Supermarkets as you know them are disappearing from our inner cities — and it means more uncertainty about what you'll pay

On a recent Tuesday afternoon, prices at one Woolworths Metro store were around 10 per cent higher for the same items compared to another Metro store 10 minutes down the road.  (ABC News: Maani Truu)

Supermarkets as we once knew them are quietly disappearing from inner-city suburbs.

Springing up in their place are boutique “metro” or “local” iterations, a version of a Woolworths or Coles grocery store that depending on where you are could mean it’s smaller than a traditional supermarket, stocks a bespoke range of local products, hosts a sushi bar, artisan bakery, or all of the above.

The supermarket giants say these smaller-format stores offer shoppers greater convenience and a product range specially tailored to the local community.

But there’s a catch: while Woolworths supermarkets are subject to a flat pricing system — which means all products except fresh produce are sold at the same price wherever you are in the country — the same does not apply to Metros.

This makes it harder for discerning shoppers to know whether they’re getting the best price or if there’s a better deal in the next suburb over — or even down the road.

Take Redfern, for example, an inner-city Sydney suburb home to two Woolworths. The larger of the two has been around for over a decade, sitting across from Redfern Oval, near the heart of the suburb’s public housing. It is one of 50 Woolworths supermarkets that have been converted to Metros over the past five years.

The other is newer and a fraction of the size, located just across the road from the a bustling train station. The two Redfern stores are a 10-minute walk apart, and on one Tuesday afternoon in February, there was a 10 per cent difference in the total cost of a basic shop.

The price difference

According to Woolworths, recently converted Metros have not changed their prices, but some smaller stores — especially those in central business districts and near commuter thoroughfares, like the one near Redfern station — have higher prices to offset their higher operating costs.

To better understand how prices differ between stores, we visited the two Redfern stores and filled a basket with seven everyday items: A large jar of instant coffee, two litres of milk, a dozen eggs, a loaf of sliced white bread, a box of Weetbix, an eight-roll pack of toilet pack, and 16 tampons.

All products barring the tampons were more expensive at the smaller Metro, with the basket totalling $64.65 compared to $58.70 just down the road.

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A short drive over in Marrickville, a residential suburb in Sydney’s inner west where it’s still possible to find standalone houses with a yard, you’ll find one of the few remaining inner-city supermarkets — complete with underground car park.

Walk about five minutes in one direction from the train station and you’ll reach the large, aging building. Walk the same distance in the other direction and you’ll find a decent-sized Metro, with an in-house cafe and sushi bar.

Here the price differences between the two are less obvious when looking at the same seven items, but they’re there. At the metro, a “buy two” deal for the tampons is 20 cents more expensive; Weetbix will set you back an extra 15 cents; toilet paper costs 45 cents more; two litres of milk costs an extra 25 cents. But some products, like the instant coffee, bread, and eggs, are priced identically. Then there’s the most obvious difference — the range at the supermarket is, as you would expect, much larger.

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Professor Nitika Garg, a consumer behaviour researcher at the University of New South Wales, says the rise of the metro-style grocery stores began with smaller, commuter-friendly stores in places with high foot traffic. She says this version of the metro, which focuses more on ready-made meals and grab-and-go lunches, targets shoppers who are “looking more for convenience than checking the price”.

“If it is a Metro, you expect slightly higher prices … we are OK as consumers consciously paying extra because we know that this is just one or two products we are picking up.”

The problem begins, she says, when these types of grocery stores start replacing supermarkets in residential areas, like Redfern or Marrickville. “So consumers either have to drive further out to get a reasonable price on their household grocery shop, or they have to rely on that limited range and higher prices.”

The rise of the metro

This was exactly the concern of a group of Sydney residents who last year banded together in a bid to halt plans to turn the Alexandria Woolworths supermarket — one of the few remaining in the immediate area — into a Metro. They were particularly concerned that the change would leave older residents and those without cars paying more.

Off the back of the resident’s complaints, Sydney Lord Mayor Clove Moore wrote to Woolworth’s chief executive officer, Brad Banducci: “In the current cost of living crisis, I am also concerned that replacing a supermarket with a store selling more pre-made meals, rather than a wider range of own brands and fresh food will directly impact already growing levels of food insecurity.”

