Coles and Woolworths go head to head with top chefs

Jamie is promising fresh food and healthier choices at Woolworths, while across the road Heston is touting native Australian ingredients at Coles. But will either celebrity chef manage to lure more shoppers through the doors of the major supermarkets and away from the cheap goods on offer at Aldi and Costco?

In the battle for our grocery dollar, Woolworths and Coles have waged a fierce price war over the past five years, offering everything from discount petrol to $1 milk and bread.

To grab our attention they've recruited musicians (One Direction for Coles, Ricki-Lee Coulter for Woolworths), sponsored TV foodie shows (Coles with My Kitchen Rules and MasterChef, Woolworths with Recipes to Riches) and partnered with celebrity chefs, most recently signing British big names Heston Blumenthal (Coles) and Jamie Oliver (Woolworths).

But as the year draws to a close, industry observers are calling an end to the supermarket price war. They're predicting a renewed focus on brand differentiation that goes beyond price, spearheaded by the likes of Oliver and Blumenthal..

''It feels to me like the price war is over,'' consumer psychologist and Gruen Planet panellist Adam Ferrier said. ''Woolworths will continue to price-match Coles but the positioning and messaging focus is on fresh. The challenge for Coles is what does it mean beyond price? They were just cheaper than the other guys.''

While a reinvigorated Coles has managed to close the gap on its major competitor, Woolworths remains the dominant supermarket chain in Australia with 40 per cent of groceries bought there, according to IBISWorld. A third of groceries are now purchased at Coles.

Yet foreign discount chains are starting to eat into the 80 per cent share of the dry goods market enjoyed by Woolworths and Coles. (Their combined share of the fresh produce market is only 50 per cent.)

Aldi has carved out a 5 per cent market share since it arrived in Australia in 2001, while Costco, which opened its first Australian store in 2009, has less than 1 per cent. IBISWorld predicts both chains will "grow strongly".

"The biggest battle the industry is fighting today is against Aldi and Costco," said Citi analyst Craig Woolford.

To fend off this threat, the major retailers have been developing their own cheaper, private labels(which now account for a quarter of supermarket sales), and revitalising their brands.

To attract the shopper's dollar, the signing up of Oliver - who has built a career out of encouraging people to cook and eat fresher food - signals the Woolworths commitment to being "the fresh food people", it claims. "This partnership is a natural fit,'' a Woolworths spokeswoman told Fairfax Media.

Yet when Woolworths announced the alliance in October, not everyone was pleased. The deal coincided with news Woolworths would be phasing out cage-produced eggs over five years, while improving the welfare of the chickens.

At the time, the industry hit out, saying it had not even been consulted.

Farmers have since become concerned and frustrated about the growing power of the two major supermarket that share a cosy duopoly in an industry worth $87 billion.

''We want to make sure that changes being proposed to production systems are done through the producers themselves,'' said Matt Brand, chief executive of the NSW Farmers Association.

''We don't welcome having international chefs not willing to learn about how different Australia agriculture is, compared with Europe. These chefs aren't doing it because they love making food, they are doing it because it is commercially viable for them to be a face of a supermarket. It's all about the dollar,'' he said.

The Coles partnership with Blumenthal - announced a few days after the Woolworths/Oliver signing - is harder to understand than the Oliver partnership, given the chef's high-end Michelin star pedigree and Coles' ''down, down, prices are down'' mantra.

''The main difference between Heston and Jamie is that Woolworths is positioned as the fresh food people, that is a message Jamie can convey, he is a person who believes in everything fresh,'' Ferrier said.

''Heston doesn't represent the values Coles has, Coles isn't about molecular gastronomy, it doesn't make sense.''

Ferrier said Coles should pursue a ''families'' brand position, in line with its Curtis Stone ''feed your family for under $10'' initiative. ''Curtis is good for Coles, he's established the low-price message, he's got a family, people can relate to him.''

But Coles maintains Blumenthal - who is promising a range full of native Australian ingredients instore next year - is also a ''natural fit''.

Despite the renewed focused on brand, Woolford believes price will continue to influence shopper choice and supermarket competition

''Price always trumps other attributes,'' he said. ''Most shoppers shop on price … We're seeing significant spikes in volumes [when products are discounted]. The reality is the competitors do tend to respond.''

Former head of the Australian Competition and Consumer Commission Stephen King said the supermarkets' ''Tweedledee and Tweedledum'' copycat competition strategy benefited consumers through lower prices, but did little to engender customer loyalty.

''They've narrowed themselves down so much there's not much difference to each other,'' King, now professor of economics at Monash University, said. ''You can walk into a Coles or a Woolies and you don't care. From a customer's perspective there's not a lot of variety but prices are cheap.''

King said Australia was an anomaly compared with other countries which have a concentrated supermarket sector.

''The bizarre difference is, everywhere else where the concentration is high, the continual complaint from customers is prices are too high,'' he said. ''We've got these two gorillas in the room that compete tooth and nail … at the moment customers are gaining.''

It's the glitz and the glamour of the supermarket celebrities that consumers need to worry about, Consumer group Choice warns. ''It doesn't matter how many pictures of Jamie Oliver you see on pack, you still need to compare the unit price and shop around for the best deal,'' spokesman Tom Godfrey said.

Suppliers are also getting squeezed to keep prices low. ''There's a fine line between aggressive but fair competition, that benefits consumers and allows suppliers to make money, and unconscionable conduct,'' King said. ''It is being watched carefully by the ACCC and the government.''

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