As many readers will know, public transport patronage has declined and been flat for about a year and a half – although I get the feeling we are about to see strong growth resume again shortly. There are many different things that can encourage people to use public transport more and one of the most common mentioned is the price of petrol. The thinking goes that as petrol prices go up, more people will consider using public transport as an alternative to at least some of their trips. But in reality the relationship between the two isn’t so clear. As hopefully this graph shows, while there looks to be a similarity between the real price of petrol (the price adjusted for inflation) and patronage, the two simply don’t match up.
Further this much more in depth study suggests that the link is actually very small with a 10% increase in the real price of petrol only relating to a 0-2% increase in patronage..
Of course every time the price of fuel goes up we hear people complaining and we often get news outlets running to the nearest petrol station to get some voxpops from angry motorists. However particularly in the last couple of years, I wonder how much impact fuel discounting is having on the price people are paying and how that affects their decisions.
Just yesterday for example, I stopped off to shop at my local supermarket and was rewarded for my efforts with the voucher below (in the past I have seen vouchers being given for up to 45c per litre)
When I was out yesterday I noticed that the price of petrol at most places was around 220.9c per litre however we always seem to get fuel a bit cheaper out west (most likely thanks to Gull) and fuel at the Pak n Save was at 214.9c per litre. Combined with this docket it would mean I could buy petrol for 189.9c per litre, much cheaper than the prices advertised elsewhere. How much impact these types of discounts have on people’s willingness to drive?
Only the fuel voucher it isn’t really a reward, the discount it is only possible because the supermarkets are cross subsidising the discount through higher food prices which raises perhaps the bigger issue. Supermarkets often get a lot of custom from people walking, cycling or even catching the bus to the shops. This is especially the case in urban centres and of course those methods are the only way to access the stores in the heart of the CBD. Those customers also pay the higher food prices just so that the companies can offer fuel discounts. For those in places like the CBD who live without a car I imagine the whole thing is really quite an insult.
Of course let’s not forget that on top of the fuel discounts, the suburban stores often have huge supplies of car parking that idle most days but for which they need to pay rates and maintenance costs for, all of which is also charged to consumers through the price of their goods. This is something Stu has raised in the past here and here.
Interestingly in Australia the practice of fuel discount appears to be starting to come under the spotlight for the distortion it is causing to competition amongst fuel companies (rather than the equity issues for non-motorists).
The Australian Competition and Consumer Commission’s Rod Sims created a bit of a stir on Monday when he criticised the shopper docket schemes used by the big supermarket chains and warned about their impact on competition within the petrol retailing sector. With a long-running inquiry into the schemes, should the chains have cause for concern?
The issue of the shopper docket schemes is a complex one and the capacity of the ACCC to actually do anything to abolish or limit them is equally thorny.
As Sims said on Monday, he now has power to ban them. He’d have to take the chains to court, presumably alleging anti-competitive conduct and/or predatory pricing if he wanted to get rid of them.
Under the schemes shoppers at Woolworths or Coles get discounts on their fuel at aligned Caltex and Shell outlets if they buy a minimum dollar amount of groceries.
In the past the discounts have generally ranged from about 4c a litre to 8c a litre but recently, for high-value baskets (above about $200), the discount has been as much as 45c a litre and Sims is concerned that if there is a combination of big discounts over an extended period it could drive other petrol retailers out of the market, leaving Woolworths and Coles dominant.
The concept of the dockets is that they drive bigger basket sizes at the supermarkets and bigger volumes through their petrol stations, with the higher-margin supermarkets funding the discounts rather than the very low-margin fuel outlets. In both their businesses the higher volumes validate the strategy.
Unfortunately it’s probably almost impossible to know just how much impact either the fuel discounts or excess parking are having on food prices however Stats NZ food price index shows that that since fuel discounting was introduced in October 2006 there has been a considerable increase in food prices.
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“…and fuel at the Pak n Save was at 114.9c per litre.”
To avoid confusing your readers, I think you should correct the above price to 214.9c, no?
At 114.9 drivers will be flocking out there. Lincoln Rd is busy enough as it is.
At the weekend I noticed the New Lynn BP had cheaper petrol prices too. Any idea why it’s cheaper out west? And just for fun:
http://www.thecivilian.co.nz/petrol-prices-different-to-what-they-were-previously/
And yes, I find it a huge insult that the prices I pay at supermarkets go towards subsidising other peoples’ petrol and all of that ghastly car parking blight.
If only the supermarkets did away with the whole practice or introduced an alternative to co-exist with fuel vouchers. Something like “PT vouchers”, credited directly to a HOP card perhaps or have it enabled to use as you would use a OneCard. The latter’s rather unlikely to happen though as there’s no money to be made from it unlike unredeemed fuel vouchers. I’ll just keep on subsidising other people’s petrol I guess.
Sorry to be so cynical, but it’s a double whammy for people walking or cycling to the supermarket: they take another car of the road and get rewarded with paying a subsidy to drivers.
