Daily Management Review

Aussie Grocers Will Make Positive Profits Due To Persistent Inflation; Consumer Behaviour Is Crucial


Aussie Grocers Will Make Positive Profits Due To Persistent Inflation; Consumer Behaviour Is Crucial
Australian supermarkets are expected to post higher full-year profits as decades-high inflation supported shelf pricing; but, economists say that the outlook on consumer behaviour in light of increased borrowing costs and expenses will be crucial.
According to expert projections, major grocery chains Woolworths Group and Coles Group will report increased yearly profits as consumers choose to minimise money amid rising living expenses by forgoing out-of-home consumption.
"Our channel checks and pricing study suggest COL & WOW have been lifting shelf prices by more than the wholesale price increases they are accepting. We expect this will be reflected in higher gross margins," Jefferies analysts wrote in a note.
Two-thirds of Australian groceries are sold by Coles and Woolworths, which are regarded as leading indicators of consumer trends.
"While the big supermarket chains are doing well in this era of high inflation, discretionary retailers are finding the going much tougher as consumers are forced to be more selective about their spending," said Tim Waterer, chief market analyst at KCM Trade.
Since May of last year, interest rates in Australia have increased by 400 basis points, adding hundreds of dollars to monthly mortgage repayments and slowing consumer spending.
In June, retail sales in the nation fell the most this year.
Analysts predict that the budget department store Kmart will continue to profit from growing inflation for the retail giant Wesfarmers, whilst sales at hardware retailer Bunnings, which have long been a major source of the company's profits, are predicted to be dropping.
According to Refinitiv data, Coles, which will announce its annual results on Tuesday, is anticipated to generate net profit after tax (NPAT) of A$1.11 billion, up from A$1.05 billion the previous year.
Woolworths' full-year NPAT is predicted to increase from A$1.51 billion to A$1.74 billion, while Wesfarmers' is predicted to increase from A$2.35 billion to A$2.47 billion.
Wesfarmers and Woolworths both release their annual results on August 25 and 23, respectively.
"Given the slowing consumer, trading to start fiscal 2024 is the key area of focus, even if the second half of fiscal 2023 has been better than expected," UBS analysts wrote.
They continued by saying that while rising operating costs are a challenge for retailers, attention will be paid to how these costs are controlled.