Consumer Perception on Branded and Unbranded Grocery Items - PDF

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					                                              APPENDIX 9.1
                             (referred to in paragraphs 2.87, 9.4 and 9.104)


                 Difficulties associated with international price comparisons

    1. Discussed below are some general problems associated with carrying out a representative, accur-
ate and meaningful international price comparison. Third party surveys are referred to in the text and are
summarized in Table 2.



Product selection

Comparability

    2. The biggest problem with any international price comparison is selecting products comparable
across all markets being surveyed. This becomes more of a problem when including the USA in a
comparison with European countries due to cultural and demand side differences (see below). Of the
71 products selected by KPMG for its European price comparison in January 1999, only 33 were found
to be comparable, 8 of which were different varieties of the same product (for example, three perfumes,
four CDs etc).


    3. Additionally, some price differences may be misleading. Media price studies often use Gillette
razors as evidence of higher UK prices, but do not reflect the pricing of disposable blades which make up
a significant part of the product.



Quality
    4. Even when limiting an international price comparison to branded goods, problems surrounding
variable quality of products are not eliminated. For example, price differences between Persil washing
powder in France and the UK are at least partly attributable to the different chemical formulations of
each product. There will also be considerable volatility in quality, feeding into price, between some own
label1 and unbranded goods (for example, fruit and vegetables, meat) in and between different geo-
graphic markets.



Discounts
   5. The net effect of periodic product discounts cannot be accounted for in any international price
comparison carried out at a snapshot in time. However, discounted goods cannot be ignored as they may
form a higher proportion of shopping expenditure in some store groups and countries than others, and
would undoubtedly be part of a weekly shop.



Branded/own-label goods
   6. Price comparisons that only survey branded products are especially unrepresentative of UK
preferences due to the greater propensity of UK consumers to buy own-label items. Surveys of branded
goods are additionally unrepresentative of a weekly shop due to the exclusion of unbranded fresh
produce,

 1
  See paragraph 9.81.


                                                   191
Cheapest on display surveys
    7. Surveys of the cheapest product in store at a snapshot in time have an in-built highly random
element for two reasons. Special offers lasting a few days will generally show up as the cheapest in store,
and the stores carrying such offers will change daily. Also, climatic variations may make certain
agricultural produce very cheap or expensive in certain weeks of the year in certain countries, producing
large relative price differences between markets.



Demand-side factors
    8. The impact of consumer preferences on price is potentially considerable, and may form an
important residual part of any price differences found. Though supply-side factors such as tax can be
stripped out of the results of a survey, demand-side factors are more difficult to account for. The main
demand-side factors which may have a distortionary effect on survey results are:


   (a) Perception of a product. Consumers in different countries have different perceptions of various
       products and brands. Baked beans are seen as a relatively high value product by French
       consumers, but are an everyday item in the UK, whereas the reverse may apply to branded
       chocolate spread.


   (b) Brand positioning. A number 2 national brand is naturally priced lower than the number 1 brand
       in the market. Thus, one may expect Müller yoghurt to be cheaper in France than the UK (where
       it is market leader) regardless of supermarket pricing. Similarly, one would expect young brands
       to be heavily discounted relative to mature brands. This may be particularly important when
       considering the United States where leading European brands may be available, but may not be
       leading market performers.


   (c) Product sizes. Size and packaging is rarely standard between countries, even of branded goods,
       and this can be considered a demand-side factor. US consumers generally buy larger size prod-
       ucts relative to European consumers. Though prices can be adjusted to take account of different
       sizes, this leaves some price distortion due to the presence of a greater product/packaging ratio
       for larger size products, making them appear cheaper.


   (d) National consumption trends. These may play an important part in pricing and market offer and
       are entirely demand driven. The steady decline in red meat consumption in the UK over the last
       20 years is an example.


   (e) Price sensitivity. UK consumer surveys appear to show that consumers have other priorities over
       and above price. Discount stores have not established themselves in the UK to the extent they are
       present in Germany, nor are money-off coupons used as much as in the US. If there is a greater
       demand for quality products in the UK, one might expect higher prices.



Store selection
   9. The following factors must be taken into account when selecting a representative sample of stores,
and statistically robust number of price points to survey:


   (a) Size and type. US and French stores tend to be larger than UK supermarkets, while Germany has
       more discount stores. The stores from which price points are taken should be weighted to account
       for these differences to ensure a like-for-like comparison is made.


   (b) Location. Many comparisons survey supermarkets in one city in each country. To achieve a more
       representative survey, urban and rural areas and different regions should be included.


                                                   192
Other

Price dispersion

    10. The third party surveys each show substantial product price differences between countries (the
largest being 1,200 per cent for salt in the KPMG study). Such large differentiation between markets for
individual products calls into question the value of averaging all differences into headline basket prices
for each country if the sample size is small and at a snapshot in time. Other types of comparison should
be considered to ensure individual products do not have an unduly large impact on the basket price, such
as counting the number of products that are cheaper in certain countries, regardless of their price.

    11. Additionally, prices for individual products (branded and unbranded) vary markedly between
surveys. The Liberal Democrat and Sunday Times surveys, though giving similar overall results, found
UK potatoes to be £1.15 and 55p per kg respectively. DKB priced 200g Nescafé Gold Blend at £5.81, the
Liberal Democrats at £4.69. Such divergence between identical products underlines the difficulties asso-
ciated with taking a ‘snapshot in time’ approach.


Share of spend comparison
    12. The potentially misleading nature of international price comparisons, and the importance of
comparing countries with similarly-sized economies, can be illustrated by comparing nations’ share of
spend statistics. A grocery price comparison could be constructed between the UK and a comparator
country with a smaller and less developed economy. The comparison may show that 80 per cent of
products are cheaper in the nation with the smaller economy, but this would have little meaning if the
population of the country spent considerably more of their national wealth on groceries. Such a
comparison would provide merely an indication that the comparator country was poorer, and unsurpris-
ingly its grocery prices, along with the array and quality of products available, may be lower. It would
say little about the state of competition in the UK grocery market.