I have to agree here. The reason why we have these mega super markets these days is because of all the pedestrains who walk 20km to the supermarket.
It’s these same pedestrains who then go and spend $200 on groceries and carry the 12 bags of supplies all the way back home.
This is the reason why it’s cheaper to buy goods at these big supermarkets than at the local shops. Pretty much every pack n save you go to you will be lucky to spot a single car amount the thousands of pedestrains who are all carting large loads of supplies to and from the train station or bus stop.
The metro supermarkets however don’t seem to attract these big spending bulk shopping pedestrains however and so need to have smaller more constrained shops that offer reduced selections of goods and charge higher prices.
I’ll also point out that even back in 2000 you could get supermarket fuel discounts. You could save 10c a little back then if you spent $200 in a single shop.
So once a week I drive to the super market and spend $300+. It’s my one drive of the week. Not valid here SF?
What a stupid comment.
You will note I mentioned people walking to supermarkets in urban centres and the CBD, I wasn’t referring to places big supermarkets in the suburbs. Further you are twisting what I said. The prices are set to enable the shop to give the vouchers, if you have someone walking and buying just a bag or two of items they are still paying the same price for the items as someone who shops in a mega supermarket where they might do a $200 shop.
You got me there with that “I have to agree here” and so I didn’t skip your comment as I usually do. And I think you’re a bit right this time. But I walk to shop to my central city supermarket everyday. That makes it 14 bags of shopping per week. More than I could fit in my car, if I owned one. Pedestrians, cyclists, bikers, all eat and live like normal human beings (the ones with cars) so at the end of the day I think they spend as much as 4wheeled humans. If not more, as going more often to shop makes you more likely to buy stuff you don’t really need. (sorry for my poor exposition but I’m in the booze because Berlusconi has been finally sentenced today!)
My household spends well over $200 a week at Countdown without going near a car.
The point being here is that the large supermarkets with low prices and easy access and parking did not become the predominant style due to them being the most expensive to operate but rather they are cheaper to operate.
If you drive to the supermarket once a week and spend $200 the supermarket makes more profit off you than if you walked there 20 times and spent a total of $250.
Every time you go there it costs them money, even if you buy nothing. In the supermarkets eyes they would prefer to see you as few times as possible provided you kept buying just as much.
So just like shopping centres, they would not exist in their grand form they do today if it were not for people traveling to them from far away to spend their money.
If you happen to live next to one of these big shopping centres or supermarkets it’s those car drivers you hate so much that you should thank as if it were not for them the chances are it would either not exist or be much smaller charging higher prices offering a reduced selection.
“If you drive to the supermarket once a week and spend $200 the supermarket makes more profit off you than if you walked there 20 times and spent a total of $250.”
Care to back that up with some facts? Gross spend is the key here. Frequent small shops don’t cost the operator any more than one big shop do they?
I do wonder what it costs them when I use the automated checkout, and the profitability of a store that spends zero buying or leasing parking. I don’t see how my popping in every day or two to pick, pack and scan all my own groceries costs more that going once a week with a trolley fully for one or two staff to manually process.
Most massive supermarkets are two thirds parking lot. Hell one of the ones I use regularly is in a basement. Big parking lots, trolley attendants, check out staff, lots of expense to support the “fill up the boot” model.
“Gross spend is the key here. ”
There will be a cost to the supermarket to process the customer, regardless of how much they spend. They still queue at the till. They still consume heat and light. And they still use the EFTPOS machine. Of course it is cheaper to process one shopper spending $200 than a hundred shoppers spending $2 each… you hardly need “facts” to know it is true.
It’s pretty much the same principle that allows public transport operators to offer discounts to people with 10 trip tickets or HOP cards, and cheaper trips per kilometer the further you travel. The operator saves money because the driver doesn’t have to collect money from hundreds of people getting on the bus. Which is also pretty obvious… I’ve not heard anyone trying to argue that single-trip cash bus users are subsidising HOP card users. Or that people traveling one stop are subsidising people traveling across town.
I think you do need facts to prove this particular point as it is not clear cut ($200 vs. $2 is not the argument, but $200 vs. $20-$50). First of all it is more difficult to staff the checkouts for large purchases as 1 person ties up a till for 5-10 minutes so it is lumpy and you need more tills open than with small/quick purchases. Secondly stocking the shelves for large shops is more costly in either the size of the shelf space and stock out on display or the need for more restocking through the day. A third consideration is perishables, which are much more difficult to plan for if everyone buys their entire purchase 1 day a week. Last of all, and pertinent to this blog, is the cost of provision of trollies and the aisle congestion they introduce compared to people with baskets.
I’d have to concur that gross spend is the key metric, 2nd most important metric is number of visits (more being better).
Both ten trips and the economy of loading up a trolley are ancient history. With HOP stored value individuals process their own transaction each time at negligible cost to the operator. Same with auto checkouts, customers process themselves at negligible cost to the operator. Go stand at Countdown Victoria St and watch the throughput of the auto checkouts vs. the staffed aisle.
