The chart doesn’t include the 2022/23 financial year. These are the figures from the 2022/23 Annual Report:
The Woolworths Annual Report explains the change in EBIT resulted from:
The more stable operating environment, phase out of material COVID-related costs, and ongoing investment in recent years in Group platforms led to Group EBIT growth before significant items of 15.8%.
True, I couldn’t find that data in the same format. I don’t see the same statistic (EBIT margin) for '23 in the table you provided. I think it is 4.7% (ie Group EBIT*100/total group sales).
If that is right the EBIT margins for the last six years are (2018 to 2023):
4.5, 4.5, 4.7, 5.0, 4.4, 4.7
What is so unusual about the last figure?
Note the 5 year results do not include the latest FY 2023 financials, the current criticisms are reflective of. The short version of the 2023 Annual Report shows Group EBIT increased by approx 15% to $3.116B on a Group Sales increase of 5.7%. In it’s own right it’s a very substantial improvement. One many CFO’s would be proud of. Woolworths Aussie supermarkets make up approx 3/4 of Group Sales. The proportion they contribute to overall profits may be more or less.
Agree one needs to look beyond the summary data to truely understand the relative outcome. The 5 year data includes the contributions from the groups now divested hotel/gaming and liquor assets and sales proceeds. Whether the after tax profit matters more than EBIT, one would need to ask a shareholder. Although a bit like picking the winners lotto numbers, one could choose any days and get any answer one desires. The shares on the first day of FY2023 started at $35.73. Twelve months on at the start of the current FY2024 they were $39.87. Approx a 12% gain on the promise of a good year.
Note there are public listed companies which rarely turn a profit (corporate tax accounting is one of the few legal dark arts). They somehow survive with increasing share value and many happy investors.
The average consumer likely understands profit and is more receptive to its use than EBIT. One needs to understand gearing and debt in context, and to which portions of the Woolworths group they are most attributed.
There will be a flood of expert analysis - sometime in the near future of the Parliamentary inquiry into Woolworths and Coles price increases.
You might look to the relative improvements in what are fine margins.
Per @phb concurrent post sales of the Australian Food operations increased by 5%. Woolworths EBIT attributable to Australian Food operations improved by 19%. Slightly better than the overall group performance. How this significant improvement came about - needs a much greater depth of knowledge of the operation.
There are many explanations to this increase, some which could be considered reasonable, others unreasonable. They could include, but may or may not necessarily be the case:
The media has made allegations it is the first two only, without any evidence (taking a populistic view that a big profit means means it must be the case). Choice’s Shonky was awarded based on the second dot point, without any proof (Choice relied on a straw poll of consumers view on the net profit). Woolworths has come out with different reasons, but the keyboard jocks don’t believe them.
It is worth noting that Woolworths by law are required to be truthful in their financial reporting. The same principles don’t apply to others making allegations.
For clarity it is worth reading what Choice awarded the Shonky for, and what Choice did not comment beyond noting consumer sentiment and profitability in an overall context.
If that is right the EBIT margins for the last six years are (2018 to 2023):
4.5, 4.5, 4.7, 5.0, 4.4, 4.7What is so unusual about the last figure?
For one thing, you need to separate out the figure for the Australian Supermarket operation. Secondly, if life was fair (which it isn’t of course), Woolworths would have taken a hit on margins during high inflation to take their share of the pain i.e. the opposite of what happened. I know about ‘duty’ to maximise shareholder returns, I’m talking about what would be good for the country and its population as a whole, and what may well have happened if there was more competition in the grocery market.
In contrast to your figures … to quote Choice, from the Shonky Award, re Woolworths 2023 results:
“Earnings from the company’s Australian supermarkets alone (before tax and interest) was $2.86 billion, a whopping 19% year-on-year leap.”
At face value this is inexcusable in tough times.
Anyway, I am glad that Choice eventually took up this matter, and I hope the forthcoming enquiry throws sufficient light on the issue to draw justifiable and possibly even actionable conclusions.
I would rather look further than the face of it before making a decision.
In the Senate, the enquiry is made.
