Waiting for the other shoe to drop: Woolies and Coles will lose even if profits rise

In the battle of the supermarkets, investors have clearly declared Coles a winner over Woolworths. But in the bigger contest for the hearts of consumers, both are losers. Fairly or not, they are blamed for much of the pain of the cost-of-living crisis.

And both know that this is about to get worse, because on Friday, the Competition and Consumer Commission hands the government the result of its year-long inquiry into the supermarket sector pricing.

Supermarkets are bracing themselves for the ACCC pricing inquiry to land.Credit: Getty Images

Any hint that supermarket prices have gone up faster than the prices Coles and Woolworths paid to their suppliers will be seized upon as a treacherous betrayal of customers.

The consumer watchdog has already taken the two big supermarkets to court for what it claimed were illusionary, or fake, discounts on a range of products.

That legal action was the first shoe to drop. The other shoe now dangles above the heads of the two supermarket chains’ bosses – Woolworths’ Amanda Bardwell and Coles’ Leah Weckert.

Canberra hasn’t said when it will release the ACCC report. And the extent to which the government and the opposition will weaponise it against the supermarkets depends on what’s in it.

If the ACCC finds that the grocery giants have raised prices beyond what they have paid suppliers, it will take some deft corporate public relations explaining.

For almost a year, the fiercest competition in town has been between the political parties for the prize of who can bludgeon supermarkets harder.

If the ACCC finds that the grocery giants have raised prices beyond what they have paid suppliers, it will take some deft corporate public relations explaining.

The trouble is, the public doesn’t really care that the two companies may have experienced higher costs in other areas such as labour, theft (they call it loss), power supply, or even depreciation.

Nor does the public give a toss that food inflation at both big supermarket chains has been benign for a year.

All shoppers understand is that their wallets seem lighter these days after they pass through the checkout.

This is understandable. What both supermarkets’ bosses have highlighted this week in their half-yearly results is that a new value-conscious and brand-promiscuous consumer has emerged, particularly over the past nine months.

Supermarkets are selling non-discretionary items, but their own brands – “Coles” or “Woolworths” – are discretionary.

Customers are shopping around, particularly for those expensive non-food items such as personal care and cleaning products, where they will happily supplement their weekly haul with goods from Amazon, Chemist Warehouse or Costco.

While customers may experience a certain sameness about the two supermarket chains, the investor experience has been entirely different.

Woolworths has had a particularly difficult year, which began when its previous chief executive, Brad Banducci, delivered a clumsy baton pass to his successor, Bardwell, whose job has included being hauled in by the consumer watchdog to give evidence before its supermarket inquiry and navigating a damaging industrial dispute, which resulted in stock shortages that wiped its supermarket shelves bare and cost profits.

On Wednesday, Bardwell delivered an underwhelming December half-year result that included a fall in earnings from the group’s marquee division, its Australian supermarkets, and a diabolical 46 per cent fall in profits from Big W.

(In comparison, Big W’s competitor Kmart delivered a 7 per cent improvement in profit over the same period.)

Over at Coles, the mood was more upbeat as chief executive Weckert capitalised on Woolworths’ own goal to pick up a bit of extra sales and profit. She was rewarded with a 5 per cent share price rise.

Given there is no tolerance for either supermarket chain to raise prices and competition is intense, the strategy from both companies has been to reduce their costs to protect profits.

Weckert has been managing this well, where Bardwell, who seems more reactive, has announced a cost-out drive and a review of all the company’s assets.

But there are choppy times ahead for both of them.

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