As for minimum wage, I’ll lament the loss of checkout operators along with lift attendants and traffic directors.
“you hardly need “facts” to know it is true.”
Of course. Facts can be so annoying when they get in the way of your perceptions.
“Of course. Facts can be so annoying when they get in the way of your perceptions.”
You just don’t need a published study to show you that the time required for 100 people to check out and pay for a Mars bar each is going to be far greater than the time required for one person to check out and pay for $200 worth of groceries. Also that 100 people shopping for a Mars bar at the same time are going to need a bigger floorspace than the single shopper, and you’re going to need a lot more baskets. That’s why CBD metro-style supermarkets are more expensive catering to the office lunch time crowd, even though they don’t need to provide car parking.
Some things are just so blatantly obvious you don’t need to use Google to find a report telling you they’re true. Can you really not imagine two queues, one containing a hundred people all holding their Mars bar and EFTPOS card and the other with one person and a trolley of groceries, and realise that it’ll cost the supermarket a lot more to process the longer queue?
I think you’ll find supermarkets LOVE people coming often and whatever it costs (you’re thinking the extra cents for payments + small diff in total time at checkouts, extra wear and tear on the concrete floor?) that is more than made up for in the extra chance to promote specials, extra impulse purchases, less chance of in-between ‘leakage’ to dairies for the milk and bread, more of their branding in your face for free, etc.
Of course if they can turn any $80 trip into a $100 one, or $180 into $200 then they’ll try to do that, but I think you need to restate your hypotheis as statement “every time you go there it makes them money.”
Supermarkets have been successful because they allow people to do almost all of their food/household item shopping under one roof. Instead of needing to go to separate stores for things like bakery items, butchery items or fruit and vege. Due to the number and size of stores they are also able to buy in bulk giving them a lot more purchasing power compared to other sellers.
We spend at least $250 a week at the local supermarket across 4 or 5 trips. Do you think I somehow consume less stuff because I don’t own a car?
As much as your isolated comments may make sense when you think of only yourself you are missing the global picture.
A supermarket is required to serve one function, sell goods. However to do this it needs to provide you with an environment that not only are you happy to shop in but will encourage you to buy more than what you intended.
To this extent it needs to provide for a capacity more than which is required as you move around to maximise your exposure and accessibility to products. Quite often all you need to lose a sale is one person standing in the wrong place and the supermarkets know this.
So carrying on from this the more often you go there the more space is needed to maintain this level of service. So if you go there 10 times a week maybe you did generate more revenue for them however what you have also done is reduce there profits. As I said before, even if you by nothing you have cost the supermarket money as they have been required to provide for you even though you bring in no money.
In regards to self checkouts. That is an example of the minimum wage at work. What it has done is make machines more affordable than giving someone a job.
We are clearing missing the global picture because you aren’t providing it SF. Just your observations.
Yes just a very large amount of observations from multiple disciplines because I’m interested in all of the functions of society rather than particular pet hobbies.
In particular I look at human psychology even if I’m shit at human emotions because I look at what drives people as appsosd to their aspirations.
Umm, isn’t a person who visits more often going to be exposed to more products and hence buy more?
No not really feijoo, someone who goes to a supermarket for a small shop is generally very targeted in what they are looking for and the techniques that the supermarkets use are unable to influence what you buy.
Actually I think it is the opposite to the way you have it SF. The target audience for the large fuel vouchers are the mums (or dads) who run a tight ship with the family finances. The sort of people who would otherwise head to another supermarket, or to the green grocers for their fruit and veges. So they are people more likely to shop to a list and less likely to impulse buy. Feijoa is right I would say – the childless couple who pop to the supermarket every day or two are far more likely to impulse buy.
So what is the conclusion? It isn’t that the supermarket somehow values one group over the other. It is that they are trying to target each cohort differently (and indeed there will no doubt be many more targeted groups in the minds of the supermarket marketing department). Fuel vouchers enable them to give discounts only to the type of people who will be most willing to change their shopping location because of them. They target the 20 somethings by having convenient hours and locations, via brand affiliation or whatever.
So your under the impression swan that supermarkets hand out discounts to the people they make the least amount of money off and then doing nothing to reward the ones they make the most off? That sounds like very strange business practice.
I would also question why these 20 somethings are going to the supermarket every day or two. Are they really all walking past their local shops to make their way to the local supermarket that’s located some 2-4km from where they live? I could have swarm the other week that we were being told they are all going out for dinner and lunch in the CBD but now it seems they are all going on long walks to the supermarket.
Re your first sentence – I didnt say that. Clearly they make money out of both groups. The point is – they are trying to make money out of all groups. To do this they want to target cohorts as directly as possible. For example, they could just run with the same margin on every product in the store to give everyone the cheapest average basket. But then all the people with relatively low price sensitivity will be getting the discount too. So they target specific products etc. The fuel discounts thing is a way of targetting a particular cohort. Note I am not defining these cohorts as “people who do/dont drive to the supermarket”. It is more specific than that.