To be clear, this is something of an inner-city phenomenon. Across the country, Woolworths currently operates 104 Metros — a small but growing slice of their more than 1,000 supermarkets.

“Woolworths Metro stores are a smaller format store offering — some of which are less than a fifth of the size of a regular supermarket,” a Woolworths spokesperson says. “When considering where a Metro should be located we look at where our small format team can provide a better, more local offer by tailoring the range for their specific community within the confines of a smaller store.”

Coles — which along with Woolworths make up more than 65 per cent of the Australian grocery market — has its own smaller-format offering, known as Coles Local. There are currently 846 Coles supermarkets nationally and 23 locals across Sydney, Melbourne, Brisbane and Perth, the majority of which have been converted from existing supermarkets. “With customers responding positively to their Coles Local shopping experience, we are excited for more stores to open,” a Coles spokesperson says.

Professor Gary Mortimer, a food retailing researcher with the University of Queensland, says this shift to smaller format stores is part of a global trend. “In the 1950s and ’60s, as populations spread, and families became used to having access to motor vehicles, we saw bigger supermarkets with bigger car parks,” he says.

“What we’ve seen over the last two maybe even three decades is this migration of people into CBDs and inner city areas … when you’ve got tens of thousands of people living in a small suburb, the land value is incredibly expensive.”

Not only do these smaller formats allow the supermarket giants to open stores where they would otherwise not fit, but they also allow for a more curated range of products targeted to the demographics of the area. For example, the Metro store in Double Bay — where half of all households have a weekly income above $3,000 — boasts a dedicated “cheese room”. In nearby Rose Bay, the Coles local includes a pick-and-mix dog treat bar and a “mochi ice cream parlour”.

“I can buy a sirloin steak in any Coles or Woolworths store, but in the metros or particularly the locals, I can get a better quality cut and I’m obviously going to pay more for that,” Professor Mortimer says.

The atmosphere of these stores is also different: think farmers’ markets and polished concrete, rather than fluorescent lighting and well-worn tiled floors. It’s all part of creating an experience, Professor Mortimer says, because ultimately “when you compare Coles and Woolworths there’s not a lot of difference between them, very similar pricing structure, very similar layout, almost the same brands in some cases”.

In many of these suburbs, however, the competition isn’t only between Coles and Woolworths — it’s against a range of neighbourhood grocers, from chains like IGA and Harris Farm to one-off, family-run businesses. What these stores have in common, however, is that customers expect to pay more despite the smaller ranges.

“They [supermarket giants] are essentially saying, ‘If you’re willing to pay higher prices for them, why not for us? Why are we losing out on that pie while we are trying to manage a larger inventory?’,” Professor Garg says. “In the interest of consumers, it’s not a good decision, but in the interest of the business, it makes perfect sense.”

Supermarkets in the spotlight

This is all taking place amid feverish scrutiny of the big supermarket players. As the cost of living crisis continues unabated, a number of inquiries have set their sights on Coles and Woolworths in a bid to understand what’s behind the recent price hikes.

Last week, a report initiated by the Australian Council of Trade Unions (ACTU) and led by former consumer watchdog chair Allan Fels found increases in Coles’ and Woolworths’ food and grocery margins since the pandemic was “driven by low competitive forces and an ability to not pass on immediate cost reductions”.

Almost half of the public submissions to the price gouging inquiry related to supermarket prices and practices.

A separate Senate inquiry into supermarket prices is also underway, with a report expected in May. In submissions to the inquiry, both Coles and Woolworths denied price gouging, instead blaming the higher prices on increases in the supply chain.

The Australian Competition and Consumer Commission will also undertake a 12-month-long investigation into grocery pricing practices, with a report due early next year. “We know grocery prices have become a major concern for the millions of Australians experiencing cost of living pressures,” ACCC chair Gina Cass-Gottlieb said last month.

“We will use our full range of legal powers to conduct a detailed examination of the supermarket sector, and where we identify problems or opportunities for improvement, we will carefully consider what recommendations we can make to government.”