Woolies have warned Australians they could be paying even more for their groceries this year as producers and suppliers are slammed by surging costs, thanks to the US-Iran war oil shock.
Woolworths Group on Thursday released its sales figures for the March quarter, showing a 4.5 per cent jump to $18.1bn, across its supermarkets and discount general retailer Big W.
But chief executive Amanda Bardwell warned more acute effects of the ongoing US-Israel war against Iran, which began on February 28, would continue to wash through during the year.
The cost of trucking has risen by 9.2 per cent in that time, while the price of petrol is up 32 per cent, figures released by the Australian Bureau of Statistics on Wednesday showed – the sharpest increase in history.
“We’re already seeing some cost increases flowing through to fruit and vegetables, milk and bread,” Ms Bardwell said.
“Farmers are particularly exposed to fuel and fertiliser prices. As those input costs persist, grocery products will come under further pressure.”
Woolies on Thursday also announced a three-month price freeze on 300 everyday items, including Woolworths brands of hot roast chicken, soft bread range, chicken breast fillets, sausages, past and nappies.
Suppliers under pressure
Ms Bardwell later told reporters the “first wave” of requests for price increases was coming through from milk and bread suppliers.
She said bread supply chains were some of the largest in the country, with multiple deliveries per day incurring largely increasing fuel bills.
And with fruit and vegetables, suppliers of items that needed refrigerated trucks – such as berries – were pushing for higher prices on supermarket shelves.
With farmers planting fewer winter crops because of a lack of fertiliser and huge diesel bills on farms, Ms Bardwell said fruit and vegetable suppliers were paid weekly because of their high cashflow needs.
She said Woolworths would do what it could to contain prices.
“It’s going to be our role to provide lower shelf prices to our customers … alongside recognising the supply challenges to our suppliers,” she said.
Following the current price increase requests from fruit and vegetable farmers, bakers and dairy farmers, she flagged price increases in grocery items over the coming three to 12 months.
Woolworths’ own fuel cost increases for its fleet of thousands trucks is likely to rise $15m-$20m, she said.
The supermarket giant is a major user of plastics. Plastics providers are saying they expect costs to go up given the oil crisis in the next few months, but at the moment the suppliers have adequate plastic stocks.
‘Public annoyance’
Stake senior analyst Kylie Purcell said Woolworths’ growth was being driven by sales volume, not price.
“We’re seeing shoppers become more deliberate rather than simply spending less, they’re buying more items per basket, engaging with more promotions and leaning heavily into loyalty programs,” she told NewsWire.
“For everyday shoppers already feeling the pinch from higher interest rates and fuel costs, strong sales figures from the supermarket giants are unlikely to win any popularity contests”.
Echoing comments from the Woolworths chief executive, Ms Purcell said the Middle East conflict had not yet affected sales numbers.
“The next few months will give a better picture of whether Woolworths is forced to absorb more of those costs,” she said.
“The timing of today’s price freeze on 300 staples is telling, but is unlikely to completely ease public annoyance.”
Three-month price freeze
The “customer caution” flagged in Wednesday’s results was a sign shoppers were under “peak stress” at the moment, Ms Bardwell said.
Woolworths is even seeing regional shoppers turn to deliveries more, rather than driving the further relative distances to the shops.
The price freeze will come into effect from Friday.
“The conflict in the Middle East has brought a new wave of uncertainty, and we’re hearing from our customers that they’re worried about what it means for their household budget,” Ms Bardwell said.
“While we don’t know how long these challenges will last, or what the full impact of higher costs will be on our customers’ favourite products, we know a little certainty can go a long way.
“We’ll invest to absorb any extra costs that are agreed with suppliers on these products to make that happen.”
Along with freezing prices on 300 items, Woolworths has been trying to market itself as willing to absorb price rises sparked by an oil crisis emanating from Iran.
The consumer watchdog is suing Woolworths over allegedly false promotional prices, in court hearings which are scheduled to finish on Friday.
Ms Bardwell was asked “if this is a crisis Woolies doesn’t want to waste” in rebuilding customer trust.
“Clearly, as you said, we’ve got a real opportunity to continue to improve the trust our customers have with us,” she said.
“This is a moment where we recognise our customers are under immense household strain because of their budgets.
“The last inflationary cycle, we could have done things better … we’re committed to doing things better.”
She added Woolworths had posted nine quarters in a row where average prices had decreased.
Asked if shareholders were being left out of these results, Ms Bardwell said the priority was to maintain its long-term customer base.
The chief executive would not put a number on expected food inflation for the remainder of the year.
Breakdown of sales
In a three-month span where Woolworths closed one supermarket and one smaller Metro outlet, Australian food sales rose 5.9 per cent to $13.8bn.
But average prices at the company’s Australian food businesses fell 1 per cent – excluding tobacco.
The company notes lower prices for home essentials, fruit and snacks driving the average price fall, “somewhat offset by ongoing cost pressures” for meat.
Fresh food sales rose 8 per cent, with “double-digit” growth for meat and seafood.
The financial results note “some signs of increased customer caution” weighing on sales figures.
Woolworths is also downgrading its Australian food retail earnings growth forecast to “the mid to high single-digit range but no longer at the upper end of the range”.
Some 400,000 more Australians have signed up for Woolworths’ loyalty program over the past 12 months.
Tobacco sales have plummeted 42 per cent over the past year.
The update comes one day after the latest inflation figures showed costs across the economy had risen to 4.6 per cent in the past year.
The ABS says transport, housing and then food and non-alcoholic beverages had been the main drivers.
Food inflation is running flat at 3.1 per cent in annual terms, and shot up 0.7 per cent from February to March but 0.4 per cent seasonally adjusted.
For the year to March, the nationwide figures show meat and seafood prices rose 4.8 per cent, driven by beef and veal (up 11.8 per cent) and lamb and goat rose 15.5 per cent on the back of strong overseas demand for Australian red meat.
Fruit and vegetable prices have risen 1.8 per cent in the year to March, mostly because of a 4.3 per cent spike in strawberries, blueberries and apples, the ABS data shows.
Snack and confectionery prices have also risen 5.7 per cent in the past year.