For example: we drive to the supermarket, but fill the car up often enough, or spend enough, to bother with the discounts. I could save 40c each week when I fill up my motorbike but I dont bother. A lot of people who arent particularly budget sensitive will not use all or many of their vouchers.
It is really just a form of market segmentation and price discrimination. Firms dont “reward” their customers – they profit maximise, any way they can!
^^ Edit: *dont* fill up the car often enough.
I found it amusing that Countdown has been offering 25c off petrol when you spend $50 on meat. An unsustainability double whammy!
I walk 4km to a supermarket 5/7 days a week; get my exercise after sitting at my desk all day. Catch the train back home. I also take the train to the Parnell market once a week to get quality things like radicchio which no supermarket sells, not even the New World in Victoria Park. Consequently, I’m relatively fit for my age and can see what’s happening in my local community and I’m shopping for 3. No car used, ever.
Hi Matt,
Love your blog, been following you for years. I love to see the positive impact you seem to have. I’m not sure if you can predict the future or AT just take their policies from you.
Anyway I just wanted to ask if there is there any chance you can post or email the data you gave for your first graph? Given the huge number of compounding factors the poor correlation between petrol price and PT patronage seems somewhat logical. The study you linked seemed to only look at figures in the last 10-18 years while your graph looks at a far longer 40 year period.
I was just wondering if you were to take a longer 2, 5 or 10 year rolling average if the correlation between petrol price and PT would be far higher, which would roughly account for the change in public perceptions, or for cars to be retired as few people sell the car after a gas price increase the previous day.
Thanks Bruce
The fuel data is available here http://www.med.govt.nz/sectors-industries/energy/energy-modelling/data/prices while the PT data came from AT. When looking at the various peaks and troughs you notice that there seems to be a lag of 3-4 years in many cases.
I’ll second that. You do absolutely awesome work Matt, even if we don’t agree on every aspect.
You contribute to the quality of Auckland for all of us and I trust you will keep up the good work.
I find it quite unfair that every time I walk to the supermarket to buy groceries and have to pay firstly for a parking space that I am not going to use and secondly for someone else’s fuel voucher! It should be the other way around – walking has positive externalities and motoring has negative externalities and should be taxed, not subsidised!
So what you would like is higher prices and a reduced selection? Well if that’s what you want why don’t you go to the local diary rather than the supermarket?
Or what you could do is just buy only basic items and hand over an extra $10 to $20 because you think the prices are too low.
What are you talking about? I was complaining about the free parking being provided. Where did I say that I wanted “higher prices and a reduced selection” ?
N
Well that’s what you get if you want a supermarket that is unable to attract people from further away who spend larger amounts of money.
Just thought i’d point out,that say a pak n save that sells fuel doesnt have to pay wages for staff .Other service stations do(well apart from the odd gull i’ve seen,not in akl though).possibly making it cheaper?.But im sure its still subsidised.
Particularly annoying is having to keep and find the flaming receipts which clog up your wallet. Why do i need to keep receipts when i have a countdown card anyway (also rude – why can’t we just have the discount for all). Also because we got a Mobil card to try and eliminate our petrol receipts (we need to save them for our family business) we are not eligible for the discount fuel. The grocery vouchers won’t work with a mobil card. Very Very annoying. I hate companies that make you keep a card or pieces of paper to get the same price as other customers. “Wallet Congestion.” I dream of a wallet with one hop card (for all my council stuff) one eftpos/visa card and an iphone – no receipts no loyalty cards.
Agreed loyalty cards are a pain. But if we have to have them, I like how it works at Sainsburys in the UK. They have discounts for all shoppers, but you can get points on your card (I guess like a flybuys card here, but operated by the supermarket). And if you forget your card, then the points are listed on the receipt and you can get them loaded onto the card next time (so a bit of keeping receipts, but only for a short time). Also the card can get points at other stores (again like flybuys), and when you get a certain number of points you get a discount on your next supermarket shop (or a range of other discounts, etc)..
As much as this annoys me too (I don’t get anything out of the vouchers), this is just legitimate business practice by the supermarkets. They are target a specific segment of the market with this promotion. I am guessing that the type of shopper attracted by fuel vouchers is more likely to be a shopper that will choose their supermarket based on reasons other than convenience. Ie they are targeting shoppers willing to drive across town to get a good deal. My suggestion: frequent the Asian supermarkets, fruit and vege stores, and your local butcher and baker!
*Seems to be perfectly legitimate. Could become a monopolistic practice.
I drive to the supermarket because, although it is only a few kms away, it is at the bottom of a long and steepish hill which is not fun to slog up carrying your shopping (yes I have done it on the odd occasion). I use the coupons. I think they are a rather stupid promotion but I assume a successful one (given that it continues to be offered). If a particularly big discount is offered, we will often use the opportunity to combine shops/stock up on items on special so it does influence my buying behaviour to a certain extent which I guess is the point. If the supermarkets weren’t making a buck out of it, I doubt that it would continue to be offered. But fuel (and cars) are still expensive. Even a large discount doesn’t make that much of a difference when you fill up and certainly don’t make me want to use my car more than necessary.
