Woolworths shoppers may have had trouble deciphering bona fide price discounting, but shareholders didn’t experience any vision impairment on Thursday, immediately registering the subtle profit downgrade contained in the supermarket’s performance update.
They heard it loud and clear and registered their protest immediately, slashing the share price by almost 10 per cent despite Woolworths posting a strong third quarter sales number.
For those listening hard to Thursday’s briefing from Woolworths’ boss, Amanda Bardwell, a distinct mea culpa to customers could be heard – an admission that the transparency of its pricing in the post-COVID 2022 inflationary spike left something to be desired.
That’s one way of putting it. The competition regulator is claiming in its legal action against Woolworths (and a separate case against Coles) that both supermarket groups misled shoppers with faux discounts.
Beyond those strong headline sales, the Woolworths statement contained a warning that the half-year profit numbers to June 30, 2026, were not going to land as high as previously anticipated.
Sure, the supermarket is navigating the beginning of the inflationary impact of the Iran war as demands from its suppliers to raise prices are just starting to trickle through.
But the larger contributor to a softening growth in supermarket profit is Woolworths’ decision to invest in shelf prices – it will absorb some higher costs from suppliers and transport companies to hold down some product prices. It has even introduced a three-month price freeze on 300 popular items, including chicken breasts, eggs, nappies and pasta.
Woolworths is love-bombing its customers in a strategy to win market share and improve loyalty – at least in the near term.
The central Woolworths mantra is “trust” – something that is sorely needed after weeks of headlines about the Australian Competition and Consumer Commission’s (ACCC) blaring message that the supermarket has a recent history of abusing its customers’ trust by deceiving them on pricing. It has accused Coles of the same conduct.
ACCC chair Gina Cass-Gottlieb can take a bow. The regulator may not win either case against the supermarkets, but the negative public relations it has generated seems to have prompted soul-searching from Woolworths about transparency around pricing.
It’s a sign that the supermarket group is prepared to tip the balance to customers at the short-term expense of shareholders.
And what better time to build a better relationship with customers who are experiencing “peak stress”, according to Bardwell, with the supermarket’s survey revealing that almost half are struggling to pay their bills.
This is a cost of living crisis that Woolworths isn’t letting to go to waste.
Weekly household budgets have been hit by higher petrol prices and two interest rate rises this year, with the spectre of another next month.
Bardwell says higher supplier prices are only beginning to creep in but will increase in the current quarter to June 2026. In this wave, shoppers can expect to see price movement on fresh foods and bread, given the higher transport costs of delivering these categories. (The items with higher delivery frequency or that require refrigeration have higher transportation costs).
Shareholders should be satisfied that Woolworth’s recent price investment forays have delivered results for the March quarter, with the Australian food business improving sales up 5.9 per cent – a stronger outcome than analysts were expecting.
And earnings growth for the June 2026 half will still be in the mid to high single digits. but not at the upper limit.
How the remainder of the year rolls out will largely depend on the course of the US-Iran war and when the Strait of Hormuz – the Middle Eastern waterway used to transport vital oil supply – will open to ships.
Until then, Woolworths can count itself among the growing membership of Australian companies that have announced profit downgrades.
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