Words on Wealth: The challenges of comparing products on price

For the free market to work optimally, consumers need to compare products on quality and value. This applies to any product, be it a grocery item or a financial product. But for the comparison to be meaningful, you need to compare apples with apples, and that’s not always so easy.The Pietermaritzburg Economic Justice & Dignity Group does an amazing job tracking grocery prices across the country. The September 2023 Household Affordability Index tracks food price data from 47 supermarkets and 32 butcheries in Johannesburg, Durban, Cape Town, Pietermaritzburg, Mtubatuba (in Northern KwaZulu-Natal), and Springbok (in the Northern Cape). It doesn’t compare prices of different supermarket chains, but it does compare across geographical areas.In September, a basket of 44 household goods, designed to meet the basic needs of a family of four for a month, cost as follows (ranked most to least):• Springbok: R5 449.04• Mtubatuba: R5 329.44• Johannesburg: R5 250.89• Cape Town: R5 172.42• Durban: R5 007.16• Pieterrmaritzburg: R4 942.94As you can see, the smaller rural towns are noticeably more expensive than our cities. This may be because there is less competition in smaller towns, plus transporting goods to these towns is costly.The Outlier, an online publication by a team of data journalists, the Media Hack Collective, has published regular comparisons across supermarket chains using a fixed basket of staples, including rice, maize meal, flour, milk, and cooking oil.On IOL, property journalist Bonny Fourie has also done a grocery price comparison. Her article “Grocery shopping: This SA supermarket is cheapest”, dated August 23, outlined some of the difficulties.“To make the comparisons as balanced as possible, prices were obtained from each of the retailers’ national online shopping portals. This is because the prices of some items tend to differ between franchises,” Fourie said.While efforts were made to compare the costs of matching brands, Fourie said, brands do differ across retailers. For example, Woolworths does not stock brands that other stores do. She also avoided items on special deals, which further complicates matters.Shoprite recently put out a statement drawing consumers’ attention to the challenges of comparing apples with apples.It suggested that, instead of focusing on brands, one should compare the cheapest items in a category. These would typically be “no-name” brands, which are often of similar quality to established brands, but without the fancy packaging and brand-directed marketing.“We know consumers are highly price-sensitive and cash-strapped in these challenging economic times. Thus, focusing on the cheapest product per category would ensure that cash-strapped consumers can make informed purchasing decisions based on price, which aligns with their purchase needs,” Shoprite said.It also elaborated on the point raised by Fourie: there is price variation between different branches or franchises of a particular store, depending on location. “Regional and national pricing variations are important when looking at pricing comparisons, especially considering the supply and demand dynamics of certain products in stores,” Shoprite said.Financial productsCertain financial products may be easier to compare than groceries. The marketing material of retail investment products such as unit trust funds, retirement annuities (RAs) and endowment policies, must include a cost breakdown known as the effective annual cost (EAC).The EAC, introduced in 2016 to help consumers compare products across providers, is especially relevant when comparing products with multiple layers, including investment “wrappers”, to establish the impact of costs on returns.Under the EAC standard, providers must:• Ensure that values used in the calculations are accurate and comprehensive, and that the calculations are accurate.• Ensure that the values underlying the calculation don’t make a product appear cheaper than it is.• Disclose full details of any rebates between a provider and agent, and whether they are passed on to you. If such a rebate is passed on to you, the impact must be included in the EAC calculations.• Disclose to you the fact that, if you buy a particular product, you may forego certain benefits.The breakdown of costs is as follows:•  Investment management charges: charges for the management of all underlying investment portfolios;•  Advice charges: initial and annual advice fees, for both lump-sum and recurring-contribution investments;•  Administration charges: charges relating to the administration of a financial product; and• Other charges: this includes termination charges, penalties and charges on guarantees, smoothing and risk benefits.The EAC must be shown for terms of one, three and five years, and, where there is a specified term, for that term, or 10 years, or to age 55 for RAs.Your financial adviser must be able to explain the EACs of the products he or she advises on and be able to answer your questi

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Words on Wealth: The challenges of comparing products on price

For the free market to work optimally, consumers need to compare products on quality and value. This applies to any product, be it a grocery item or a financial product. But for the comparison to be meaningful, you need to compare apples with apples, and that’s not always so easy.

