Price squeeze for retail giant Woolworths

Jane Harper
Herald Sun
March 02, 2012

WOOLWORTHS’ food and liquor sales are growing at a slower pace than inflation, laying bare the impact of aggressive competition in the supermarket industry.

The retailing behemoth says prices for a string of lines fell in the six months to December, while sales only crept higher.

Unveiling a sharp slide in the group’s first-half profit yesterday, chief Grant O’Brien said food and liquor sales grew just 1.5 per cent on a like-for-like basis, stripping out the impact of new stores.

Average prices across food and liquor dropped 3.7 per cent, compared with the same period a year earlier.

Prices for some fresh produce lines fell at a double-digit rate in December, the company said.

Mr O’Brien declined to reveal how much of the price falls were driven by aggressive discounting to keep pace with rival Coles.

“We have been investing in prices for as long as we have had the doors open at Woolworths,” he said. “The deflation at the moment is made up of a number of factors.”

Analysts said prices could continue to drop for several years as Coles outpaced Woolworths in sales growth.

“We are not at ridiculous discounting levels yet, but we might get there if Coles continues to be aggressive,” City Index chief market analyst Peter Esho said.

“Discounting at Woolworths has definitely had an impact on the company’s … sales growth and it’s a reflection of Coles becoming more competitive.”

Woolworths’ revealed that its profit had tumbled 16.8 per cent in the six months to December, dragged down by the $300 million cost to restructure its Dick Smith electronics chain.

Mr O’Brien said he expected trading conditions to remain challenging in the year ahead.

The Reserve Bank’s consecutive interest rate cuts last year had made no discernible difference to sales, he said. “I’m a big supporter of rate cuts, but there’s no evidence it’s led to increased retail spending in our stores.”

Woolworths said the sale process of Dick Smith was underway with “pleasing interest” from prospective buyers. The company also opened seven of its new Masters big box hardware stores during the six-month period.

Woolworths’ share price closed down 1c at $25.30.