Supermarket launches charm offensive for customers as shareholders take a hit
Shoppers at Woolworths may have struggled to understand the actual price cut, but shareholders suffered no visual impairment on Thursday and were quick to spot the slight profit drop included in the supermarket’s performance update.
They heard this loud and clear and immediately registered their protest; Even though Woolworths posted strong sales figures for the third quarter, they dropped its share price by almost 10 per cent.
For those who listened carefully to Woolworths boss Amanda Bardwell’s briefing on Thursday, a distinct rebuke to customers could be heard: an admission that the transparency of pricing leaves something to be desired in the post-COVID 2022 inflation surge.
That’s one way to express it. In its case against Woolworths (and a separate case against Coles), the competition regulator claims both supermarket groups misled customers with fake discounts.
Beyond these strong headline sales, Woolworths’ statement included a warning that profit figures for the half-year to 30 June 2026 would not be as high as previously forecast.
Of course, the supermarket is navigating the beginnings of the inflationary impact of the Iran war, as demands from its suppliers to raise prices are just beginning to come.
But the biggest contributor to the slowing growth in supermarket profits is Woolworths’ decision to invest in shelf prices; This will offset some of the higher costs from suppliers and shipping companies to keep some product prices low. It even froze the prices of 300 popular products for three months, including chicken breasts, eggs, nappies and pasta.
Woolworths is love-bombing its customers with a strategy to gain market share and increase loyalty, at least in the near term.
Woolworths’ core mantra is “trust”; This is something that is sorely needed after weeks of headlines about the Australian Competition and Consumer Commission’s (ACCC) loud message that the supermarket had recently abused customers’ trust by deceiving them on price. He accused Coles of the same behavior.
ACCC chairperson Gina Cass-Gottlieb may greet. The regulator may not win either case against the supermarkets, but the negative public relations it has created appears to have led to an internal investigation by Woolworths into transparency around pricing.
It’s a sign that the supermarket group is prepared to tip the balance to customers, to the detriment of shareholders in the short term.
What better time to build a better relationship with customers who are experiencing “peak stress,” according to Bardwell? The supermarket’s survey reveals almost half are struggling to pay their bills.
This is a cost of living crisis that Woolworths will not let go to waste.
Weekly household budgets have been hit by rising oil prices and two interest rate hikes this year, with another increase likely next month.
Bardwell says higher supplier prices are starting to trickle down but will increase in the current quarter through June 2026. In this wave, shoppers can expect to see price movement in fresh food and bread, given the higher shipping costs of delivering these categories. (Products with higher delivery frequency or requiring refrigeration have higher shipping costs).
Shareholders should be pleased that Woolworth’s latest price investment moves have delivered results for the March quarter, with the Australian food sector increasing sales by 5.9 per cent in a stronger result than analysts expected.
And earnings growth for the June 2026 half will still be in the mid-to-high single digits. but not at the upper limit.
How the rest of the year plays out will depend largely on the course of the US-Iran war and when the Strait of Hormuz, the Middle Eastern waterway used to transport vital oil supplies, will be opened to ships.
Until then, Woolworths can count itself among the growing list of Australian companies that have downgraded their profits.
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