Supermarket prices seen heading higher due to industry-wide cost increases

Wednesday, 23 February 2022

Supermarket prices are expected to continue to rise, according to Countdown owner Woolworths.

Grocery prices rose an average 1.7 per cent across Countdown stores over the last six months of 2021 and they will continue to rise due to industry-wide cost increases, according to the supermarket’s Australian owner, Woolworths.

In New Zealand, the company’s stores recorded average price increases of 1.7 per cent driven by inflation across grocery, fruit and vegetables, and perishables, due to cost inflation and limited supply, Woolworths said in a statement to the ASX on Wednesday.

“We expect inflationary pressures to continue to intensify due to industry-wide cost increases,” said Woolworths Group chief executive Brad Banducci. “It is inevitable that some prices will increase; however, we will continue to work hard to ensure that we provide our customers with great value and affordable alternatives.”

Shelf prices were up between 2 and 3 per cent since the start of the company’s second half in January, when compared with the same period a year earlier, Banducci said.

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The company’s New Zealand supermarket sales rose 8.3 per cent to $4 billion over the six-month period, benefiting from prolonged Covid-19 restrictions, although growth moderated in the second quarter after the initial nationwide level 4 lockdown in mid-August.

The bulk of the sales were generated by Countdown supermarkets, with sales up 5.9 per cent to $3.1b. Its SuperValue and FreshChoice franchise stores lifted sales 11 per cent to $340m.

The supermarket chain’s e-commerce sales in New Zealand jumped 23 per cent in the half, with a record 13.9 per cent of sales made online through home delivery and click-and-collect services as it rolled out more convenient pickup options such as e-lockers to stores.

Its New Zealand pre-tax profit rose 3.3 per cent to $200m, although its pre-tax profit margin slipped to 5 per cent from 5.2 per cent as a result of heightened and prolonged Covid-19 operating conditions.

Costs increased due to Covid-19 restrictions, higher wage costs due to enterprise agreements, and investment in e-commerce, the company said. Direct Covid costs increased to $29m from $8m the prior year, it said.

Banducci said indirect Covid costs had remained high, mainly due to continued supply chain disruption, although he expects them to moderate over the half.

The Commerce Commission is due to publish its final report into the $22b grocery industry on March 8, after concluding in a draft report that Countdown and its rival Foodstuffs were making “persistently high profits”.

The final report would address the extent to which Covid-related matters had impacted its findings but in large part the report would be independent of the Covid operating environment, the commission has said.

The company added one new supermarket in New Zealand during the period, taking the total to 185, and expects to add three to four new supermarkets over the medium term.

Woolworths is reviewing its payments to staff in New Zealand after discovering discrepancies in Australia that it expects will cost it A$571m (NZ$610m).

The company hopes to have the review substantially completed by the end of this year and said it was committed to rectifying all payment shortfalls as soon as possible. A spokeswoman declined to provide any more detail on the potential scale of the issue in New Zealand.