Supermarkets to gain on the back of rising inflation

Coles and Woolworths could benefit from growing inflation trends which will boost sales as prices for everyday items rise nearly seven per cent this year.

Against this backdrop, Jarden head of research Ben Gilbert said supermarkets margins could rise into fiscal 2023 as COVID-19 related costs moderate and as shelf prices lift.

“We see scope for greater than $8 billion higher sales over FY23/24 above our estimates with Coles, Metcash and Woolworths all set to [benefit from inflation],” he said.

Mr Gilbert is tipping food inflation to hit 6.8 per cent through the year based on a survey of 45 businesses. But so far, consumer spending is holding up given household savings sitting at over $240 billion.

Rising input costs are pushing up the prices of everyday items, including meat, baked beans and dairy.

Pies are also about to become more expensive because of the increased cost of ingredients like vegetable oils, flour and wheat, Patties Foods CEO said.

Patties – owner of Four’N’Twenty pies, the nation’s biggest seller of meat pies, along with Herbert Adams and Nanna’s savoury pies – has put through price increases of between 6 per cent to 20 per cent across its product range as it tackles soaring input costs.

Not only are the prices of raw ingredients going up, so is transport as well as packaging.

Patties chief executive Paul Hitchcock said meat, flour, vegetable oils and starch costs had jumped, while fuel and shopping costs had also soared. He said some packaging costs had increased by 50 per cent.

“The magnitude of the cost increases has meant we’ve had to lift our prices across all of our product lines,” Mr Hitchcock said.

He said food producers across the board were being forced into similar price rises.

Nestle Australia which makes brands such as KitKat and Milo, said it also was forced to put up prices.

“The decision to increase prices is not one we take lightly but it’s no longer sustainable for Nestlé to maintain pricing at current levels,” a spokesperson said.

While rising inputs is clearly a negative, on the plus side the company is experiencing stronger demand as hospitality and sporting venues return to full capacity.

Mr Hitchcock said pies were viewed as good value by consumers even after price rises.

“We haven’t seen any drop-off in demand at this stage,” he said.

With the Australian Football League season starting, that would bring an extra spike in demand after two years of crowd restrictions at major venues such as the Melbourne Cricket Ground. “This is the first time in two years we’ll have normal crowds,” Mr Hitchcock said.

Patties makes about 45 per cent of its pie sales from sporting venues and convenience store channels, with 55 per cent from supermarkets.

Mr Gilbert said amid an inflationary environment consumers also may trade down to less premium cheaper products as they face other surging living costs like petrol.

For consumers food inflation, is as critical as rising fuel prices. While households in Australia have significant savings, wallets are beginning to feel the pinch at the bowser and at the shops.

Mr Gilbert said while trade for many consumer companies began to pick up post January hit with the omicron wave, now the pendulum appears to be swinging the other way due to the rising costs of living.

“Australia’s been a laggard versus offshore in terms of inflation. We’re probably running somewhere between three and six months behind the UK and the US. But it does look like this is now catching up with pace,” he said.

Mr Gilbert said household goods and apparel were at risk of being shunned by consumers in the second half of this calendar year on the back of higher petrol and grocery prices, likely higher interest rates and the Russian-Ukraine war all denting consumer confidence.


Extracted from AFR

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