More pain at the supermarket checkout looms as a flurry of food and grocery suppliers demand prices hikes, which could trigger a new inflation breakout.
Unprecedented levels of food and grocery suppliers are begging the supermarket giants for price increases, which is in turn feeding soaring food inflation at the checkout.
As a result, Woolworths has substantially beefed up its commercial teams to deal with rising supplier price hike requests.
And the nation’s biggest supermarket chain expects to add further to those teams as supplier price increase requests flood its commercial departments.
Woolworths has confirmed to The Australian that the volumes of suppliers now approaching it to raise prices to counter the skyrocketing cost of doing business is running at five times previous levels with some food and grocery manufacturers coming back for a third time with new price requests.
Such is the rampant inflation running through the Australian economy, and in particular for the $133bn food and grocery manufacturing industry, that suppliers asking for a price hike because of a blow out in shipping or energy costs soon return for new price rise pleas because of a new jump in another input cost like ingredients or transport.
The ability for Australia’s two leading supermarket chains, Woolworths and Coles, to balance the demands of suppliers to lift prices with the interests of its own shareholders to maintain profit margins while also keeping prices down to help shoppers stretch their household budgets will play out over the coming months.
It is also emerging as a key driver of inflation that has already tipped over 5 per cent and could continue to accelerate this year as the cost of everyday food and grocery items soars to reflect the sharply rising cost of key agricultural commodities, energy, labour costs and energy prices.
A trickle of petitions from suppliers for price rises last year has now turned into a flood, with Woolworths revealing it has had to shift more staff into its commercial division to deal with the rapid and rising volumes of contacts from suppliers desperately seeking some price relief.
“In recent months, we have received five times as many requests for price increases from suppliers than usual,” a Woolworths spokesman said.
“In some cases, suppliers are coming in for second and third pricing requests given the volatility they are experiencing from a range of factors including transport and raw material cost increases.
“As a result we have substantially increased the size of the team who manage these requests. We always seek to fairly and reasonably balance the interests of suppliers and provide good value for our customers.”
Woolworths chief executive Brad Banducci wrote on Monday to the independent reviewer of the supermarket sector’s Food and Grocery Code of Conduct, Chris Leptos, he detailed the high levels of supplier engagements the supermarket giant was now dealing with.
“We have added capacity to our Commercial team to help us work through the elevated volumes of cost increase requests in a timely manner, with more to be added,” Mr Banducci said in the letter.
Mr Banducci also pledged to improve its process for reviewing cost price increase requests.
“We are acutely aware of the feedback from suppliers on the ease of use of our Partner Hub portal and have an active program to improve the stability and usability of the system,” he told Mr Leptos.
Its rival Coles is experiencing similarly high levels of price increase requests from its suppliers and is also working on reviewing its supplier pricing processes.
Earlier this month at The Australian’s Global Food Forum, Coles chief executive Steven Cain revealed that the number of grocery suppliers knocking on his door petitioning for price rises was up five times compared to last year.
“As I sit here today, we have got five times as many requests for price increases as we had last year. Five times,” Mr Cain told the Global Food Forum.
“And they’re not small amounts. It’s not 2 per cent or 3 per cent being asked for either so there is, you know, the usual ‘pig in the python’ trying to work its way through the system, whether things plateau or whether they come down slowly remains to be seen.”
The cost of doing business for food and grocery manufacturers, ranging from ingredients and packaging to energy and labour, is injecting fresh waves of inflation into the economy which is now washing up into supermarkets shelves and the checkout.
A recent survey of supermarket prices by investment bank UBS showed that at Woolworths inflation was running at 4.3 per cent over the third quarter, more than triple from just 1.4 per cent in the second quarter. At Coles, March quarter inflation was running at 3.2 per cent, up from 1 per cent in the previous quarter.
Australian Bureau of Statistics data for March quarter inflation reported grocery inflation had hit 5.3 per cent, which contributed to the breakaway overall inflation rate that ultimately began the current cycle of interest rate tightening by the Reserve Bank.
Woolworths is valued at $42.62bn, based on its share price of $35.10 on the ASX. Cole has a market value of $23.56bn as its shares hover around $17.64.
Extracted from The Australian