The Pietermaritzburg Economic Justice & Dignity Group does an amazing job tracking grocery prices across the country. The September 2023 Household Affordability Index tracks food price data from 47 supermarkets and 32 butcheries in Johannesburg, Durban, Cape Town, Pietermaritzburg, Mtubatuba (in Northern KwaZulu-Natal), and Springbok (in the Northern Cape). It doesn’t compare prices of different supermarket chains, but it does compare across geographical areas.

In September, a basket of 44 household goods, designed to meet the basic needs of a family of four for a month, cost as follows (ranked most to least):

• Springbok: R5 449.04

• Mtubatuba: R5 329.44

• Johannesburg: R5 250.89

• Cape Town: R5 172.42

• Durban: R5 007.16

Pieterrmaritzburg: R4 942.94

As you can see, the smaller rural towns are noticeably more expensive than our cities. This may be because there is less competition in smaller towns, plus transporting goods to these towns is costly.

The Outlier, an online publication by a team of data journalists, the Media Hack Collective, has published regular comparisons across supermarket chains using a fixed basket of staples, including rice, maize meal, flour, milk, and cooking oil.

On IOL, property journalist Bonny Fourie has also done a grocery price comparison. Her article “Grocery shopping: This SA supermarket is cheapest”, dated August 23, outlined some of the difficulties.

“To make the comparisons as balanced as possible, prices were obtained from each of the retailers’ national online shopping portals. This is because the prices of some items tend to differ between franchises,” Fourie said.

While efforts were made to compare the costs of matching brands, Fourie said, brands do differ across retailers. For example, Woolworths does not stock brands that other stores do. She also avoided items on special deals, which further complicates matters.

Shoprite recently put out a statement drawing consumers’ attention to the challenges of comparing apples with apples.

It suggested that, instead of focusing on brands, one should compare the cheapest items in a category. These would typically be “no-name” brands, which are often of similar quality to established brands, but without the fancy packaging and brand-directed marketing.

“We know consumers are highly price-sensitive and cash-strapped in these challenging economic times. Thus, focusing on the cheapest product per category would ensure that cash-strapped consumers can make informed purchasing decisions based on price, which aligns with their purchase needs,” Shoprite said.

It also elaborated on the point raised by Fourie: there is price variation between different branches or franchises of a particular store, depending on location. “Regional and national pricing variations are important when looking at pricing comparisons, especially considering the supply and demand dynamics of certain products in stores,” Shoprite said.

Financial products

Certain financial products may be easier to compare than groceries. The marketing material of retail investment products such as unit trust funds, retirement annuities (RAs) and endowment policies, must include a cost breakdown known as the effective annual cost (EAC).

The EAC, introduced in 2016 to help consumers compare products across providers, is especially relevant when comparing products with multiple layers, including investment “wrappers”, to establish the impact of costs on returns.

Under the EAC standard, providers must:

• Ensure that values used in the calculations are accurate and comprehensive, and that the calculations are accurate.

• Ensure that the values underlying the calculation don’t make a product appear cheaper than it is.

• Disclose full details of any rebates between a provider and agent, and whether they are passed on to you. If such a rebate is passed on to you, the impact must be included in the EAC calculations.

• Disclose to you the fact that, if you buy a particular product, you may forego certain benefits.

The breakdown of costs is as follows:

•  Investment management charges: charges for the management of all underlying investment portfolios;

•  Advice charges: initial and annual advice fees, for both lump-sum and recurring-contribution investments;

•  Administration charges: charges relating to the administration of a financial product; and

• Other charges: this includes termination charges, penalties and charges on guarantees, smoothing and risk benefits.

The EAC must be shown for terms of one, three and five years, and, where there is a specified term, for that term, or 10 years, or to age 55 for RAs.

Your financial adviser must be able to explain the EACs of the products he or she advises on and be able to answer your questions.

*Hesse is the former editor of Personal Finance

PERSONAL FINANCE

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