As for the correlation between food prices and the discounting scheme, I am not clever enough (nor do I have enough information) to say whether it is a factor. I will note that fuel prices have increased a lot during the period which would have fed into food prices.
And for those good people who don’t drive, well there are places other than supermarkets to shop. I am sure the owners would appreciate the business. It is often cheaper too.
Car drivers are the bread and butter for supermarkets (pardon the pun). Walkers and cyclists are not buying large quantities. Something like 98% of supermarket purchases leave by car. The fuel offers are here to stay, as they are a big part of the sales drive for this industry.
No doubt you’d have the source for that insight available.
Read it in a Progressive document, I think it was the company newsletter. I was a supermarket manager at the time.
Obviously that depends greatly on the particular site. I heard second hand that the big countdown on Quay St does over 90% of its trade from walk up. They have a huge selection and regular prices I might add.
Which is kind of bizarre in a way, since I think Countdown Quay St would have to be the only Countdown in the country that voluntarily has parking!
That Countdown seems to treat pedestrians with utter disdain despite being dependent on walkup traffic. I think it was designed to catch people driving in and out of the CBD. If was designed for walkups wouldnt have such an awful pedestrian access, especially from the Britomart direction ,where you have to walk through the loading dock and carpark.
With the success of the Victoria St Countdown and Queen St New World would be great to see a few more of these metro stores popping up. One at the K Road end of town, and at Newton would both be great for walkup and PT traffic.
Unfortunately the Ponsonby Countdown is same old, with 5 levels of basement parking (huge cost to that!), giving 550 carparks in total with 220 for the supermarket.
I’m sorry but that has no logical basis behind it. Simple on site observations will reveal to you that very few people walk away from that supermarket with notable volumes of purchases.
However, even if that were true it would prove to be the one and only such supermarket in the country that was able to operate in such away and only when it was located a short walk away from some 20,000 people.
The 98% figure I quoted is the share of sales, not the share of travel mode. One shopper with a car load of 30 grocery bags is equal to numerous walk up customers.
Chicken & egg as well. If fewer free parking spaces were provided, the there would be more incentive to walk or use public transport.
Why else would you build a brand new supermarket with the car park out the front. It’s not there for people to walk to.
Seems to be a big jump in food prices from 2001 as well. Was that not about the time the Woolworths sale happened to create the present duopoly? Think Gull was “aligned” with that co from memory.
Dave, you’re on the money timing-wise. The Woolworths -Progressive merger was in either 2000 or 2001, in the early years of the Clark government, bit before their tougher competition law kicked in that would likely have blocked the merger.
Definitely agree with posters who recommended shopping at local greengrocers etc. – best way to avoid subsidising fuel voucher issuers is not to shop there!
Wow. I cannot believe the above. All this over a few cents. How about some positive ideas on how to increase public transport patronage that do not involve compulsion.
50L x 25 cents = $12.50 which is 1250 cents. I’d love it if I was offered 4 bus rides free each time I spent $200 at our local supermarket, I’d definitely drive down to stock up, but I’m not holding my breath. Where did the compulsion angle come from?
That plus, if you get a fuel discount from other sources e.g. an AA card, then the fuel voucher (I always seem to miss the nice ones and usually only get the 4c a litre ones… ) is worthless anyway.
25c per liter * 50 litres = $12.50. And that’s before you count the administrative costs of the scheme itself, such as costs of issuing/processing the dockets. My discussions with people who work in the supermarket industry lead me to believe that the fuel voucher scheme imposes quite hefty costs.
Moreover, and as others have noted, the benefits of the schemes are spread quite inequitably. Not only do non-car users impose lower costs on the supermarkets by not using parking, they are also likely to have lower income (even if there is a proportion of high-income, inner-city dwellers, such as the people who tend to comment on this blog). The net effect is likely to be that low-income, small spending households with more limited mobility are subsidising high-income households.
I can understand why the supermarket chains do it, because car users are big spenders and also more mobile – hence they can more readily shop at stores that are further away from home if a bigger discount is on offer. In some ways the mobility afforeded by cars makes these households more price-sensitive.
But I can’t help but feel that it’s ultimately a very expensive and short-sighted marketing ploy and would not be at all surprised if the schemes unravel at some point in the future, whether due to competitive tension of regulation. I hope it’s the former, because as you note it does not involve compulsion.
The main avenue for this would be the development of metro supermarkets, who provide little to no car-parking and who do not offer the fuel discount. Such stores might be able to attract non-car users and operate with relatively low overheads, thereby maintaining higher margins.
Anyone keen to partner with me to develop such a line of metro supermarkets? One that combines convenience with low overheads and hence reasonable prices?
