Grocers price increases - much higher than inflation?

Food & Drink
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The recent Choice review of grocery store ice creams highlights what almost has to be cynical pricing strategies.

Bulla Murray Street Vanilla is shown as $7.90/l in the review.
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Woolies had it on display yesterday for $7.90/l ‘dropped’ price (note the ‘was’ price!)

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while Coles has a very special offer this week. Save $12? I suspect a problem here but not which is ‘the’ problem be it editing, pricing, or something else. Same 2 for $12 price in the store!

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edit: a few days later and another price rise disguised as a discount. I wonder how long the RRP stayed at $12 back when.

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62

It appears the producers might not be the cause?
Farmers struggling to keep lamb on Aussie plates -

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63

Should consumers now hope for our supermarkets and chain butchers to be overflowing with quality bargains?

How far have prices fallen?

Another source has mentioned a 50% fall in beef cattle prices and 37% fall for sheep.

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64

PhilT’s two well-made points give a reality check. For example, citing return on investment as a measure, and not outright profit (see CHOICE, Nov 2023, P20) would enable consumers to evaluate the true extent of any gouging. And the reward points–like the petrol, does the customer really get a reward? In my area Woolworths seem slow to lower petrol prices, but capable of reacting with the best speed when raising them. As PhilT says, “nothing is free …”

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65

Some say there is nothing to see.

There are several other running topics of similar interest. For the fresh food and produce markets, the power of the duopoly is frequently raised as a concern.

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66

It will be interesting to see if anything new comes from it. The supermarkets, well mainly Coles and Woollies, are subject of regular hearing and inquires.

The cynical side of me says the government is being hit in the polls from ‘cost of living pressures’. What a perfect time to have another inquiry.

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67

Whether Colesworths (and others) are exploiting the market remains arguable among some but the graziers have their own opinion. While prices for us remain up, their income is down. See you at the pub?

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Because the average punter in the pub has their thoughts, doesn’t mean it is right. The ABC a few months ago provided a good summary of why beef prices are higher than they should potentially be, and it isn’t the supermarket’s fault:

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It seems as usual there are differing views depending on one’s place in the ‘pecking order’ as well as ones economic viewpoints.

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12 posts were split to a new topic: What is a ‘Pub Test’?

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I am obviously not an advocate of classical liberalism nor are all governments. Profits are important to some and a fair society is important to others. How those competing interests are balanced, or not balanced, vary.

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Price ‘gouging’ is a beat-up. Does the following stats graph suggest such a thing?

Looks to me like a business that can balance costs vs revenue.

This Greens demanded Senate inquiry will show just how dopey politicians are, and how stupid they are to even talk about a hypothetical ‘pub test’ first invented some say by a certain John Howard as an Aussie version of the legal ‘reasonable person’ argument.

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82

Nothing to see here. The Greens and ALP can easily change the terms of reference for their inquiry to ignore any year of data. This is their prerogative to ensure the (political witch hunt) inquiry deflects attention from their own inadequacies.

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83

I can’t read your graph which is blocked by Statista, but group net profit is in any case not the relevant measure. More relevant is the EBIT (earnings before income and tax) or operating margin applying to the Australian supermarket business, and that tells a very different story. The question remains, why, in tough times, have the supermarkets increased their margins substantially? The answer is that high inflation gave them cover for increasing prices that could not be noticed so easily by consumers, who were discombobulated (from their usual pricing comparisons) by prices constantly changing due to that inflation. In any ‘fair’ world, the supermarkets would have born their share of the pain and decreased margins, not increased them to record levels.

From The Guardian (my emphases):

But it was the near 20% rise in earnings flowing from its Australian supermarkets that may grab the attention of policymakers – and shoppers – as parliament and unions start to scrutinise the sector’s pricing decisions through a series of inquiries concerned with living costs.

Woolworths’ financial results show it has used the pandemic and inflationary period to not just sell more goods but also increase the profit from sales, ultimately paid for by shoppers.

The sector’s preferred gauge of profitability, known as operating margins, spiked at Woolworths from 5.3% to 6% during the financial year for its Australian food division.

This is the highest margin for the groceries division recorded at Woolworths, according to analysis over the past decade when its previous high-margin liquor business is stripped out of calculations.

Woolworths now enjoys double the margins recorded by some peers in more competitive markets, such as UK chain Sainsbury’s.

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It was included in this post:

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85

I can see the graph clearly in my post. Not sure why you can’t @JMR

That would be a very interesting metric. Probably you mean interest, not income.

In any case, EBIT does not really tell the full story of the costs of running the business.

Those have all risen too you know, and affect a big business just as it affects everyone.

A look at the Woolies annual report shows just how much the costs have risen.

86

Yes, interest, thanks. See reply to phb below.

87

OK, but the point is that NPAT is not the relevant metric. EBIT, or operating profit (proportional to the EBIT margin), is the measure that is relevant to discussions about whether a business may have increased prices or not. NPAT is distorted by tax and other financial movements, which, as well as being susceptible to manipulation, does not necessarily tell the situation regarding margins. In Woolworths case, the operating profit clearly shows that margins have increased at a time when its customers were being hurt by rising prices, and that their prices have risen more than their input costs i.e. they have added to inflation.

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88

While you may not think so (I also agree which has been mentioned in the community), this is the measure which caused hysteria within the media, political system and even by Choice by awarding the Shonky:

Woolies arguably was the worst of the pair, with the group announcing a $1.62 billion profit in August, in a year when Australians are truly doing it tough. Over at Coles, the group posted a slightly more modest $1.1 billion profit. Anecdotally, many shoppers feel as though they’re paying more for less…Coles and Woolworths have both recorded over a billion dollars in profits this year and most people feel like they’re being fleeced,

This is why NPAT was the subject of discussion. This metric was used as it serves a political purpose and allows critics to ignore those businesses which higher ratios for most of the other metrics (such as Aldi). If say Gross Profit or EDIT was used, Aldi is a worse offender than Coles/Woolworths. As Aldi total profit in $ is modest compared to Coles/Woolworths, the focus has been on NPAT because it suits the political agenda.

Different metrics in financial reporting have different roles for determining the financial status of a business. Using one, without understanding others or focusing on one without looking at the background or influences the metrics is highly misleading.

Also, comparing what happens in foreign markets is also misleading. Australian supermarkets operate in a environment where a lot of factors which affect metrics which are different. Examples being wages, energy costs (heating and cooling in particular), product origins, subsidies, competition and the list goes on.

Anyone who has been fortunate to travel to other countries has seen that some OECD countries shelf food prices are generally significantly higher than Australia (such UK and western Europe for example), with others again some categories higher (such as US, eastern Europe) and some generally lower (such as Asia). Australia doesn’t have the highest shelf pricing. Our own travels possibly suggest that a country like Switzerland or UK are expensive to that which exists here. It is worth noting that UK supermarkets prices are generally higher than Australia, they also operate with a lower EBIT/NPAT percentages.

Australian and foreign shelf prices and business financials are very dependent on the local operating environment. Selectively using one metric or comparing with other foreign markets without qualification is disingenuous.

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I have not seen anything yet that establishes that the increase is anything out of the ordinary.

At the risk of throwing more figures up in the air the Woolies EBIT margin for last financial year was the lowest in fives years. From their five year summary:

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Perhaps an accountant used to delving into this kind of story could advise which numbers need to be examined to understand whether their profits really are much higher and why.

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