Woolworths reports falling margins, unhappy customers, and a profit drop

Wednesday, 28 August 2024

Australian supermarket group Woolworths says its New Zealand operations made $8.2 billion of sales for the year June 30, up from $7.9b last year, but its profitability fell.

Overall, Woolworths posted a modest fall in profit after tax across its entire Australian and New Zealand operation, but in New Zealand its earnings before interest and tax fell by 57% from $249 million to $108m.

In New Zealand, Woolworths’ margins fell, driven by higher freight costs, and what it called “investment in value” in a competitive market as it tried to reverse losses in customer satisfaction.

“New Zealand’s financial performance continues to be materially impacted by higher wage costs and a value-conscious consumer in a very competitive market,“ said Woolworths overall chief executive Brad Banducci.

“While it will take time for New Zealand Food to get back to the returns we believe the business should deliver, we are optimistic that the multi-year transformation plan is improving the underlying performance of the business.”

Despite average prices for its groceries falling, customers were not happy, with the Australian supermarket giant recording its customers reporting a decline in “value for money” at its stores.

The profit announcement comes at a tense time for the supermarket sector, which is dominated by Woolworths, which operates Woolworths, Countdown, Super Value and FreshChoice, and Foodstuffs, which operates New World, FourSquare and Pak‘nSave.

Woolworths is locked in wage negotiations with unionised staff, who have been taking industrial action as the seek to be paid at least the living wage.

And the Commerce Commission is just days away from publishing its first monitoring report into the grocery sector, following its market study in 2022, which concluded the big two supermarket groups make excess profits.

Jon Duffy, chief executive of Consumer NZ, said the public was questioning the high profits of many sectors, including banking and power.

“There is broader discussion around whether markets across various sectors are working well for consumers, and supermarkets are the poster child for that,” he said.

In the year to June 30, food prices were largely flat nationally, down 0.3%, Stats NZ said, but Duffy said surveys of its members indicated no decrease in the concern of the public over supermarket pricing.

“If you look at our regular sentiment tracking data, the cost of food and groceries is still the number one concern for consumers, and has been since 2021,” he said.

Woolworths reported a decline of 2.6% in the average price of groceries it sold driven by lower fruit and vegetable prices.

Woolworths’ New Zealand chief executive, Spencer Sonn added: “We are seeing signs of inflation moderating which will be a relief to our customers, with many fresh products cheaper now than they were this time last year.”

There had also been no slow-down in consumers finding themselves being charged too much for items at supermarket checkouts, which had prompted a Commerce Commission investigation.

Ross Lampert, First Union national organiser for retail food, said the lowest-paid workers at Woolworths earned $24.93 an hour, which was below the current national Living Wage of $26, though the Living Wage was set to rise next month to $27.80.

The public generally supported Woolworths’ workers’ pay demands, he said.

During Covid lockdowns supermarket workers were recognised for as “essential” workers, and deserved to be paid a living wage, he said.

“These are the people who keep our country ticking along and operating,” he said.

Woolworths’ workers had been on social media strike, defying Woolworths’ contracts that ban them from saying anything critical of their employer, he said.

Banducci said in New Zealand, Woolworths’ wage costs had increased by 19% over the past two years, materially exceeding sales growth.