Yahoo Finance Warning as Aussie supermarket chain introduces Afterpay
More Aussies are feeling financial pressure from the weekly shop, but is this "lifeline" a slippery slope to crippling debt?
An Australian supermarket chain has made a potentially dangerous move that could drastically change how we buy groceries as more of us feel financial stress from the growing cost of a weekly shopping basket.
Independent chain Drakes, which operates in South Australia and Queensland, is the first supermarket Down Under to offer customers a buy now, pay later (BNPL) option after introducing Afterpay across its 65 stores.
The service allows shoppers to pay for items in four interest-free instalments every fortnight and imposes late fees if payments are missed. The move has come under fire from welfare groups and consumer experts, who warn it could create a debt trap for vulnerable consumers in the long run.
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Drakes Supermarkets director John-Paul Drake admitted the company held similar reservations about the payment method, but decided to introduce it to meet customer demand.
"[At first] I looked at Afterpay like, 'Well if you're using Afterpay, that means you're struggling to pay for something,' and when we started to actually look into it, that wasn't the case at all," he said on ABC Radio.
Drake said the service is a "good fit" for the retailer's young customers, and after looking into buy now, pay later providers, Afterpay was "quick to come to the party".
Financial breathing space or slippery slope to crippling debt?
A recent Finder survey found 42 per cent of Australians said their grocery shop was causing them financial stress, more than doubling the figure from three years earlier.
The average household spent $185 on their weekly grocery shop in September, a $15 jump from the previous year that works out to be $780 a year.
With costs like energy bills and petrol continuing to rise, relying on a BNPL service for a weekly expense like groceries could spark a dangerous debt issue.
"Spreading payments with Afterpay can mean financial breathing space when buying big-ticket items, but relying on it as a financial lifeline to pay for basics like your weekly supermarket shop can be a slippery slope to getting into debt if you're already struggling and can't keep on top of repayments," Consumer and personal finance expert Sue Hayward told Yahoo Finance Australia.
A 2020 report from corporate watchdog ASIC found that some consumers were "suffering harm" as a result of buy now, pay later schemes, with 19 per cent of users unable to purchase essentials.
Meanwhile, 20 per cent were missing repayments, forcing some to taking out additional loans. Hayward said this should be a red flag to supermarket customers considering using Afterpay.
"If cash is tight, it can be tempting to use buy now, pay later schemes like Afterpay to tide you over till payday. However, it's often low-income households who are struggling financially who tend to rely on this method of payment or those who can't manage their money," she said.
Changes for buy-now pay-later services
In May, the federal government announced it would focus on regulating the buy now, pay later sector more thoroughly.
Following an in-depth review, it was decided buy now, pay later services would be considered credit products and would be regulated under the Credit Act.
Under new regulations expected to be implemented by the end of 2023, consumers will face checks to ensure they can afford repayments, while fees on missed and late payments will be capped.
Meanwhile, providers won't be allowed to raise spending limits without permission.
Is this a wider shift for Aussie supermarkets?
The big supermarket players - Coles and Woolworths - don't offer buy now, pay later services.
But Hayward said it is highly-possible considering Australia's competitive retail market.
"Drakes is a much smaller chain ... However, retail is a competitive sector, especially in the current cost-of-living crisis, and supermarkets are all battling to keep their customers, who are all finding budgets squeezed," she said.
Yahoo Finance contacted Coles and Woolworths but both declined to comment on if buy now pay later services would be considered in the future.
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