What Woolworths and Big W’s Starkly Different Results Tell Us About Australia’s Competition Problems
Australia’s supermarket sector is experiencing a paradoxical scenario where profit margins are at record levels despite a pervasive cost-of-living crisis. This unexpected profitability is evident in the earnings reports of major players like Woolworths and Coles. These results are particularly surprising given the common perception that consumers are aggressively seeking out the best deals to mitigate financial stress. The robust performance of supermarkets, energy companies, and banks suggests a significant lack of competition within these essential industries. This issue becomes even more apparent when examining the vastly different financial outcomes of Woolworths’ supermarket chain compared to its discount department store, Big W. As household expenses rise, consumers tend to cut back on discretionary spending, which usually impacts businesses operating in highly competitive markets. Retailers often need to lower prices to attract customers, leading to narrower profit margins. However, Big W, as a discount department store, appears to be less affected by this trend compared to other retailers.
Despite the expectation that customers would be on the lookout for the best deals for essentials such as groceries and insurance, supermarkets, energy retailers, and banks have all reported strong financial results with expanded profit margins. This phenomenon can be attributed to a lack of competition, with only a few major players dominating each industry. These sectors play a crucial role in driving up household costs and inflation. Both Woolworths and Coles have reported increased earnings and profit margins, with Woolworths attributing its success to improved efficiencies in online sales. Coles has also noted a reduction in theft as a cost-saving measure. However, these increased profit margins have not been shared with suppliers or customers, underscoring the lack of competitive forces in the market. Former competition watchdog Allan Fels has pointed out that there hasn’t been a price war between major supermarkets in years. Although competitors like Aldi and Costco have emerged, they do not offer a true alternative for customers’ weekly shopping needs.
This lack of genuine competition allows Woolworths and Coles to charge similar prices and expand their profit margins in unison. The success of these companies is reflected in their rising share prices, while customers continue to grapple with the high cost of living. This situation highlights the urgent need for more competition in essential goods sectors to benefit consumers. The current state of affairs suggests that the lack of competition in these industries is a major contributor to the ongoing cost-of-living crisis in Australia. More diverse and competitive options are needed to truly benefit customers and drive down prices. Australia’s top supermarket chains are expected to report constrained spending in their upcoming earnings, posing a challenge for companies like Woolworths and Coles. This is largely due to consumers dealing with high mortgage rates and inflation that remains above the central bank’s target range. Analysts warn that the results will reflect the prolonged cost-of-living crisis impacting these companies.
Woolworths and Coles are responsible for two-thirds of every dollar spent on groceries in Australia, making them important indicators of the wider economy. As consumers become more careful with their spending, choosing lower-priced items and staying at home more often, the economic outlook for these companies appears bleak. Kyle Rodda, a senior financial market analyst, believes that the economic outlook is unlikely to improve in the next 12 months due to the high rate environment. This softening demand is expected to be reflected in the companies’ earnings. Woolworths will report its annual results on August 28, while Coles will report on August 27. Analysts predict that Coles will fare better than Woolworths in their earnings. Coles has already stated that they expect more growth in volume after a strong third quarter, while Woolworths saw weaker food sales. Tim Waterer, the chief market analyst at KCM Trade, expects the profit margins of the big supermarket chains to be scrutinized due to ongoing cost-of-living pressures.
Jefferies analysts foresee Coles seeing growth in their underlying earnings margin due to initiatives to connect with customers. Meanwhile, Woolworths is expected to see a contraction in their underlying earnings margin due to increased business costs and investments in their supply chain. Jefferies estimates Coles’ net profit after tax for fiscal 2024 to come in at A$1.10 billion, slightly higher than the previous year. On the other hand, Woolworths may announce a special dividend from the sale of their stake in Endeavour Group alongside their annual results. Woolworths’ shares rose on Wednesday due to the company’s declaration of a special dividend and its reported drop in profit. The decline in profit was attributed to Woolworths’ decision to lower prices in order to compete with Coles. Woolworths’ stock reached its highest level in six months following the news. The company is facing challenges in key divisions due to inflation and operational costs. Intense competition has made it difficult for Woolworths to adapt to changing consumer trends.