The Australian government believes supermarket fuel discounts may lead to higher fuel prices.
http://www.theguardian.com/world/2013/jul/30/supermarket-petrol-discounts-accc-dockets
(Woolworths Australia and Countdown New Zealand are the same company btw).
Thanks for the link Geoff. I thought these two quotes were very insightful:
ACCC Chairman says “If Coles and Woolworths wish to offer their customers a discount, it should be off supermarket products, not petrol. The ACCC believes this activity is likely to have a negative effect on competition in the petrol industry. Over time, higher petrol prices could be the result.”
To which a spokeswoman for Coles replied our “petrol discounts, along with the prices of groceries, helped hard working families deal with the rising cost of living. We think customers should have lower prices on groceries and be able to save on fuel,” she said.
So, the ACCC chairman seems to raise a valid question about why supermarkets would discount fuel rather than groceries (given that they are primarily in the grocery business after all, and that the benefits of people who drive would seem to be simply larger volumes – hence raising the question of why don’t the supermarkets just apply a volume discount?).
To which the Coles spokeswoman responds with a highly emotive plea for lower grocery prices and lower fuel prices. Seems to me like Coles is playing us all for suckers. The adage “there’s no such thing as a free lunch” springs to mind.
More specifically, there’s no evidence to show that these vouchers are leading to both cheaper groceries and cheaper fuel. More like more expensive groceries and cheaper fuel – and the latter effect is only in the short run until the anti-competitive effects of the discount starts to bite because non-participating petrol stations go out of business.
My personal experience is different. The times I’ve lived a short walk from the local supermarket, inevitably going 4 or 5 times a week, I’m certain I’ve spent more overall, bought more expensive food, and made more impulse purchases. It’s easy to grab a couple of things you don’t set out to each time – fresh blueberries, nice wine, a good cheese – life is to be enjoyed.
On the other hand when I’ve lived ‘car trip’ away from a supermarket, and go less often, I tend to plan and make a list in advance of what is needed and go into the store with a focus. I’ll still make impulse buys if I feel like it, but it’s not like I’ll make 10 because it’s a week’s shop. Marginal utility – the perception of being (or deserving to be) treated wears off.
I expect your experience is different.
valid points. By the way you’re one of my favourite fruits.
Prediction: home delivery will replace the suburban, large format, sprawly model of supermarkets. Instead of subsidising car trips and the associated sea of tarmac, disruptive businesses will be incentivising people to use home delivery.No more Lincoln Road nightmares in this scenario.
The home delivery charge is greater than the cost of driving to the supermarket yourself. The diesel truck that delivers to your home will still use a similar amount of fuel to do the same job as well. Overall, it’s more efficient to drive yourself there. Remember, home delivery doesn’t come from your nearest supermarket. It’s a niche market, and does not represent the most efficient way of shopping.
Overseas trends seem to show massive growth in online supermarket ordering http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8374998/Online-grocery-sales-will-double-within-five-years.html and smaller “metro style” supermarkets are appearing more often. New Zealand supermarkets seem to be quite a few years behind other developed countries in terms of online retail – probably due to the lack of alternatives and city density.
In relation to transport efficiency/cost, would have thought online ordering is pretty good if the density is there, as you book a time slot which means one van can make multiple deliveries in an area for example, saving a huge number of car journeys. Also, people are buying time, so that is another way of viewing efficiency – although New Zealand delivery charges do seem much higher than overseas.
Exactly.
Geoff is incorrect to state that home delivery is less efficient – it’s totally contingent on the costs structures (lots of fixed costs) and by extension the volume and density of deliveries. A suitably dense delivery round, with a suitably optimised route, would definitely be more efficient than everyone driving themselves to the supermarket, because in the latter case every makes two trips: there and back. In contrast home delivery involves only one pull-out/pull-in that is dead running – the rest of the time it’s making one delivery on every leg. These cost advantages will grow as businesses start to count the true costs of the abundant “free” parking they provide on-site. That’s land they’re paying for, which they would not need so much of if more people used home delivery.
“A suitably dense delivery round, with a suitably optimised route, would definitely be more efficient than everyone driving themselves to the supermarket”
If the density was there yes, but it isn’t even close to that point, and is unlikely to ever reach it. There are several factors that cancel out any potential fuel efficiency gains.
1) A diesel truck is used, expending more energy per km than a car.
2) Each individual consignment is not just driven to the intended destination, but also to several other homes first.
3) The truck does not originate from the nearest supermarket, but rather from a supermarket up to 20km away.
4) Lack of density.
When Woolworths first introduced home delivery, all deliveries were dispatched from their Manurewa store, Auckland-wide. So if you ordered a delivery to Albany, it came from Woolworths Manurewa. They eventually added Northcote, then Grey Lynn, but on average, your home delivery will still travel much further to get to your house, than from your nearest supermarket. There’s a huge travel component, and also staff costs for picking, packing and processing your order. That’s why the charge is fairly hefty, as you need to pay for all that fuel and all those staff. Also, the staff member picking your order “goes shopping” on your behalf – i.e., they take a trolley up and down the aisles to pick your products. You are basically paying someone to do your shopping for you.
