Woolworths CEO Brad Banducci has recently reported that the company’s December half results represent a return to something approaching normality after three years of pandemic-related profit fluctuations. However, customers are once again choosing to eat at home, which was a popular trend during the pandemic. Banducci refers to this trend as “trading in,” where customers are trading more expensive items for more affordable ones while still looking for value.
“We started to see customers trade into affordable inspiration the number of categories as they stay at home. They are looking for value, but it comes in many forms,” said Banducci. He added that shoppers are still looking for value and are still swapping out more expensive items in some categories, particularly meat and fresh food. However, the definition of value is expanding, and consumers are mitigating cost-of-living pressures in different ways.
This shift is more nuanced than before, with customers seeking affordable luxury or inspiration for eating and entertaining at home. Woolworths has seen 10% volume growth in its Odd Bunch range of non-perfect fruit and vegetables. Banducci argues that the definition of value is expanding, and consumers are mitigating cost-of-living pressures in different ways.
“Customers are starting to trade in and make a move – a slow move – from eating out to eating in the home. They are looking for value, but it comes in many forms,” said Banducci. He further stated that “value comes in many forms” and that the company is seeing interesting pockets of value emerge.
Food inflation inside Woolworths grew at 7.7% in the December quarter and 7.3% in the September quarter, well ahead of Woolworths’ total food sales growth of 5.6%. However, MST Marquee analyst Craig Woolford isn’t worried that Woolworths is falling behind; the previous corresponding period last year was marked by lockdowns, which favoured Woolworths as its stores are located more in neighbourhood areas, where Coles has more stores in big malls.
In news that will be music to the ears of Reserve Bank governor Philip Lowe, Banducci sees a light at the end of the inflation tunnel. “While prices are starting to come down overall in our business, there is a long way to go. The interesting characteristic to me right now is that the last time we spoke, virtually every price was going up. That’s no longer true. We are seeing interesting pockets of value,” said Banducci.
What impressed the market was the strong margins in both the supermarket business (where gross margin rose 0.48% to 30.7%) and in Big W (where gross margin rose 0.53% to 33.4%). Woolworths shares, up 12% year-to-date, ticked higher again on Wednesday.
