Woolworths is balancing the pressure of higher meat and shipping costs

Woolworths says it’s playing a balancing act in trying to deal with higher costs in areas like shipping and not lifting prices for shopppers.

Woolworths Managing Director, Natalie Davis, speaking at the Global Food Forum held in Sydney on Tuesday 1 June, 2021. Picture: Nikki Short

Woolworths supermarkets boss Natalie Davis said the retail major was “playing a balancing act” between managing cost pressures flowing from its suppliers and delivering value to shoppers in the face of creeping inflation caused by steeper shipping costs and higher commodity prices such as meat.

Ms Davis told The Australian’s Global Food Forum in Sydney on Tuesday that food and grocery inflation was particularly apparent in meat as farmers rebuilt their herds following the recent drought but that this was being moderated by bountiful fruit and vegetable crops and no acute problems securing fruit pickers despite Australia’s borders closed.

The Woolworths executive said inflation was currently “relatively stable” but there was pressure coming from shipping and livestock.

“I‘d say that the two areas that people are talking about is shipping freight costs. And then obviously red meat costs have been increasing as farmers rebuild their herds after the drought,” Ms Davis said.

“But then in fruit and veg, that is being maintained.”

The challenge for the nation’s largest supermarket was then to balance those cost pressures while remaining price competitive.

“I think the outlook is highly uncertain. And that‘s the balancing act that we play as retailers to manage those genuine cost pressures our supply partners are facing with the value that our customers are seeking.

“On the other hand, in fruit and veg, we’ve had quite a lot of deflation since February, we’ve had bountiful stock. We haven’t had too many issues with labour shortages for picking.

“So we’ve been able to offer great value on fruit and veg, whether that’s broccoli or tomatoes and avocados. At the moment, there’s a fantastic crop.”

Ms Davis credited the Covid-19 pandemic for increased sales in baking supplies and the rising popularity of convenience products such as ready made meals, as well as an uptick in online shopping.

Ms Davis said the uncertainty created by multiple lockdown across the country that left Australians looking to the kitchen to fill their days, had changed consumer habits and pushed sales for flour, sugar and spices 15 per cent higher than pre-pandemic levels.

“We had a sourdough phenomenon happening both in Australia and New Zealand and lots of home cooking happening last year,” she said.

“And it’s come off the very heights of panic buying and lockdowns, but we still are seeing elevated levels of purchases of flour and spices and sugar, that’s 15 per cent up on pre-pandemic times.

“So that desire to cook at home and entertain is still there.”

In one of her first interviews since leaving New Zealand earlier this year, Ms Davis said that consumers, used to cooking at home after the hospitality sector faced extensive interruptions last year, were increasingly looking for small “luxury” products at the supermarket.

“People are treating themselves on the weekend and you can see people trading up with lots of seafood, a lot of meat like our premium cuts like grass fed steak, roasts,” she said.

“When people are at home they’re looking for those affordable little luxuries and celebrating Australian produce, which is fantastic.”

Ms Davis said foods designed for convenience, such as ready made meals and pre-prepared meal kits had also remained popular among consumers.

“Especially midweek not everyone wants to cook incredible meals everyday, so little short cuts are incredibly popular with our customers,” she said.

“So we have a cook range where you put something in the oven, beef Wellington or a simple stir fry where you just throw everything together.”

Ms Davis also noted a shift towards online ordering and picking up, after the sector moved to contactless pick up last year with Woolworths staff placing grocery orders directly into car boots across the country.

“We‘ve seen a real shift in Australia over the last year,” she said.

“It used to be if you were picking up from our service desk the team would go out the back and get your order.

“We’ve now got about 600 stores across Australia where we have direct pick up service, where mums pull up with the kids in the back and she pulls up the team comes up and puts it in the back, and away she goes. When I talk to those mums they’re incredibly grateful.

“We think about convenience as an urban thing, busy people in Sydney and all that, but one of our most popular pick up stores is Dubbo.

“Farmers and people in rural communities, they’ll do a massive order online and drive into town and pick that up.”