And every time they add another location their efficiency goes up and their costs go down. Like I said, it’s all about economies of scale. Eventually and at some point it will be more efficient than people driving themselves to the store, especially when external costs of congestion and parking are considered.
As an aside you have not yet defined what you meant by “efficiency”. Economic efficiency? Energy efficiency? Or “Geoff’s view of efficiency”? They’re quite different things … for the record I’m talking about economic efficiency.
A bit of each Stu, as all are relevant. The point at which your scenario of what is best comes into play, is unlikely to be achieved. It’s easier and cheaper to go to the supermarket yourself, for most people. Especially considering many people tie it in with other things, like after dropping the kids off at school.
Also, keep in mind that online customers are not given the same specials available to instore shoppers. So in addition to paying up to $15 for the delivery, you’ll also pay $10, $20, $30 or whatever, in higher product prices (for a trolley of goods anyway).
People have their reasons for doing it, but it’ll always be a niche market, and won’t become the norm for most. People shop on price mostly.
We use on-line shopping a bit. It is pretty convenient and you get the same discounted items as you do when you go in-store. It’s no more expensive, delivery fee excepted, than going down the road (and we get to order alcohol which we cannot buy at the local – damn trust). The thing that bugs me about the majority of supermarkets is that they are designed around the car and, arriving there by bike or walking almost feels wrong. The big carparks out front of the store and multiple driveways (service stations are also guilty of this) that motorists believe give them ROW over pedestrians (they don’t as it’s just a driveway). Even walking along in the carpark, the feeling is that cars have ROW. The look on a drivers face if you hold your nerve and just cross is amazing. “How dare you hold me up?”
Geoff, I’m struggling a little to understand your choice of words – in the last comment you now use the word “best” rather than “efficient”. I’d suggest that the former is too subjective to be useful in this discussion.
Let me be clear what I’m talking about and hopefully that helps you articulate your own position a little better:
1. From the customers’ perspective of “efficiency”, home delivery will be convenient for a proportion of the market who A) don’t own their own car and/or B) have a high value of time (as you note). The key thing from the customer’s experience is economies of scale: The more people using it the lower the average price for everyone. That’s the key to making it more attractive to people.
2. From the supermarkets’ perspective of “efficiency”, home delivery helps avoid some costs, such as car-parking and retail processing, while incurring others, such as a delivery truck. Home delivery is also more labour intensive. On the other hand, if they don’t offer the same discounts then they probably make a higher margin on what they do sell.
3. From society’s perspective of efficiency, home delivery helps avoid external costs of driving and the associated congestion. The delivery trucks KMs will tend to be spent tootling around the suburbs, where there is less congestion. In comparison, supermarkets are often located in local centres – hence everyone driving themselves to store is likely to generate more KMS, and more delays per kilometre travelled, than the delivery vehicle. There’s also possibly a social efficiency gain, whereby cost-effective home delivery would allow people who don’t have a car to access groceries more easily.
So based on these different perspectives of efficiency I’d suggest it’s in society’s interest if uptake of home delivery grows. This should progressively lead to lower average costs (because the fixed costs are spread over more people) and also higher external economic/social benefits. That’s not to suggest home delivery will necessarily grab a “large” (however that is defined) share of the market, but that it would probably be good for everyone if it had a higher market share compared to what it has today.
And from my anecdotal experience I think this is happening, because there seems to be much more opportunities for home delivery available now compared to 10 years ago. Briscoes and the Warehouse are two major stores that are now moving into home delivery :http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10907443
Stu, you’re not wrong on most points. But as you state in your first point, it is a service of convenience to a particular market only. For that reason, the service is unlikely to develop to the point where your further suggested benefits come into play. The concept has been in Auckland for 12 years now, and it has not made a dent in such things as supermarket car parking requirements. It will always be a niche market, and not the norm.
One small point, the cost of retail processing is actually greater for home delivery, for the simple reason that a staff member needs to do your shopping in the aisles, as well as scanning the products and packing them. It’s more work for them, and less for you.
For some facts now:
“The climate-changing qualities of services like FreshDirect, Peapod and Google’s trial project in San Francisco are the subject of a recent study by Anne Goodchild and Erica Wygonik, engineers at the University of Washington. They found that the traditional method of grocery shopping in America – driving to and from a store – is much less friendly to the overheated atmosphere than simply ordering the supplies online. The difference they detected is stark: Going the delivery truck-route reduced CO2 emissions by at least half in their model, compared to car trips.”
How much is your time worth? 15 minutes ordering on the internet vs 1.5 hours going to the supermarket and buying yourself.
What about the cost of maintaining a car? If the only major use of your car is the weekly shop then paying a little extra for delivery might be worth it
That’s the kind of niche market it serves – time constrained people in particular.
