Australia’s Largest Supermarket Chains Overcome Challenging Economic Conditions

Coles and Woolworths signs are seen outside a shopping centre in Melbourne, Australia, on May 25, 2015. Quinn Rooney/Getty Images

Two major Australian supermarket chains have reported significant profit growth for the first half of the 2022-2023 financial year, which they attributed to their efforts in meeting customers’ demand and a reduction in COVID-19 related costs.

Woolworths Group, which owns the largest supermarket chain in the country–Woolworths, and a number of retail businesses such as Big W and Pet Culture has announced that it made a net profit after tax of $907 million (US$619 million) in the 27 weeks ending Jan. 1, 2023, a 14 percent increase compared to a year earlier.

In addition, the group’s overall sales rose by four percent to $33.17 billion.

The Australian supermarkets business was the main driver behind the group’s performance, which contributed $24.39 billion in sales (up 2.5 percent) and $1.44 billion in earnings before interest and tax (up 18.2 percent) thanks to a sharp rise in food margins to 30.7 percent.

“Our first-half result benefited from a focus on improving our customer shopping experience, restoring our operating rhythm, the non- recurrence of material COVID-19 costs in the prior year and strong seasonal trading,” Woolworths CEO Brad Banducci said.

Pedestrians walk past a Woolworths supermarket in Sydney, Australia, on Aug. 24, 2022. Lisa Maree Williams/Getty Images

The CEO also said that while the increase in sales of company-owned private label and exclusive brands was around five percent, there was double-digit growth in some other product categories.

Regarding costs, Woolworths said food prices jumped by 7.7 percent on average in the December quarter, despite some moderate increases in fruit and vegetables due to improved supplies.

Meanwhile, Woolworths also received significant boost in earnings from its subsidiary Big W.

The chain of discount department stores reported a 15.3 percent jump in sales to $2.7 billion and a four-fold increase in earnings to $134 million.

Despite the robust growth in sales and profit in the first half of 2022-2023, Woolworths expected a more modest performance in the latter half of the financial year as its operations started to return to normal.

The group also warned that cost inflation in wages, energy and some supply chain materials would remain high during the period.

Coles’ First-half Performance

Woolworths’ main rival, Coles, also had a solid performance in the first half of the 2022-2023 financial year.

The second-largest supermarket chain’s net profit after tax reached $616 million, which was 11.4 percent higher than the previous year and surpassed market expectations.

Total sales went up 3.9 percent to $20.8 billion, of which $18.9 billion came from Coles’ supermarket business and $1.9 billion from its 940 bottle shops.

Pedestrians walk past a Coles supermarket in Sydney, Australia, on Aug. 24, 2022. Lisa Maree Williams/Getty Images

In addition, the company achieved earnings before interest and tax of $1.06 billion, up 9.9 percent from the previous year.

“We continue to make progress on growing long-term shareholder value by executing our strategy, while recognising the significant challenges facing many of our customers and suppliers,” Coles CEO Steven Cain said.

Profit and sales were not the only things that went up for Coles during the first six months of 2022-2023, as the supermarket chain said its cost pressures remained elevated, especially for packaged goods, wages and energy.

Coles said food prices rose by 7.1 percent in the first quarter of the financial year and 7.7 percent in the second quarter.

The Impact of Inflation on Consumers’ Behaviour

As high inflation starts to bite into Australian households’ budget, the two supermarket chains noticed a marked change in the behaviour of their customers.

Banducci said Woolworths’ consumers were switching to cheaper private-label groceries and canned food while reducing eating out.

Similarly, Coles found that its customers were becoming more value-conscious as cost-of-living pressures lifted.

“We are seeing customer behaviours shifting to more value-oriented choices as a result of higher inflation and interest rates and the cost of energy increasing,” Coles chief financial officer Charlie Elias told analysts.

While high inflation is likely to remain for some time, Coles forecasted that growth in food prices might peak in the second half of the 2022-2023 year.

“The good news from a consumer point of view is that supplier cost inflation is starting to ease,” Cain said, reported the Australian Broadcasting Corporation.

“We expect headline inflation to moderate throughout the remainder of the half, particularly in relation to anything from farms.”

To support Australian consumers affected by high inflation, both Woolworths and Coles have launched programs to lower the price of their products.

In January, Coles announced that it would drop and “lock” the price of over 300 items at their stores and online until after Easter.

The company also said it would continue to offer thousands of special deals each week to help ease living cost pressures.

Meanwhile, Woolworths has recently reduced the price of over 400 everyday essential items on its shelves, including meat, vegetables and dairy products and promised to keep them low until May.

“We understand that cost-of-living pressures are being felt by our customers and our team, particularly as the school year kicks into gear and families plan for the Easter holidays, and Prices Dropped for Autumn is just one of the many ways we are helping customers save this Autumn,” Woolworths’ Chief Commercial Officer Paul Harker said, reported Nine Network.