    13. The grocery sub-category weightings for Eurostat’s HICP1 give an indication of the share of total
national spend placed on individual items bought and consumed in each European country. Table 1
compares EC countries’ 1999 national expenditure as a percentage of the whole allocated to (a) food and
soft drink, (b) alcoholic drink, (c) cafes, restaurants and canteens, (d) groceries,2 (e) food, drink and
groceries, and (f) food, drink, groceries, cafes, restaurants and canteens. All values include sales tax.
Some totals are rounded.
TABLE 1 EC countries’ proportion of national expenditure spent on food, drink and groceries, 1999

                  Food and                          Cafes,
                non-alcoholic      Alcoholic      restaurants                    Food, drink
                 beverages        beverages      and canteens       Groceries   and groceries   Total

EC average           17.75            2.10             7.76            2.83        22.67        30.43
Belgium              20.74            2.40             6.65            3.02        26.16        32.81
Denmark              17.27            2.97             6.05            2.11        22.34        28.39
Germany              15.25            2.49             4.54            2.41        20.14        24.69
Greece               22.46            0.66             9.01            4.59        27.72        36.73
Spain                26.73            1.13            11.51            3.12        30.98        42.49
France               18.29            2.10             7.08            3.10        23.49        30.57
Ireland              21.63            3.13            17.26            3.02        27.79        45.05
Italy                18.16            0.93             8.09            3.09        22.19        30.28
Luxembourg           15.81            2.91             7.13            3.38        22.10        29.23
Netherlands          16.68            2.34             4.68            2.66        21.68        26.36
Austria              14.40            1.97            11.68            2.69        19.06        30.74
Portugal             24.84            1.35             9.35            2.75        28.93        38.28
Finland              18.94            4.97             7.91            2.58        26.50        34.41
Sweden               17.65            3.17             5.15            2.03        22.85        28.00
UK                   14.10            3.00            10.90            2.70        19.80        30.70

  Source: Eurostat, 1999.




 1
  Harmonised Index of Consumer Prices. See paragraph 9.103.
 2
  Groceries are defined as personal care and household products.


                                                              193
    14. The table shows that UK consumers’ expenditure on food, drink and groceries is the second
lowest in the EC after Austria. However, this is offset by a greater propensity to eat out at cafes and
restaurants, on which Britons spend the fourth highest proportion in the EC. Overall, the UK spends
narrowly above the EC average on food, drink and groceries and a similar amount to France, Germany
and the Netherlands, the countries chosen for the Commission study.



Analysis of third party international price comparisons
    15. International price comparisons that have recently been published by third parties are docu-
mented in Table 2. The table summarizes the individual studies, their findings, and notes on or criticisms
of methodologies used to carry them out. Where possible, results from the studies themselves are
included in annexes. Items surveyed that are not reference goods have been excluded from the survey
results.




                                                   194
TABLE 2 Results and notes from third party international price comparisons, 1997 to 2000

       Survey            Date                       Coverage                                       Results                                                    Notes

O’Reilly             7–11 April    Approximately 170 items across one store      Ireland found to be 3% cheaper. However,   • Many items were only available at one supermarket for each country,
Consultants          1997          each of Sainsbury, Tesco, Dunnes and          food was identically priced, the difference  taken to represent the country as a whole.
                                   Quinnsworth. Branded and own-label items      was in household goods (Ireland 12%        • Items not weighted to reflect consumption.
                                   included.                                     cheaper).                                  • Even where items available at all four supermarkets, taking two price
                                                                                                                              points per country is not statistically robust.
World                April 2000  ‘International price level’ gained through    International price levels: UK = 101, US =   • The international price level is at whole economy level (it is not a
Development          edition,    comparing ratios of PPP and market rates 100, France = 124, Germany = 133.                   grocery price comparison).
Indicators, The      1998 prices against the US dollar for all sectors used to Relative prices within the economy—all       • It relies on a comparison of volatile market exchange rates, and PPP
World Bank.                      calculate national GDPs in 114 countries.     food (indexed to average GDP level = 100):     rates from the International Comparison Project. ‘Unease’ has been
See Annex 1                      Separate analyses comparing relative price UK = 62, US = 54, France = 59, Germany =          expressed over the calculation of ICP PPPs1
                                 levels within economies of various sectors 66.
                                 including ‘all food’.
Sunday Times         August 1998 22 reference goods, 8 of which were           UK was the most expensive market by an       • Product selection unduly favours large products which in practice
See Annex 2          and March branded, across the UK, France, Germany, average of 45%.                                       would rarely be bought (eg 1kg grated cheese or smoked salmon).
                     1999        Italy, Belgium, Holland and the USA.                                                       • Headline basket prices obscure reality (eg two products account for
                                                                                                                              over half the UK/US differential).
                                                                                                                            • Unclear how average pricing was used when products were not
                                                                                                                              available in all countries, or how prices were altered to compensate for
                                                                                                                              packaging differences (both adjustments are noted in the
                                                                                                                              accompanying article).
                                                                                                                            • Survey excludes Belgium and Italy from its results.
                                                                                                                            • Follow-up survey March 1999 shows wild jumps in price differences,
                                                                                                                              and excludes Holland, Belgium and Italy from its results.
Asda—                September Around 50 Asda lines compared in two            Asda was found to be always cheaper than • Products taken were best-sellers for Asda, which will make many of
European and         98–March    surveys in September 1998 and February        comparable French. German and Italian          them minority items for foreign retailers, eg tea bags, baked beans.
US Price             99          1999 against Auchan (France), Extra/Metro retailers. For the US comparison, Asda was • Prices adjusted for pack size differences without setting a maximum
Comparisons.                     (Germany) and GS Corso Londi (Italy).         generally more expensive than Wal-Mart,        adjustment threshold.
See Annex 3                      Wider product list for further survey against comparably priced with Kroger and cheaper • Extent of product substitution unknown.
                                 same European retailers and US retailers      than Albertsons.
                                 Wal-Mart, Kroger and Albertsons in March
                                 1999.
KPMG                 January     Nine reference goods across the Euro 11       UK is fifth highest priced of 12, Finland is • Item categories are generic and unhelpful, eg snack bar.
See Annex 4          1999        and the UK. Some products are branded         most expensive, Spain is cheapest.           • The sample is too small to be representative and represents an
                                 but brands are unnamed.                                                                      obscure and unrealistic basket.
                                                                                                                            • Despite this, not all products are available in all countries.
                                                                                                                            • Unknown which goods are branded and which are own-label, and
                                                                                                                              whether these are compared.



