What effect is The Warehouse having on PAK'nSAVE's prices?

In February, The Warehouse started offering a range of fresh produce at selected stores across the country. This expansion means the red sheds could now be a viable and attractive option for households to do their entire weekly shop.

To see whether this expansion by The Warehouse has led to more competition for the surrounding supermarkets we did an online shop of ten products at Countdown, New World and PAK’nSAVE stores in the immediate vicinity of The Warehouse stores now selling fresh produce. We selected branded products to allow for price comparisons across stores and did not take loyalty card pricing or multibuy offers into account.

While prices at New World and Countdown didn’t move much, we noticed a drop in prices at PAK’nSAVE on some products.

We also saw evidence of some PAK’nSAVE products going up in price when The Warehouse’s prices were higher.

Some prices have fallen in South Island PAK’nSAVE stores

In the South Island, where The Warehouse offered cheaper prices on a product, PAK’nSAVE’s prices have fallen.

We saw the price of a 3-pack of Watties baked beans start at $6.05 and go down to $5.39 at three South Island PAK’nSAVE stores.

Wattie's Baked Beans in Tomato Sauce 3 Pack

Moccona Classic Medium Roast Instant Freeze Dried Coffee Jar 100g

We saw the same pattern with Moccona Classic Freeze-Dried Coffee. This product fell from $13.29 to $11.99 at PAK’nSAVE’s South Island stores over the course of our research.

Persil Laundry Powder Front & Top Loader Sensitive 4kg

The most dramatic change we saw was the fall in price of 4kg of Persil Laundry Powder at PAK’nSAVE stores. This product fell in price by 25.7% - more than $8 – in the space of a few days.

Negative shifts in price competitiveness

There are a complex range of factors that can impact price, but the charts above may show the positive impact that competition can have. However, we have also discovered instances where prices at PAK’nSAVE stores have increased when prices at The Warehouse have been higher.

We can see how this practice plays out in the PAK’nSAVE stores we shopped at in the North Island when it comes to a pack of Squiggles.

Griffin's Squiggles Hokey Pokey 215g

At the start of our research, a pack of Squiggles cost $4.69 in the Warehouse, compared to just $2.99 at PAK’nSAVE’s Kilbirnie and Westgate stores. A week later, however, the price had increased to $3.89 in Westgate and $4.49 in Kilbirnie

PAK’nSAVE’s price remains lower than The Warehouse, but has gone up $1.30.

Coca Cola Classic Soft Drink Bottle 1.5L

We can see the same pattern in the South Island with a 1.5 litre bottle of Coca Cola at PAK’nSAVE, which increased in price from $2.29 to $3.59 over the course of our research. PAK’nSAVE’s price remains lower than that of The Warehouse, but is now $1.30 more expensive.

Same Product, different price, different shifts

By observing the prices of Old El Paso’s Stand ‘n’ stuff taco kit at The Warehouse and PAK’nSAVE, we can see how these two shifts in price can play out at the same time in different locations throughout Aotearoa.

Old El Paso Stand N Stuff Kit 10 Pack 295g

In the North Island, where The Warehouse and PAK’nSAVE’s price for this product was similar, the Kilbirne and Westgate PAK’nSAVE stores lowered their prices. In the South Island, where The Warehouse price was significantly higher than PAK’nSAVE’s, the cost has risen.

Competition coincides with price shifts

Following a broad study into New Zealand’s grocery sector, in March 2022 the Commerce Commission (ComCom) reported that competition is not working well for consumers in the grocery sector, and that change was required to help improve the price, quality and range of groceries available to New Zealanders.

ComCom’s report outlined that while grocery retailers outside of the Foodstuffs/Woolworths duopoly provide some competition for retailers in local markets, “they are generally unable to provide strong competition to satisfy consumers’ preferences for one-stop shopping in a single location.”

The arrival of fresh produce at The Warehouse, in addition to its existing grocery offer, could represent a step in the right direction as far as competition for one-stop shopping is concerned.

ComCom’s report identified a number of examples of frequent adjustments to competitive strategies of the major grocery retailers in response to each other’s retail grocery offer, naming the “monitoring of price levels for specific products with the aim of maintaining specified price differentials between the major grocery retail banners,” as one of the more common examples. In submissions to ComCom, both Foodstuffs North Island and Foodstuffs South Island state that they monitor other retailers’ prices and adjust them in response.

ComCom’s report also highlights that supermarket retailers attempt to differentiate their grocery offer from one another using both price and non-price related factors. The report identifies PAK’nSAVE specifically as having “a different business proposition that aims to ensure it is positioned to offer New Zealand’s lowest food prices”.

The Warehouse, on the evidence of our analysis, could represent a threat to this position.

When approached for comment on what drives fluctuation in prices, Emma Wooster, Foodstuffs spokesperson, said “[p]rices on specific products may fluctuate for a few reasons; the products may be on or off special, the supplier may have changed their price, or the local owner has done a great deal with their supplier.”

Our study is too small to be conclusive on whether The Warehouse has driven these shifts, but it does offer hope that increased competition can drive down prices.

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Methodological notes