Food Prices: Lowest Where?

The United States has long prided itself on being a low-price consumer paradise. From slogans like “everyday low prices” to mega-sized shopping malls, the country’s economy is focused on promoting consumption. Even international tourists often fly to the U.S. to go shopping. We wonder: In which of these countries are food prices the lowest?

A. United States
B. Germany
C. United Kingdom

A. United States is not correct.

The average food basket — reflecting international tastes and including items such as milk, butter, yogurt, juices, cereals, pizza, rice and beer (altogether 15 different products) — costs $34.69 (31.54 euros) in the United States (as of the fourth quarter 2015).

That is among the highest prices in major Western countries. In fact, the same basket in Italy – not a country widely known for economic efficiency – costs less than in the United States, at $33.09 (30.08 euros), according to data compiled annually by IRI Worldwide, a market research firm.

Even more stunning is that this food basket costs almost the same in Greece – $34.49 (31.35 euros) – as it does in the United States.

A major reason why food prices in the United States are so high is that the products of national brands dominate the shopping aisles there. With retailers using far fewer so-called private label products, there is much less of a price advantage to consumers shopping for their food supplies than in countries whose markets exhibit a stronger penetration by retailers’ private label products.

B. Germany is correct.

Germany is generally known for its high cost of living and high levels of taxation, both on income and consumption. However, it is also a country where retailers operate on the basis of very narrow sales margins. Thus, when it comes to the cost of the average food basket, Germany actually leads the way with the lowest – not highest – costs.

The average food basket in Germany costs $23.11 (21.01 euros). That means that food prices in the United States are 50% higher than in Germany.

Germany is not alone in offering low food prices. Food costs in the Netherlands (at $23.20 or 21.09 euros) and in Spain (at $23.50 or 21.36 euros) are basically on a par with Germany.

The major reason why food costs in Germany are so low is the strong presence of major discounters in the marketplace. Companies such as Aldi and Lidl are known for squeezing prices to the fullest, thus offering great savings to consumers.

Another key reason for the lower prices offered by German food discounters is that they have rigorously pruned the range of their product offerings – which helps manage costs by simplifying supply chains.

A more focused product range allows retailers to order larger batches of each product, netting bulk-order savings on an even greater scale.

The pricing power of the major discounters is the subject of lively debate in Germany. The flip side of the firms’ success in delivering rock-bottom prices to shoppers is that they are relentless in squeezing their suppliers.

In addition, their personnel policies have been criticized. Since personnel costs are a major factor in the business, the effort to maximize cost efficiency takes a direct toll on the companies’ workforces.

The country’s major discounters are always adapting their strategy. In recent years, they have moved to expand their product offerings as well as product quality. That move helps discounters attract new customer segments, especially from the middle class, as it feels more uncertain about its own economic future.

C. United Kingdom is not correct.

Food prices in the UK used to be considerably higher than they are now. At $24.35 (22.14 euros), a food basket in Britain is considerably less expensive than in the United States, although not yet as low-cost as in Germany.

A major reason for the steady decline in British food prices over recent years has been the stronger presence of German discounters in the British market. While the country remains the domain of companies such as Tesco and Sainsbury’s, Germany’s Lidl and Aldi chains are dynamically expanding their market shares.

Their expanded presence has led to much more intense competition in the UK over food prices. This benefits British consumers who have also become much more price-sensitive in recent years.

The major German discounters are also seeking to expand their presence in the United States. However, given the much larger size of the market there, as well as the much stronger presence of national brands as well as of national supermarket chains, it is doubtful that U.S. consumers will benefit as quickly or as much from added competition as has been the case in Britain.

In the United States, the power of the incumbents in the food market is vast, which benefits those firms, but ends up hurting consumers’ pocketbooks.

Word count: 779