The company has responded by cutting prices and passing on savings to customers. This has led to a slowdown in item growth and a decrease in sales momentum. For the fiscal year ending in June, Woolworths’ total group sales increased by 3.7% on a normalized basis. Outgoing CEO Brad Banducci expressed optimism for the future, citing improving customer scores, item growth, and lower inflation. However, he also acknowledged that customers are facing financial stress and expects the trading environment to remain challenging. Woolworths reported a 3% increase in sales for its Australian food division in the first eight weeks of the current fiscal year. This has closed the gap between Woolworths and Coles, alleviating concerns of a major decrease in performance. The company’s underlying net profit after tax for the year was in line with the consensus estimate. Woolworths also announced a final dividend and a special dividend for its shareholders.
The NFF Horticulture Council is calling for tighter government controls on supermarket practices. Major listed companies have announced annual profits, prompting the call for stricter regulations. Council chair Jolyon Burnett states that supermarkets prioritize profits despite a cost-of-living crisis. Suppliers are not receiving fair compensation despite supermarkets showing growth and success. The council has reached out to the federal treasurer about controlling how supermarkets trade fresh produce. The government should intervene to ensure affordable food and sustainability in the farming sector. The issue has become a political debate, with the Greens Party calling for the breakup of the corporate supermarket duopoly. The Greens criticize Labor for not reining in these corporate giants. Charity group Oxfam Australia is also advocating for taxing excessive profits of big corporations to address inequality in the country. Woolworths and Coles dominate the supermarket sector in Australia with a 65.5% market share.
The Allan Fels inquiry revealed that a lack of competition is driving up prices for consumers. Oxfam CEO Lyn Morgain points out the injustice of the supermarket duopoly’s profits while many Australians struggle to afford food. The government needs to take direct action to address the failures in the system that allow this situation to continue. While profits for Coles and Woolworths have slightly decreased, they are still high and concerning, especially amidst high food prices and a pandemic. Woolworths made $5.6 billion in crisis profits in 2021 and 2022. Oxfam is calling for a ‘crisis profits tax’ to discourage price gouging and provide funds for addressing inequality. The organization welcomes the Greens’ proposals for tax reform and reducing excessive corporate profits. The tax system needs to be fairer, and there should be more funding for public services. Australian tax loopholes for the mining industry and excess profits of big corporations should be closed. Bold proposals are needed to address inequality and excessive corporate profits in Australia.
Woolworths, a major grocery chain in Australia, saw a decrease in net profit for the 2024 fiscal year due to lowering prices to attract cost-conscious customers. Stripping out one-time items, the net profit dropped 0.6% to approximately 1.7 billion Australian dollars. The decline in net profit was more significant, at 93%, when including one-time items such as an impairment and a loss. Woolworths declared a final dividend of 57 Australian cents per share, slightly lower than the previous year. However, a special dividend of 40 Australian cents per share was also declared due to the company’s sale of a stake in a drinks company. The total payout for the fiscal year was increased to 144 cents per share, up from 104 in the prior year. The company noted its efforts to attract customers have been successful, with sales momentum improving in the last quarter and continuing into the 2025 fiscal year. In its Australian food business, sales increased by 3% in the first eight weeks of the 2025 fiscal year. New Zealand food sales also saw a 1.5% increase. Sales in the discount department store chain Big W were flat.
Some analysts had predicted a pessimistic outlook for the company, citing moderating food-price inflation and consumer concerns about cost of living. However, Woolworths’ main competitor, Coles, reported a net profit of 1.1 billion Australian dollars and raised its final dividend. Investors reacted positively to Coles’ results, with the company’s shares rising 1.7%. Woolworths’ net profit decline was attributed to the competitive market, with both companies facing scrutiny from politicians. Woolworths’ sales growth in the first weeks of the 2025 fiscal year suggests continued success in attracting customers. Coles’ positive results may have helped alleviate fears about the grocery market’s outlook. Some analysts had previously suggested Woolworths’ outlook may be too pessimistic. Coles’ strong performance and dividend increase may have influenced Woolworths’ decision to declare a special dividend. Investors were happy with Woolworths’ results, with Coles’ positive performance also contributing to this. The success of both companies in attracting customers and increasing sales suggests a strong and competitive grocery market in Australia.