 1
     See, for example, The evaluation of the International Comparison Project, Jacob Ryten for the UN, World Bank and IMF, September 1998.



                                                                                                  195
    Survey           Date                      Coverage                                     Results                                                    Notes

DKB              April and    46 branded reference goods across 10         Of the 23 comparable goods, UK and        • No fresh food (branded goods only).
See Annex 5      May 1999     countries, of which 23 were comparable       France are the cheapest markets.          • Effect of brand and weight substitution unknown.
                              across the UK, France, Germany and the                                                 • European survey taken in April, US survey in May. This may have a
                              USA.                                                                                     small effect on price comparisons.
Liberal           May 1999    21 groceries in supermarkets in 1 UK store  UK store 27% more expensive than French • Some UK products seem unduly expensive (eg potatoes).
Democrats                     and 1 French store.                         store.                                     • Four products account for 57% of the price difference.
See Annex 6                                                                                                          • No indication of price position or location of supermarkets.
                                                                                                                     • Unrepresentative to survey one supermarket from each country.
ITV’s Tonight     June 1999 Unknown number of goods in supermarkets UK around 25% more expensive.                    • Survey unavailable for analysis.
programme                     in Southport and Philadelphia.
OECD              June 1999 9 categories of food and beverages, and       UK is ranked 18/36, and second cheapest • Statistics are for 1996.
See Annex 7                   one of household goods, covering 600        when compared with France, Germany and
                              items in total across 32 countries          the USA.
DKB               June 1999 9 categories of food and beverages,           UK is ranked fifth most expensive and is   • This study takes 1996 Eurostat data and updates it to 1999 for EC
Eurostat update               covering around 600 items in total across   priced similarly to France and Germany.      countries using the Eurostat harmonised consumer price indices
See Annex 8                   the EU15.                                                                                between 1996 and 1999 and 1999 exchange rates.
Economist         June 1999 58 shopping basket items and a separate       London ninth most expensive of 122 cities, • Only three price points taken per product.
Intelligence Unit and every 6 household supplies and personal care        down from sixth in June 1998.              • Surveys not carried out by researchers but by correspondents in the
                  months      baskets.                                                                                 cities, so no guarantee of like-for-like comparisons.
                                                                                                                     • Survey aimed at relocated business executives so skewed towards
                                                                                                                       higher end of the market.
A C Nielsen (for January      131 goods sold in Tesco and supermarkets Tesco cheapest for all fortnightly surveys    • Products selected as most popular in Tesco, and thus reflect Tesco
Tesco)            2000        in France, Belgium, Italy, Holland, Germany between March 1999 and January 2000.         product strengths and British consumer preferences. Given this, lower
                              and Ireland.                                Tesco always cheapest for economy and        relative UK prices might have been expected.
                                                                          standard own-label goods, but most         • Possible bias towards UK brands.
                                                                          expensive for branded. Germany is next     • Extent of weight/product substitution unknown.
                                                                          cheapest overall.                          • Over half the products are own-label. This is an over-representation,
                                                                                                                       even allowing for greater UK purchases of own-label products.
A C Nielsen for February      106 products compared over 21,000 price Of the 56 products found to be comparable, • The products were chosen from the UK Family Expenditure Survey
the DTI           2000        points in two cities in the UK, France,     45 were similarly priced across all          which reflects UK preferences only.
                              Germany and the USA.                        countries. Britain was the most expensive  • The categories picked were very broad for a like-for-like comparison,
                                                                          for 8 products (6 were groceries) and the    eg men’s shirt.
                                                                          cheapest for 3 (2 were groceries).         • The study was limited to the number of products cheaper in each
                                                                                                                       country by a statistical margin. More useful headline results would be
                                                                                                                       weighted average price differences, and unweighted basket prices
                                                                                                                       from each country.




                                                                                              196
                                                                                                                      ANNEX 1

                                               Relative prices in PPP terms
                      International                                         Relative price level
                      price level                                       (price level of GDP = 100)

                                                              Private consumption
                                                                                                  Transport             Gross
                       Ratio of PPP                   Bread Clothing                                 and                 fixed
                         rate to $    Private    All   and     and       Fuel and Health          communi- Government capital
                      exchange rate consumption food cereals footwear     power    care Education cations consumption formation
                           1998        1998     1998 1998      1998       1998    1998    1998      1998      1998      1998

Albania                    36         116       122      98      121        130        70     124     75      103        139
Antigua and Barbuda        89         111       102     100      179        141       155     129     51       68         98
Argentina                  76         105        99      99      101         99       124     135    107       95         88
Armenia                    28         131       167     161      190        210        66     176     36       64        156
Australia                 100         105        51      77       73        103       132      75    214      185         73
Austria                   128         111        54      74       70        108       160      89    263      193         69
Azerbaijan                 27         125       173     142      157         23        63     117     47       67        176
Bahamas,The                87         101        89      85      102         83       128     123    110      120         86
Bahrain                    72         118        98      79       92        781       111     107    115      131        158
Bangladesh                 25          15       133     132      110         70        70      81     25       73        139
Barbados                   53          86       158     152      146        130       154     190    130      168        180
Belarus                    ..         106       128     117      108         52        81     121     74       94         97
Belgium                   113         101        67      85      100        129       160      92    286      220         77
Belize                     69          98        97      76       78        129        92      93     86       88        128
Benin                      47         101        97      96      129        112        90     121    104       78        136
Bermuda                   142         109        76      94       85         82       134      92    166      192         68
Bolivia                    44          96        97     102      132         95        74      80     84       78        152
Botswana                   56          82        70      73       78         69       112      71    103      103         99
Brazil                     73         110       101 ,   105       89        121       147     117     96       77        102
Cameroon                   47         100       108     103      122        134        63      79     99       76        115
Canada                     84         103        61      67       89         87       135      88    301      254         70
Chile                      60         103       122     124       98         80       122     133    121       88        106
Congo Rep                  90          82       102     103      107        100        46      80     67       48        129
Côte d'lvoire              52          94       112     109      113        128        90     101     81       77        164
Croatia                    76          97       100     106      115        100       142     104    121      130        109
Czech Republic             45         102        79      73      111        102        68     135    122      113        104
Denmark                   136         108        69      95       74        148       164     101    263      200         73
Dominica                   75         105       114     123      103        142        68     119     74       71        129
Ecuador                    54         106       107     107      116         86       108      88     82       72        101
Egypt, Arab Rep            39          95        94      84       97         82       165     104     95      119        200



