Specials back at Woolies as consumers chill

Woolworths is detecting a moderation in the explosive sales it witnessed through March.

After widespread panic-buying in March, Woolworths stores are returning to normal. Picture: llas Kilponen

Woolworths is detecting a moderation in the explosive sales it witnessed through March when frenetic shoppers stripped the shelves of toilet paper, pasta and hand sanitiser, and has informed its grocery suppliers to prepare for a return to discounting as the supermarket giant increases its promotional activity.

Accompanying the return to normal promotional cycles, Woolworths is also bringing back its popular printed catalogues, which were placed on hold along with weekly discounts during the worst of the panic buying, so as not to encourage overstocking by consumers.

The rush of customers filling their trolleys over March saw Woolworths, and to a lesser extent Coles, pull back on promotions. When combined with a massive uplift in sales, on par with the volumes booked at Christmas, that move helped give the supermarket sector a healthy boost to its profit margins.

The size and scope of that weight of shoppers cramming groceries in their trolleys and shopping baskets was reflected in recent releases of retail sales by the Australian Bureau of Statistics that showed non-discretionary grocery spending increasing by a record 9.4 per cent in February this year compared with February last year. Woolworths, Coles, Aldi and the independent supermarket chains were the major beneficiaries of that spending boost. On Wednesday the ABS reported that Australian total retail turnover rose 8.2 per cent in March, seasonally adjusted, a record gain.

For Woolworths and Coles the past few months have been the best of times for sales. The ABS said spending in supermarkets surged 22 per cent for March as sales of toilet paper, tissues, pasta, flour and rice doubled versus the previous month.

But now the flood of supermarket sales triggered by the pandemic is turning into more of a manageable gusher, prompting Woolworths to reach out to its grocery suppliers and kickstart the new wave of promotions and discounts.

Woolworths says promotions are back on the menu. Picture: Dallas Kilponen

In a letter from Woolworths director of buying Peter McNamara and director of fresh, Paul Harker, obtained by The Australian, the supermarket executive duo said normal trading conditions were returning with the retailer recording a recent moder­ation in sales. This meant promotions were back on the menu.

“Although we continue to focus on the challenges brought by COVID-19, wherever possible, we are returning to ‘business as usual’ with you so that we can better service our mutual customers.

“With supply and sales levels moderating across categories, from the week commencing April 20, 2020, trade partners can assume their planned promotional activity is proceeding as originally intended unless they have been individually contacted to discuss any changes,’’ the Woolworths executives told suppliers.

Last month Woolworths was forced to shelve its highly popular weekly printed catalogue, a decision mirrored by most of the leading supermarket chains, and shift its limited promotions to digital but now catalogues were returning as the panic buying trailed off.

Mr McNamara told The Australian the retailer appreciated the need to offer competitive pricing to customers, especially amid the current economic turmoil.

“We understand the uncertainty facing households right now and continue to focus on offering quality food and groceries to our customers at competitive prices, especially on everyday essentials,’’ he said.

But now that the panic buying was starting to slow and shelves were being restocked it was time to reintroduce promotions.

The resumption of normal promotional and discounting offers, both in terms of depth and breadth across categories, could take the heat out of the super-premium margins Woolworths and other supermarkets had been enjoying as shopping volumes spiked in March.

E&P analyst Phil Kimber said: “With respect to gross margins, we note that in the current environment promotional intensity has reduced — why would suppliers promote when demand is so strong and some supply is limited?

UBS analyst Ben Gilbert noted that during the peak buying spree there was a return to “rational pricing” by supermarkets, industry promotions were reduced and “retailers focused on getting stock on to shelves”.