to shareholders that the cost of their groceries had gone up by 3.6% since the start of the quarter. While Sonn has previously pleaded to not blame supermarkets for this increase, pointing instead to inflation, Stats NZ measured inflation for the same quarter as only 1.8%. This suggests Countdown’s prices have risen roughly twice as fast as average prices since the start of the year. Although the prices of some goods have gone up by more than 1.8%, Countdown raising their prices by roughly double the national average shortly before freezing them is certainly bold.

While Countdown claims they’ve been forced to raise prices in the face of almost a thousand requests to do so from suppliers in the past 10 months, suppliers have long said that supermarkets have all the power in the relationship. This means that Countdown can and often does just refuse supplier’s price-increase requests, knowing that there are very few competitors in the grocery market.

In fact, it seems competition is at the heart of the problem. In November 2020, the government asked the Commerce Commission to investigate how competitive the $22 billion-per-year industry is.

Its report, published in March, found that the grocery sector wasn’t nearly as competitive as it could be, with the two main retailers, Woolworths and Foodstuffs, taking about 90% of the market share. The commission also measured the profits of the two retailers and found that they were more than twice as profitable as expected, with the industry making approximately a million dollars a day above the expected return on investment. Despite this, the government has been reluctant to do anything yet to increase competition, such as breaking up the two grocery chains to force more competition and lower prices.

Commerce minister David Clark was optimistic when he suggested in April that supermarkets might voluntarily lower prices. “[Supermarkets] are making profits in excess of what is reasonable,” he told media. “They can move to rectify that today, if they choose, that’s up to the supermarkets.

“We know that inflation globally is an issue, but on top of that we’re seeing increases in food that could be controlled if supermarkets were not taking the level of profit that they’re taking,” Clark argued.

Whether supermarkets choose to take lower profits, or, more likely, the government chooses to take action, remains to be seen. In the meantime, Countdown’s Great Winter Price Freeze will seemingly do little to help struggling households afford nutritious food – and customers should keep a keen eye out for sharp price increases come September.

*After this post was published, Countdown contacted us to say: “If over winter, we do receive a lower price from our growers on any of the veges that are currently on the Winter Freeze, we’ll pass those savings on to our customers.”

Mad Chapman, Editor
Aotearoa continues to adapt to a new reality and The Spinoff is right there, sorting fact from fiction to bring you the latest updates and biggest stories. Help us continue this coverage, and so much more, by supporting The Spinoff Members.Madeleine Chapman, EditorJoin Members

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