                                                                197
                   International                                         Relative price level
                   price level                                       (price level of GDP = 100)

                                                          Private consumption
                                                                                               Transport             Gross
                    Ratio of PPP                   Bread Clothing                                 and                 fixed
                      rate to $    Private    All   and     and       Fuel and Health          communi- Government capital
                   exchange rate consumption food cereals footwear     power    care Education cations consumption formation
                        1998        1998     1998 1998      1998       1998    1998    1998      1998      1998      1998

Estonia                 50         105        76     78       86          67        81      88     70       87        117
Fiji                    57          99        95     95      113         129       132     122    110       91        128
Finland                118         109        65    103       93          97       174     102    253      195         68
France                 124         107        59     83       78         115       137      83    258      196         66
Gabon                   82          90        98    112      100          90       134      64     79       97        192
Georgia                 28         109       146    137      162         136        62     129     36       41        215
Germany                133          99        66     90       87         128       176      89    355      266         87
Greece                  96         108        55     89       99         111       101      64    166      133         69
Grenada                 70         102       115    103      109         143        61     158     63       70        139
Guinea                  33          93       113    108       78         136        30     127    131      108        191
Hong Kong, China       110          98        86     70       86          70       118      67    294      279         88
Hungary                 48          97        71     89       85          92        76     141    125      115        103
Iceland                115         100        84    116      105          71       115      99    260      216         82
Indonesia               39          95        91     86      107          73        85      83     57       54        154
Iran Islamic Rep        43          89       139    151       93          18        57      37     76      104        122
Ireland                 91         112        57     73       72         104       136      98    221      176         72
Israel                 112         112        69    106       69          90       153      85    239      192         60
Italy                   97         105        65     86       75         124       137      84    234      193         72
Jamaica                 67         104       132    105      134         154        73      62     86       84         99
Japan                  151         109       101    126       86         134       115      72    258      211         80
Jordan                  41          88        91    120      110         114        43      89     79       38        144
Kazakhstan              28          97       118    111      109          64        88     131     65       72        148
Kenya                   34          99       122    121       75         147        71     162    112       85        154
Korea, Rep              83         108       160    200      175          70       136      29    160      199         82
Kyrgyz Republic         23         124       160    167       98         104        80     164     50       64        172
Latvia                  44         101       109     95      139         112        79     136     86       96        133
Lebanon                 80          64        69     96       59          34        55      93    128       34         98
Lithuania               40          99        96     81      122         102        74      98     84      104        141
Luxembourg             115         108        62     82      100          99       163      75    409      290         76
Macedonia, FYR          59          99        88    104      101         110       104      92    131      125        125
Madagascar              39         106       108    105       94         177        63     119     77       49        134
Malawi                  42          93        95    100       79         143        29     121    179      115        137
Mali                    40         117       110    113       96         156        72     166     90       59        125
Mauritius               48         107       108    112       84         108        68      98     93       89         92
Mexico                  49          98        72     88       63          72       119      94    105      104        102




                                                            198
                       International                                         Relative price level
                       price level                                       (price level of GDP = 100)

                                                              Private consumption
                                                                                                   Transport             Gross
                        Ratio of PPP                   Bread Clothing                                 and                 fixed
                          rate to $    Private    All   and     and       Fuel and Health          communi- Government capital
                       exchange rate consumption food cereals footwear     power    care Education cations consumption formation
                            1998        1998     1998 1998      1998       1998    1998    1998      1998      1998      1998

Moldova                     26         109       141    116      137         120        91     110     74       95        171
Mongolia                    33          86        84     90       71          76        50      92    104      134        145
Morocco                     41         105       129    136       66         120        86      85     97      101         96
Nepal                       19         120       141    140      132         117        90      87     58       85         70
Netherlands                113         100        60     77       81         109       152     102    293      221         83
New Zealand                101         110        56     79       84          76       129      80    215      151         72
Nigeria                     ..         101       142    145       97         165        80      73    137      108        112
Norway                     128         113        78    102       80          81       199     112    276      217         73
Oman                        63          91        95     93       83          59        74      98     78      153        122
Pakistan                    28         109       109    101      121         102        59     102    102       77        137
Panama                      60          89       100     85      108          92        70      78     73      139        105
Peru                        60         106       113    117      100          93        85     109    145      101         97
Philippines                 33          97       112    113      122         244        92     106     49      113        132
Poland                      52         102        81     80      123         116       122     114    121      103         98
Portugal                    87         106        68     80      104         173       169     112    151      120         84
Qatar                       70          92       100    118       74          67        91      81    125      148        151
Romania                     25          98       108     95       83          60        79      89     77       85        164
Russian Federation          42          93        97    104       94          27        95     136     94      106        106
Senegal                     44         103       111    123       89         150        73     103     97       68        143
Sierra Leone                32         110       138    139      131         160        54      37    150       97        123
Singapore                  114         103        65     59       84          44        79      86    154      188         87
Slovak Republic             44          99        90     93      113         114       112     137    143      137        115
Slovenia                    71         109        68     82       80         102        96      85    166      133         74
Spain                       96         112        51     76       66          95       137      75    191      152         65
Sri Lanka                   29          96       121    108       87          71        52      61     62       70        163
St Kitts and Nevis          70         103       104    113      111          93        66     124     99       77        115
St Lucia                    75         102       110    134      110         121        60      77     74       85        107
St Vincent and the          65         105       129    118      115         180        54     123     67       62        156
 Grenadines
Swaziland                   33         119       116    118      145         132        84      84     96       80        115
Sweden                     135         106        61     92       75          99       176      93    271      206         70
Switzerland                159         110        64     84       67          88       190      85    379      268         70
Syrian Arab Republic       131          58       128    198      117          56        30      86     35       29        193
Tajikistan                  17          89       127    146      116          28        49      92     19       35        142
Tanzania                    40         108       113    111      107         138        31     190    134       87        132




