Supermarket wars keep a lid on food prices

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It's music to the ears of shoppers pushing trolleys down grocery aisles.

There is little prospect of big grocery bill increases as competition forces the two big supermarket chains to keep a lid on prices.

Supermarket giant Progressive Enterprises says food inflation for the year ran at a low 0.9 per cent and is remaining flat.

"Our internal inflation is zero to minus - there is no inflation in food at the moment and that's taking all our departments across the board," managing director Peter Smith said.

Progressive Enterprises is part of the way into a $1 billion five-year transformation of its 152 Foodtown, Woolworths and Countdown supermarkets to one brand - Countdown.

Prospects of cut-price German grocer Aldi setting up in New Zealand remain, and if it delays what is seen as an almost inevitable entry here, the rapidly growing number and improving quality of Asian supermarkets will restrain prices, one retail analyst says.

Progressive says there were 67 Countdowns this time last year but by July next year there will be 132.

Selling more fruit and veges is seen as the biggest growth opportunity within the remodelled or new supermarkets so these departments are being expanded by up to 30 per cent. Other fresh food departments - seafood, deli and bakery - are also getting bigger.

The company settled on transforming the Countdown chain because of its national profile and because it needed to change the most, says Smith.

"The old Countdown brand carried a lot of baggage with it. It was fairly mundane and old fashioned - it had come up through the 1980s."

While staff numbers will grow from 18,300 to 19,000 as a result of the programme during which three to five new supermarkets are being built each year savings will come from not having to run three separate merchandising systems, management teams and pricing structures.

"It was extremely complicated and very costly."

In the past year Australian-owned Progressive boosted sales by 4.6 per cent to $5.185 billion, which produces earnings before interest and tax of between 4c and 5c in the dollar.

"There's not a lot of margin to play with," Smith said.

The GST increase to 15 per cent from October 1 will be passed on.

Smith said he was unsure of customer reaction but the tax change had already been costly for his company which had calculated implementing the changes had taken the same effort as someone working non-stop for 20 years.

"The one thing the Government fails to recognise is the amount of cost to business just putting the tickets up - it's huge."

The big spending is in part catch-up for Progressive which had a series of owners - with varying commitment - in the years leading up to Woolworths of Australia buying the company in 2005.

Tim Morris of retail analysts Coriolis Research, said the $1 billion spend-up was the latest round in the knock-down, drag-out fight between Progressive and co-operatively owned Foodstuffs, which has sales of around $8 billion a year.

"It's a bit like trench warfare," he said. Morris said revamping a supermarket chain was working for Progressive.

"They're not revolutionising the planet.

"A smartened up Countdown is not going to get people running down the street but remodels are always a good spend."

Foodstuffs managing director Tony Carter said static food prices are of more immediate concern than new entrants such as Aldi.

"The thing that has affected us is food price inflation which is negative. If you sell the same volume you've got the same amount of money in the till at the end of the day."

There were emerging signs of price pressure creeping in.

Progressive - 43 per cent of the grocery market
Foodstuffs - 57 per cent of the grocery market