Woolworths reveals strong sales growth for its private label groceries

The retail giant is seeing more of its shoppers grab cheaper private label groceries to combat cost of living pressures, with some ‘own brand’ groceries jumping 20 per cent.

Woolworths boss Brad Banducci has reflected on household budgets straining under the weight of soaring interest rates, rents and other cost of living expenses to divulge he shares the frustration of his shoppers who continue to see stubbornly high food and grocery inflation in the aisles.

While overall food inflation had started to moderate from its peaks of almost 10 per cent a number of supermarket categories still experiencing strong price growth such as chilled dairy, bread and pet foods. Customers continue to fill their baskets and trolleys with cheaper private label groceries to save money at the checkout.

“Looking ahead, we are seeing signs of overall inflation moderate in food. However, in many areas inflation remains frustratingly elevated and we need to continue to work hard to provide our customers with great value across their shopping basket,” Mr Banducci said on Tuesday as Woolworths issued its March quarter sales update.

“And I use the word frustrating just in the context of our customers. We are very cognisant of the pressure they are under and our need to deliver value.”

“In general, customer spending is stable. However, value-conscious customers are becoming more thoughtful about their discretionary spend, trading into more affordable options such as our own brands and looking for additional ways to save in store or through our digital, rewards and e-commerce platforms.”

Woolworths said that for the third quarter total sales across its group – which takes in Australian and New Zealand supermarkets, its online and digital arms, business-to-business food services and Big W – rose 8 per cent to $16.34bn.

At its flagship Australian supermarket arm sales rose 7.6 per cent to $12.3bn, Australian B2B food services sales rose 16.4 per cent to $1.16bn, New Zealand supermarket sales rose 7 per cent to $1.86bn and Big W sales lifted 5.7 per cent to $1.05bn.

The nation’s largest retailer released its third quarter trading results to show that average prices in the third quarter increased by 5.8 per cent compared to the prior year, with pantry food inflation driven by supplier cost price increases.

Improved fruit and vegetable growing conditions, lower livestock prices and the cycling of inflation in the prior year contributed to the moderation compared to the second quarter increase of 7.7 per cent.

Mr Banducci said soaring food and grocery inflation across the supermarket aisle has begun to soften, but some categories remained stubbornly elevated with shoppers also increasingly turning to cheaper private label groceries to relieve cost of living pressures.

The shift to private label or ‘home brand’ groceries was also a feature of the recent Coles sales performance, and the category is becoming a growing centre of sales for both supermarket chains as consumers look to save money in the face of steeper mortgages, rents and other living expenses.

Woolworths’ private label and exclusive brand sales grew 9.1 per cent in the March quarter, with strong growth in pantry and chilled dairy, both growing over 20 per cent, as customers traded into affordable own brand alternatives. At the other end of the spectrum, Macro Whole Foods Company grew at over 30 per cent in value-added fresh ranges.

Woolworths boss Brad Banducci says soaring food and grocery inflation across the supermarket aisle has begun to moderate. Picture: Dallas KIlponen

Mr Banducci said the retailer experienced solid sales growth across all of its businesses as customers remained concerned about the impact of ongoing inflation on household budgets.

Some supermarket categories were still stuck in an inflationary uplift, partly fuelled by international events and external circumstances as well as high commodity prices that are feeding into steeper shelf prices.

“There is still a lot of pressure in the chilled categories, in particular milk, cheese, butter. The farm gate milk prices are continuing to be relatively elevated, and so you see those categories still with a lot of inflation - underlying inflation within it.

“The same is true in bread, with grain where it is at the moment. Grain prices again continue to be relatively high. So, a lot of pressure when you get into bread. Then if I moved back into the rest of the store, really it becomes a category dependent scenario. Pets has been an area we have been very focused on providing value in ... there has been challenges on global pet foods.”

He said Woolworths’ current focus was on continuing to improve its customer experience, especially value for money and product availability.

E&P Financial retail analyst Phillip Kimber said the sales performance for Woolworths’ Australian and New Zealand supermarkets and its general merchandise chain Big W were above his expectations but the outperformance would not likely lead to analysts upping their consensus earnings forecasts.

“Third quarter sales results were above our expectations for the three key businesses, and Woolworths Australian food slightly outgrew key competitor Coles after being below for the past two quarters.

“At the store level, excluding online, Coles supermarkets slightly outgrew Woolworths. We don’t expect any change to consensus – and given the strong share price performance in the past month (up 7 per cent), whilst the third quarter sales result was good, it may not be enough to sustain the current share price in the short term.”