                                                                199
                      International                                         Relative price level
                      price level                                       (price level of GDP = 100)

                                                             Private consumption
                                                                                                  Transport             Gross
                       Ratio of PPP                   Bread Clothing                                 and                 fixed
                         rate to $    Private    All   and     and       Fuel and Health          communi- Government capital
                      exchange rate consumption food cereals footwear     power    care Education cations consumption formation
                           1998        1998     1998 1998      1998       1998    1998    1998      1998      1998      1998

Thailand                   49         136       120    104      187          90        90     104    142      140         74
Trinidad and Tobago        56          95        86     91       88          28       128      77    116       95        120
Tunisia                    43         102       111    126      128         104        65      93    105       99        101
Turkey                     51         102        69     83      125         134       154      91    118      109        103
Turkmenistan               10         101       151    105      183           7        91      60     47       62        107
Ukraine                    27          93       113     84      109          83        75      99     71       83        165
UK                        101         103        62     74       74         110       139     100    270      188         72
USA                       100         101        54     83       57          72       211      74    374      243         75
Uruguay                    73         104        95    106       99          99       125     110     80       90         87
Uzbekistan                 ..          88       118    116       83          31        64     138     48       70        313
Venezuela, RB              53          97        90     90      109         101       101      87     73       49        107
Vietnam                    21         103       110     97       76         114        93     136     92       75        148
Yemen, Rep                 63          97       185    147      108         120        58     122     39       24        315
Zambia                     50         110       112    117       76         133        30     151    120       59        103
Zimbabwe                   30         103       112    118       96         131        53     121    110       90        100




                                                                                        200
About the data
Commentary on the data in Annex 1 is given below. It is taken from World Development Indicators
2000, published by the World Bank. All methodological descriptions relate to work undertaken for that
publication, and not by the Competition Commission.

The table presents information on the relative prices of components of GDP based on newly released data
from the 1996 round of ICP surveys. Where data are not available for 1996, they have been extrapolated
from the 1993 survey. The data are then updated to 1998 using similar procedures. The International
Comparison Programme (ICP) collects data on prices paid for a large set of comparable items in more
than 100 countries. Purchasing power parities (PPPs) computed from these data allow comparisons of
prices and real GNP expenditures across countries. PPPs are used to evaluate the structure of
consumption.

A country’s international price level is the ratio of its PPP rate to its official exchange rate for US dollars.
PPPs can be thought of as the exchange rate of dollars for goods in the local economy, while the US
dollar exchange rate measures the relative cost of domestic currency in dollars. Thus the international
price level is an index measuring the cost of goods in one country at the current rate of exchange relative
to a numeraire country, in this case the United States. An international price level above 100 means that
the general price level in the country is higher than that in the United States. For example, Japan’s
international price level of 151 in 1998 implies that the price of goods and services in Japan was, in
general, 51 per cent higher than the price of comparable goods and services in the United States. By
contrast, Kenya’s price level of 34 means that a bundle of goods and services purchased for $100 in the
United States cost only $34 in Kenya in 1998.

The relative prices of the components of GDP shown in the table are calculated from their international
prices measured relative to each country’s price level of GDP. A figure above 100 indicates that the price
of that component is higher than the average price level of GDP. This is not the same as saying that the
component is more expensive in that country than in the United States. It indicates only that the price for
that component is higher than the general price level prevailing in the country.

Relative prices for consumption items tend to be close to the overall price level of GDP. This is to be
expected because consumption accounts for a large share of GDP. Relative prices for investment goods
(gross fixed capital formation) in developing countries usually tend to be higher than those for other
components of GDP. For example, Indonesia’s relative price level of 154 for investment goods indicates
a price level 54 per cent higher than the overall price level. This reflects the fact that a large share of
physical capital must be imported from high-income economies with higher average price levels.


A question of methodology
Converting values expressed in different national currencies to a common currency and price level
requires solving a difficult index number problem. The International Comparison Programme has
devised several methods for doing this, but each has its drawbacks. The Elteto-Koves-Szulc (EKS)
formula was applied to the data to generate purchasing power parities (PPPs) for each of the main,
economic aggregates in the national accounts. The EKS formula is based on a modified geometric
averaging procedure applied within each expenditure category to every possible binary price ratio
between all countries for each item. Implicitly, each price, whether from a rich country or a poor one, is
given more or less equal weight.

The EKS formula is the preferred way of calculating individual PPPs across all countries for a single
expenditure item. The problem is that the results do not add up. For example, the PPP-adjusted values for
the components of private consumption do not sum to the PPP-adjusted value for total consumption.

A different procedure is needed to calculate the real shares of GNP or GDP in comparable, terms. For
this, compilers have adapted the Geary-Khamis method. This method uses national accounts values to
weight different national prices, to reflect their relative importance. Its drawback is the greater weight it
gives to rich country prices, which raises poor countries’ national accounts values in real terms and may
give a distorted view of the expenditure shares in those countries.


                                                    201
To obtain the consumption shares in the table, the Geary-Khamis method has been modified to attribute
equal weight to all countries’ prices. This modified method is similar to the Geary-Khamis method with
‘super country weights’ adopted by the Penn World Tables to solve the same problem. Aggregates
calculated with the EKS formula and the modified Geary-Khamis method generally differ by less than
5 per cent.


