Woolworths boss warns on rising grocery costs

The head of Australia’s largest supermarket chain Woolworths has said consumers will need to be prepared for noticeable price rises across all grocery categories in the months ahead as inflationary pressures start to ramp up.

Woolworths chief executive Brad Banducci said his supermarkets were starting to see price rises of 2 per cent to 3 per cent and warned inflation was a “live and real” issue that was impacting all facets of the supply chain.

“We’re going to be living in this world where, unfortunately, we’re going to see material price increases,” he told The Age and The Sydney Morning Herald. “This is a story of end to end inflation across the value chain.”

Woolworths has not only been weathering price rises from grocery suppliers but a raft of other cost increases too, Mr Banducci said, pointing to the fourfold increase in the cost of getting shipping containers into Australia and sky-high fuel prices.

The retailer will seek to absorb what costs it can, Mr Banducci said, but noted the company would have to work “very hard” to ensure it could give customers good value.

“There are many [options] that we have at our disposal and we need to deploy all of them. But we also need to be transparent with our customers and acknowledge the challenge that we all face,” he said.

The warnings echo those of rival supermarket boss Steven Cain, who said on Tuesday inflationary pressures were the worst he’d seen for “quite some time”.

Mr Banducci’s comments come as Woolworths unveiled its half-year financial results on Wednesday, reporting an 8 per cent rise in sales to $31.8 billion as various COVID-19 waves across the country kept demand for groceries strong.

However, the company’s profits did not grow in tandem, with earnings before interest and tax falling 11 per cent to $1.38 billion due to $239 million in COVID-related costs at its supermarkets division, and a massive slump in profits at its Big W retail chain, which was heavily affected by store closures during the half.

Woolworths cut its dividend by 26.4 per cent to 39 cents for the half, but this was largely due to the removal of earnings from drinks division Endeavour, which the company spun off last year. Excluding this, the dividend fell by 2.5 per cent, or 1 cent per share.

Woolworths also told investors it had uncovered more underpayments through its workforce, with a payroll review finding that 155,000 workers were underpaid a total of $144 million over the past three years.

Combined with the $427 million in underpayments discovered by Woolworths in 2020 for its salaried team members, the total cost of the company’s wage scandal has now stretched to $571 million, with Mr Banducci warning that further underpayments could still be uncovered as the review continues.

The chief executive would not say if there would be further cuts made to his or other executives’ bonuses as a result of the new revelations, saying the company’s board would assess the consequences once the payment review is complete.

Shares rose 3 per cent to $36.28 after the market opened before easing to be up 1 per cent by mid-afternoon. Analysts welcomed the better-than-expected earnings and strong start to the second half, where sales have risen 5 per cent and costs have moderated by around 10 per cent to $34 million.

Greg Cassidy, portfolio manager at Milford Asset Management said the company’s results were better than expected in light of Woolworths’ downgrade last December.

“The main surprise today was the better start to 2022 underpinned by strong sales. Whilst early days, costs seem to be under control which many feared could have surprised to the upside,” he said.

“A focus is whether Woolworths can reduce these COVID costs as things normalise. The key will be how well Woolworths can flex employee costs up and down to reflect changes in customer spend.”

Mr Banducci noted that supply chain issues were also starting to improve through the second half, though the company was still struggling to land imports on certain products such as wet cat food.


Extracted from Brisbane Times

Scroll to Top