The last article I read on the topic suggested that 10-15% of all retail sales in New Zealand were now completed online and are, almost universally, “home delivery”.
I think you need to be a little more specific with your comments, rather than just stating an opinion (how big is “niche” for example?). What do you think is the maximum market share for home delivery, both in general and for supermarkets in particular? My gut feeling is 50% and 20% respectively.
I have noticed “shoppers” for home deliverty at the local supermarket and it is being promoted. If I was working (I wish), I would consider it. The thing is, for someone at home all day, a trip to the supermarket/fruit shop etc is often the only adult social interaction you get in a day. It can be quite a social thing. These intangibles don’t really show up on a straight economic analysis.
Is this some kind of automated post? Seems to be cropping up from time to time.
Kind of, it is trackback from when they link to us
It would be much more appropriate for supermarkets to compete by discounting what they actually sell rather than a product sold by someone else, or via loyalty schemes.
Overall this seems like a con to me – I wonder how many of the fuel discount deals never get cashed (it’s easy to forget or lose the receipt). This way they get the money upfront and don’t have to honour all of the ‘discounts’ they’ve given. If you have to spend $300 to get $0.25 off a litre of fuel which ultimately pays you (say) $15 then that’s only worth 5%. For many customers it may end up being only $10 or even less, if they don’t routinely run their tank empty. If the supermarket is only giving that discount on half its volume, and furthermore only half the discounts ever get cashed, then it’s a very stingy discount scheme. And keep in mind that $0.25 is unusual, $0.05 is much more the norm. There’s also the fact that they get your money upfront and don’t pay the discount back for a week or two.
Staples in supermarkets in NZ are expensive and this is a good way for supermarkets to maintain margins on the sales they profit from, while not seriously competing for business on price, but giving the appearance of doing so.
I’m still unconvinced there is any conclusive evidence that the dockets lead to higher petrol prices. Too many variables.
I dont have an issue with the discounts any more than my ACC levies covering the accident costs of other people who are involved in high risk activities (like cycling :D). Sure I am subsidising other people, but if I really didn’t like it, then I would go to some other country where I need only be responsible for myself.
I can see both sides of the argument but at the end of the day we can’t tell someone how they should run their business as long as they aren’t breaking the law. If you dont like the policy THEN DONT SHOP THERE. It is that simple. The power of the free(ish) market. If walk-in custom was high enough and they all boycotted, then the businesses would change their policies in order to make the most money.
The fact is for most major supermarkets, people dont walk or bike in. They drive. I generally shop once a fortnight for my family and spend around $500. I get two trolley loads into my tiny car and it takes me about 2hrs. I also pop into a fruit/vege place on the way home from work every few days..
I tend to think that online shopping and home-delivery model has a lot going for it, but I think the existing model will remain the main one for another few decades. Ive tried it several times when I am too busy to get to the store, but every time they get something wrong, miss something out, give me a wrong product, over charge me etc. Plus I miss out on the fuel voucher! 😀
Ari, laws relating to competition is “the law”. If the fuel discount vouchers are found to be undermining competition in fuel retailing, as the ACCC chairman would have us believe, then the supermarkets are likely to be breaking the law and they should be required to change their ways. Period.
Thus keeping fuel prices a little lower, and more people driving?
The price of fuel should be set in a competitive market.
If society considers there are benefits – such as less congestion and lower emissions – associated with a higher price of fuel, then that should be implemented via conscious policy settings, such as a fuel excise tax, rather simply allowing an uncompetitive market situation to persist.
Vodafone/Telecom was a great example of a non-competitive market until 2degrees came in. It wasn’t illegal. In the same way, the two chains using a marketing gimmick involving third-party fuel companies may or may not be non-competitive, but hardly illegal. The ACCC chairman says this COULD lead to lack of competition, but there is no evidence yet. Logic dictates that the petrol chains not in on the scheme will not be able to compete. This remains to be seen. I also argue that higher fuel prices through non-competition only helps decrease car usage and increase PT usage. I recall that petrol stations in NZ are shrinking in number because the margins are so small. They don’t make their money on the petrol. They make their money on other things that they sell at the station. (sort of how PaknSav with their petrol don’t make much money, but it is another way to attract customers)
I would also argue that BP/Z/Caltex/Mobil was already a distorted market oligopoly before these vouchers ever came along.
Like I said, I would prefer consumers vote with their wallets, rather than get parliament to force through badly conceived compulsory legislation with unintended, market-distorting consequences (much like parking minimums).
I dont have any major reason to believe that the fuel market isn’t competitive in NZ.
They all get their fuel down the same pipeline from the same refinery. Except Gull, who have their own supply from overseas. Funnily enough, it’s always Gull offering the best prices. I would argue there’s no competition at all between the other players. That’s why they all sell at the same price.
How they roll inthe UK: http://www.theguardian.com/uk-news/2013/aug/04/asda-supermarket-man-dies-parking-biggleswade?CMP=twt_fd
wow. Clearly the minimum parking requirements were insufficient…