Woolworths: Rising Costs Drive Value Search

Woolworths’ CEO, Brad Banducci, highlights that amidst escalating living costs, younger families, individuals, and partners continue to prioritise getting their money’s worth, causing sales to dip in non-essential sectors within the supermarket and Big W chain.

The financial strain on specific consumer groups is intensifying, especially as the ripple effects of past year’s interest rate increases contribute to higher mortgage payments. Even with a slight ease in grocery inflation during the first quarter, the rampant inflation makes customers more cautious about their purchases.

This growing strain on buyers is yet to reach its peak. Banducci’s insights came during the company’s recent quarterly sales report, wherein the prospect of an interest rate surge by Melbourne Cup Day was bolstered by the rapid rise in fuel costs, rent, and electricity, spurring on inflation.

Recent statistics reveal a jump in inflation to 1.2% in the September quarter, up from 0.8% in the previous quarter. Despite a reduction in costs for fruits, vegetables, and meat, consumers are feeling the pinch in their weekly expenditures elsewhere.

Banducci noted a shift towards thriftier spending habits among consumers, evidenced by sluggish sales of higher-priced items like elaborate Halloween costumes, while more affordable everyday commodities such as chocolates and small snacks are selling well. Nonetheless, Banducci maintains a positive outlook for the upcoming vital Christmas season, recognising that customers are being selective, balancing their purchases with their financial constraints.

“Every segment of our customer base is in search of value, reflecting the current market’s extreme price sensitivity,” he explained.

With Christmas still over two months away, Banducci expresses confidence in the appeal of Woolworths’ value, especially their in-house brand products, to these budget-conscious shoppers during the festive season.

Additionally, Banducci revealed Woolworths’ intention to back the Endeavour board’s guidance at the imminent Annual General Meeting, using its 9.1% share to oppose the appointment of the dissenting director nominee, Bill Wavish.

“Our vote upholds the Endeavour board’s advice, endorsing Endeavour Group’s leadership and their strategy for sustaining shareholder value in the long term,” stated Banducci.

This stance makes Wavish’s election to the board highly unlikely, despite backing from significant shareholder Bruce Mathieson Snr. Similarly, AustralianSuper is anticipated to oppose Wavish’s candidacy.

In other developments, Woolworths announced a first-quarter sales total of $17.22 billion, a 5.3% increase, slightly falling short of the expected 5.5% growth. The supermarket sector experienced a welcome slackening in inflation, partially due to reduced fruit, vegetable, and meat prices.

Despite a persistent focus on value among customers, which has impacted Woolworths’ perceived price competitiveness, the company’s sales remained robust during the quarter. This emphasis on value has also seen a rise in the popularity of more affordable in-house brands.

Meanwhile, Woolworths is navigating the pre-Christmas season with strategies aligned to the continued frugality of shoppers, amidst unpredictable market conditions and ongoing focus on affordability.

Within its mainstay Australian supermarkets, there was a 6.4% sales boost to $13.08 billion, attributed to sustained growth over the quarter, with substantial increases in produce and meat categories, thanks to price drops and better availability.

E-commerce figures showed a promising rise, while Big W experienced a downturn. The New Zealand segment faces challenges, including aggressive market competition and a tough economic climate, predicting lower earnings for the first half relative to the latter half of 2023.

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