Definitions
• International price level is the ratio of a country’s PPP rate to its official exchange rate for US dollars.
• Private consumption includes the consumption expenditures of individuals, households, and non-
governmental organizations. • All food includes all food purchased for household consumption. • Bread
and cereals comprise the main staple products—rice, flour, bread, and all other cereals and cereal
preparations. • Clothing and footwear include purchases of new and used clothing and footwear and
repair services. • Fuel and power exclude energy used for transport (rarely reported to be more than
1 per cent of total consumption in low- and middle-income economies). • Health care and education
include government as well as private expenditures. • Transport and communications cover all
personal costs of transport, telephones, and the like. • Government consumption includes spending on
goods and services for collective consumption less spending on recreational and other related cultural
services, education, health care, and housing. Expenditure on government final consumption consists of
compensation of employees, consumption of intermediate goods and services, and consumption of fixed
capital and indirect taxes paid less proceeds from sales of goods and services to other sectors (such as
fees charged by municipalities and other government agencies, school fees, fees for medical and hospital
treatment and drug sales, and sales of maps and charts). • Gross fixed capital formation comprises
expenditures on construction, producer durables, and changes in stocks. Construction includes residential
and non-residential buildings and roads, bridges, and other civil engineering activities. Producer durables
include machinery and non-electrical equipment, electrical machinery and appliances, and transport
equipment. Changes in stocks cover increases in the value of materials and supplies, works in progress,
and livestock (including breeding stock and dairy cattle).


Data sources
PPP data comes from the ICP, which is co-ordinated by the United Nations regional economic
commissions and other international organizations. The World Bank collects detailed ICP benchmark
data from regional sources, establishes global consistency across the regional data sets, and computes
regression-based estimates for non-benchmark countries. The data on which this table are based will
appear in the World Bank’s Purchasing Power Parities: International Comparison of Volume and Price
Levels.




                                                    202
                                                                                         ANNEX 2


              Sunday Times international price comparison, 23 August 1998

                                                                              Price, £

               Product                 UK      France     Germany     USA     Average

Sirloin steak 1kg                      11.69    7.83           8.62    6.37    8.63
Chicken breast, boneless 1kg           11.24    5.67           5.88    3.09    6.47
Smoked salmon 1kg                      24.90   17.70           8.63   13.79   16.26
Heineken cans 4x440ml                   3.25    1.82           2.60    3.04    2.68
Deep pan frozen pizza 425g              2.69    1.46           1.37    1.70    1.81
Standard pack grated cheese 1kg         5.50    4.49           4.31    5.40    4.93
Coca-Cola 1l                            0.65    0.46           0.55    0.71    0.59
Heinz tomato ketchup 460g               1.03    0.96           0.77    0.92    0.92
Mars Bars funsize 346g                  1.79    1.58           1.00    1.62    1.50
Häagen-Dazs ice cream 500ml             3.59    2.57           3.04    2.23    2.86
Potatoes 1kg                            0.55    0.82           0.42    0.27    0.52
Carrots 1kg                             0.55    0.51           0.69    0.80    0.64
Olive oil 500ml                         2.04    1.92           2.59    2.75    2.33
Nescafé instant coffee granules 100g    1.89    1.91           2.94    2.33    2.27
Kelloggs cornflakes 500g                1.15    1.37           1.48    2.52    1.63
Tuna fish, tinned 185g                  0.37    0.89           0.69    0.71    0.67
Butter 250g                             0.89    0.92           0.76    1.16    0.93
Large eggs 6                            0.79    0.99           1.03    0.42    0.81
Milk, semi-skimmed 1l                   0.42    0.61           0.65    0.62    0.58
Mayonnaise 500ml                        0.93    1.28           0.69    1.10    1.00
Freshly squeezed orange juice 1l        2.39    1.50           1.73    1.81    1.86
Gillette Sensor razors 5 pack           3.75    2.88           2.87    3.12    3.16
 Total                                 82.05   60.14          53.31   56.48   63.00

 Source: Sunday Times.




                                                        203
                                                                                                   ANNEX 3


        Asda European and US price comparisons, September 1998 to March 1999

TABLE 1 European Pricing Survey , 7 September 1998

                                        No of lines      Main          Cheapest
                                        compared        basket £      alternative £

France      Auchan                           51          106.45           83.67
            Asda                                          92.86           66.86
            Asda/Auchan (%)                               87.2            79.9

Italy       GS Corso Lodi                    53          120.05           95.87
            Asda                                          87.69           67.50
            Asda/GS Corso Lodi (%)                        73.0            70.4

Germany     Extra/Metro                      53          121.83           77.87
            Asda                                          99.00           70.86
            Asda/ExtraMetro (%)                           81.3            91.0

  Source: Asda.


  Notes:
  1. Prices have been adjusted for pack size differences.
  2. European prices have been converted to sterling for comparison using market exchange rates.
  3. Lines included in the basket are those which are volume lines for Asda.




TABLE 2 European Pricing Survey, 11 February 1999

                                       No of lines      Main          Cheapest
                                       compared        basket £      alternative £

France      Auchan                          52          120.19          100.46
            Asda                                         96.54           70.16
            Asda/Auchan (%)                              80.3            69.8

Italy       GS Corso Lodi                   53          128.68           95.61
            Asda                                         96.51           68.16
            Asda/GS Corso Lodi (%)                       75.0            71.3

Germany     Extra/Metro                     53          128.43           82.06
            Asda                                        101.62           73.55
            Asda/ExtraMetro (%)                          79.1            89.6

  Source: Asda.


  Notes:
  1. Prices have been adjusted for pack size differences.
  2. European prices have been converted to Sterling using market exchange rates.
  3. Lines included in the basket are those which are volume lines for Asda.




                                                      204
TABLE 3 US price comparison, March 1999
                                                              Cheapest
                          Main    Main basket     Cheapest      basket
                         basket   (ex clothing)    basket    (ex clothing)

Wal-Mart Indiana         179.09      118.24        144.43      106.56
Asda                     231.72      130.31        196.01       94.67
Asda/Wal-Mart (%)        129.4       110.2         135.7        88.8

Wal-Mart Dallas          139.72       99.15         85.93       75.11
Asda                     192.36      111.44        162.67       81.75
Asda/Wal-Mart (%)        137.7       112.4         189.3       108.8

Albertsons               132.85      123.13        114.82      105.1
Asda                     138.98      123.00        108.16       92.18
Asda/Albertsons (%)      104.6        99.9          94.2        87.7

Kroger                               129.67                    101.06
Asda                                 131.80                     97.02
Asda/Kroger (%)                      101.6                      96.0

French chain             238.11      168.42        218.65      148.96
Asda                     218.33      122.40        185.2        89.27
Asda/French chain (%)     91.7        72.7          84.7        59.9

German chain             120.55      110.29         94.15       84.91
Asda                     118.21       93.75         88.57       64.18
Asda/German chain (%)     98.1        85.0          94.1        75.6

Italian chain            205.12      156.57        166.25      138.36
Asda                     177.43      122.99        144.85       90.47
Asda/Italian chain (%)    86.5        78.6          87.1        65.4

 Source: Asda.




                                                   205
                                                                                                                                                       ANNEX 4


                                                KPMG Pricing Policy White Paper, January 1999

          Product           Italy   Portugal   Ireland   Germany   Finland   Belgium   Luxembourg   France   Netherlands     UK     Austria   Spain    Average

Burger                     101.08 100.00       114.20    104.38    149.01    128.67     137.02      127.90     111.62      109.27   101.41    103.68    115.69
Fresh chicken              234.38 187.74       100.00    496.51    474.32    216.68     515.39      367.51     321.77      305.80   249.23    124.80    299.51
Eggs                       189.70 100.00       170.29    223.08    154.62    111.16     151.17      394.95     151.89      115.09   279.27    112.76    179.50
Snack bar                  130.19      N/A     101.85    106.00    199.31    123.21     166.85      175.27     128.51      100.00   146.56    155.76    139.41
Snack bar                  134.68      N/A     105.36    109.66    206.18    127.46     172.60      181.31     132.94      100.00   151.62    161.13    143.90
Salt                       100.00 1,199.59     659.68    395.26    641.29    239.09     402.63      129.23     473.47      656.36   524.99    234.92    471.38
Sugar                      100.00 123.59       147.02    115.44    174.66    117.00     144.49      169.38     164.61      111.05   140.71    126.86    136.23
Soft drink                 108.12 132.16       124.93    124.54    400.84    143.21     157.33      137.47     125.78      169.37   164.70    100.00    157.37
Soft drink                 138.94 130.80       129.70    132.00    209.79    130.10     159.66      140.59     130.58      175.84   122.93    100.00    141.74
Whisky                     115.07 100.00       185.12    190.76    493.82    101.17     179.51      388.83     264.97      133.20   177.05    128.17    204.81
Toothpaste                 206.53 180.74       287.14    100.00    221.78    239.44     287.50      204.23     174.71      246.27   162.38    138.92    204.14

Indexed average (UK=100)    70.14   124.00      95.64     94.39    149.65     75.47     111.34      108.75      98.14      100.00    99.94     66.91
Rank                        11        2          8         9         1        10          3           4          7           5        6        12

 Source: KPMG.




                                                                               206
                                                                                                                         ANNEX 5


                               DKB, European and US Surveys, April/May 1999

                     Product                                                                     Price (euros)

                     Europe                        US weight-adjusted from       UK     France    Germany        USA     Average

Ariel Detergent E310 Scoops Box Powder 1.5kg       Clurox detergent 40oz         3.25    5.65        9.71         3.90     5.63
Evian 1.5l                                                                       0.69    0.51        1.33         1.64     1.04
Kraft Mayonnaise Miracel Whip 500g*                1.42 litres                   1.58    1.68        1.86         3.74     2.22
Knorr Onion Soup 66g                                                             0.60    0.97        0.80         1.54     0.98
Ariel Futur Liquid 1.5l                            Clurox ultra 2 liquid 2l      8.56    5.32        5.58         3.18     5.66
Bonne Maman Strawberry Jam 370g                                                  1.80    1.43        1.62         2.92     1.94
Pampers nappies baby dry extra newborn x28                                       6.65    8.38        8.15        12.94     9.03
Heinz Tomato Ketchup 340g                          794g                          0.77    1.13        1.49         0.95     1.09
Nescafe Gold Blend 200g                            8oz                           5.81    6.46        9.00         4.81     6.52
Coca-Cola 2l                                                                     1.58    1.11        0.98         0.95     1.16
Doritos variety 150g                                                             1.11    0.96        0.84         1.47     1.10
Kellogg’s cornflakes 375g                          340g (18oz also available)    1.12    1.78        1.75         2.08     1.68
Head & Shoulder (clearasil) 200ml                                                2.71    4.13        2.72         2.68     3.06
Axe (Lynx) deodorant 150ml*                        Faberge Brut 141g             2.42    3.56        2.12         2.77     2.72
Colgate Total 75ml                                                               2.23    1.63        1.40         2.20     1.87
Half fat undiscounted milk 1 litre (local brand)   1 pint                        0.64    0.83        0.58         0.51     0.64
Heinz Tomato Ketchup 570g                          1.13kg                        1.21    1.94        1.90         1.57     1.66
Gillette Sensor Excel razor                                                      5.30    3.33        4.66         4.51     4.45
Gillette series shaving foam sensitive 250ml                                     2.64    2.01        1.79         1.94     2.10
Magnum 3 pack 370g                                 Dove ice cream x 4 370g       2.97    2.09        2.37         2.92     2.59
Pantene Pro V 2 in 1 200ml                         300ml                         2.79    2.34        2.11         2.00     2.31
Gillette Mach 3 razor                                                            6.17    4.86        6.01         5.83     5.72
Nescafe Cappucino 10 cups 125g                                                   2.42    2.53        2.37         2.62     2.49
  Totals                                                                        65.02   64.63       71.14        69.67    67.62

 Source: DKB.


 *Some countries = ml, some countries = grammes.
 Key:
 1 pint = 1.76 litres.
 1 ounce = 28.34g.




                                                                     207
                                                                           ANNEX 6


          Liberal Democrat comparison of UK and French prices, May 1999

           Product                  French substitute      Price (£)
                                                         UK       France

Nescafé Gold Blend 200g           Special blend          4.69     4.01
Prork chops 1kg                                          4.29     2.52
Gillette Sensor Excel razor                              4.29     2.37
Ariel Futur 1.5l                                         3.99     4.02
Hãagen Dazs ice-cream 500g                               3.69     2.16
Whole fresh chicken 1kg                                  2.53     2.01
Own brand orange juice, 1l        Mon Verger             2.39     2.01
Colgate pump toothpaste 150ml                            2.25     1.40
Pringles crisps 200g                                     1.29     0.97
Own brand kitchen foil 10m        30m/3                  1.27     0.37
Low fat Ski yoghurt, 4 pots       Danone                 1.15     0.86
Potatoes 1kg                                             1.15     0.55
Coca-Cola 2l                                             1.09     0.85
Granny Smith apples 1kg                                  1.08     0.75
Bananas 1kg                                              1.08     0.75
Barilla Penne Rigate (Pasta)                             0.82     0.51
Persil washing up liquid          Soleil (Lever)         0.76     0.79
6 medium eggs                                            0.75     0.65
Own brand butter 250g             Beurre de Normandie    0.69     0.77
Silver spoon sugar 1kg            Benguin-Say            0.55     0.69
Semi-skimmed milk, 1l                                    0.52     0.57
  Total                                                 40.32    29.58

 Source: The Liberal Democrats.




                                                         208
                                                                                                                                      ANNEX 7
                                         OECD consumer prices, June 1999 (1996 prices)

OECD28 = 100               Aut   Bel   Fin   Fra   Ger   Ire   Ita   Lux    Nld   Prt   Spa   Dnk    Grc   Swe   UK    Ice   Nor

Bread and cereals          108   100   133   119   113    88   101   106     91    72    98   139    100   135    79   129   137
Meat                       139   126   129   136   133   103   123   141    137    89    92   170     89   146   102   181   185
Fish                        93    97    69    90   100    70    95   103     77    67    74   108     73    82    60    68    89
Milk, cheese and eggs      105   115   106   113    94   114   117    99     94    85    96   122     97   116    97   128   152
Oils and fats              120   115   122   112   104    99   109   114     86   101   110   122    134   127    94   101   134
Fruit, vegetables and
 potatoes                  111   106   128   121   121   104    98   112    100    84    94   166     72   136   117   144   155
Other food                 114   108   132   121   114    94   126   111     93   128   110   147    126   130    85   131   149
Non-alcoholic beverages    103   121   149   113   129   160    97   104    112   108    93   210    109   181   138   181   200
Alcoholic beverages         91    91   183    87    77   176    77    83     93    67    64   128     87   181   119   200   217
Household goods (US=100)
Cleaning and maintenance
 products                  177   150   225   136   159   124   132   157    157   113   127   175    141   240   137   169   229
Average all goods          116   113   138   115   114   113   108   113    104    91    96   149    103   147   103   143   165
Rank out of 32               9    14     7    10    11    12    15    13     16    22    21     4     19     5    18     6     2

OECD28 = 100               Swi   Tur   Aus   Nzl   Jap   Can USA     Cze   Hun    Pol   Mex    Isr   Slk   Sln   Rus EU11 EU15     OECD24   OECD28

Bread and cereals          138    43    88    95   184    62    86    34     48   43     45   117     37    72    47   107   104    109      100
Meat                       213    66    62    85   287    64    78    60     61   58     49   136     57   108    63   124   121    105      100
Fish                       120    92    71    64   133    86    54    42     56   52     38    80     41    76    44    85    82    103      100
Milk, cheese and eggs      141    68    89    97   196    91    91    51     49   63     59   125     51    81    65   105   105    105      100
Oils and fats              182    70    90    72   244    85    92    71     60   80     70   101     65    91    81   108   108    103      100
Fruit, vegetables and
 potatoes                  146    41    98   113   216   107    84    62     48    72    48    81     54    83    72   107   108    104      100
Other food                 130    58    91   102   191    83    77    56     73    89    56   133     58    86    71   115   111    103      100
Non-alcoholic beverages    135    92   119   107   221   103    74    61     52    80    51   112     63    87   115   115   121    105      100
Alcoholic beverages        118    74   141   132   169   118    88    56     68   130    63   136     54    83    92    82    94    101      100
Household goods (US=100)
Cleaning and maintenance
 products                  196   110   175   164   267    90   100   131    110   211    88   159    123   140   153   151   140    120      N/A
Average all goods          152    71   102   103   211    89    82    63     62    88    57   118     60    91    80   110   110    106      100
Rank out of 32               3    28    20    17     1    24    26    29     30    25    32     8     31    23    27

 Source: OECD.




                                                                           209
                                                                                                                                                        ANNEX 8


                                                   DKB, 1999 update to Eurostat price data

                                    Aut     Bel      Fin     Fra     Ger       Ire     Ita     Lux     Nld      Prt     Spa     Dnk      Grc     Swe       UK

Bread and cereals                  102       94     126      115     105       93      99      101      85      69       93     137       99     126        89
Meat                               111      103     100      113     107       89     102      117     113      69       70     139       75     110        97
Fish                               112      116      79      107     116       89     109      120      91      92       86     126       90      94        94
Milk, cheese and eggs               99      108      98      108      86      113     114       94      88      80       87     123       96     108       108
Oils and fats                      120      115     126      113     100      109     101      116      84      82       78     126      103     126       111
Fruit, vegetables and potatoes     107      100     119      110     107      111      90      101      96      93       88     143       77     122       122
Other food                         100       94     115      106      98       91     114       97      80     115       94     134      119     110        93
Non-alcoholic beverages             81       99     123       91     103      147      79       85      91      83       72     181       92     145       142
Alcoholic beverages                 93       95     196       90      79      206      81       86      98      66       64     142       95     187       158

Weighted average food and          104      102     118      108     100      112     100      104      96       77      80     137       90     123       108
 beverages
 Rank out of 15                       7       9        3       6      11        4      10        8      12       15      14        1      13        2        5

 Source: euroFocus, DKB, June 1999/CC.*


  *The weighted averages and rankings were calculated by the CC. Category weights are from euroFocus. Price levels updated from Comparison in real terms of the
aggregates of ESA, Eurostat 1994.




                                                                               210

				
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Description: Consumer Perception on Branded and Unbranded Grocery Items document sample