Now, nasty grocers, have you been price gouging the people that vote for us?
Nasty grocer response, of course not. We are lovely companies, and we pay lots and lots of tax so you can spend lots and lots of money on your voters next election.
Thank you for coming nice grocers. Have a nice day.
But we may ask the ACCC to initiate an inquiry into your pricing and market duopoly. They like to do that, but never find anything. Keeps them in a job at least.
Yes - Isn’t that the truth.
I totally agree with you that’s how it’s going to pan out. 
Yes the ACCC is the disappointment that keeps on (not) giving. And yes, an inquiry would be better than an enquiry.
So Woolworths is a villain because they didn’t take a hit when some believe they should.
Using this measure of being a villain, there would be thousands, if not 10s thousands of businesses in Australia consumers used in 2022/23 which had very healthy or increased profits here are some which percentage increases of Woolworths pale into insignificance). This includes the sole trader through to other big businesses such as the banks.
It is highly likely if one works for a private/public business, these businesses have also been in the group outlined above.
Therefore, all these businesses should have also been awarded a shonky because they weren’t charitable by taking a hit during times when some think they should be.
Which the ACCC do through complaints, monitoring and regular government inquiries. It sounds very much to be seen to he doing something for political gain.
The farmers are not exactly an unbiased lot, but
Government has engaged.
Businesses are free to set their own prices but this seems to cover how they deal with their suppliers and whether fairly and in good faith. It will be interesting to see how this gets navigated. As with most similar issues there will be contradictory views, not to be argued here since we are bystanders.
Views should properly go to one’s MP, to those in the process, and by voting as much as possible, if possible, with dollars by where one shops.
A Fairfax newspaper’s article (Paywall):
It states 'the trouble is: there’s limited transparency on whether these claims of excessive profit extraction are based on fact.’ It also states that many farmers who claim they aren’t getting a fair go, don’t actually supply to the big supermarkets. The article also discusses why the supermarkets, and in the past the banks, are vulnerable to politicisation like that which is currently occurring. One gets the impression it is finding an easy culprit to blame for things that impact us all.
At last some balance and sensible analysis from Rod Sims.
Sims points out that addressing market concentration and the barriers to competition are essential as well as the way the current level of concentration and lack of legally binding limitations allows ColesWorths to act against the public interest.
If Australian consumers and suppliers are to realise the benefits of real choice, our supermarket sector requires fundamental reform that goes way beyond a Code Of Conduct review.
Why have supermarket profits increased recently; through an increase in margins between what is paid to suppliers and the prices charged to consumers, or through efficiencies? Getting this information voluntarily from the supermarkets will not work.
As well as the more obvious complaints of price gouging (duopoly) more data will allow closer examination of how they treat their suppliers (duopsony).
Looking for content that is not behind a paywall, (Pressure mounts for ACCC inquiry into supermarket pricing amid claim farmers being paid 1978 prices - ABC News) one Federal MP is quoted:
And then we look at horticulture, look at zucchini, they’re paying $2.20 a kilogram but charging $6.50 at the check-out — watermelons, they’re paying $1.50 a kilogram but charging $5.30, they’re cleaning up.
“We’ll be relying on food from overseas because our farmers can’t deal with the supermarkets that control 74 per cent of the grocery market.”
The 3x, 4x mark up between market price and store retail reflects what local producers in our area have related in the past.
The comparison invites several questions.
Are the prices being quoted for first grade or second grade prices, or average wholesale price. Not giving what the prices are means the political comments mean little.
The supermarkets deal in first grade products (with exception of a limited number of product lines in an attempt to be seen to be doing something to reduce farm waste). They don’t accept any products which don’t meet their product specifications. This is another issue to the allegations being raised at the moment and has been touched on in the past within the community.
Allegations about markups aren’t unique to Woolworths or Coles. In fact, for independent, family run fruit and vegetable stores, the markup for first grade produce is even more than the big two. Many of these independents sell second grade produce, which doesn’t meet the supermarket specifications (the supermarkets don’t want), to compete with the supermarkets lower first grade product pricing. Noting that second grade produce has significantly cheaper wholesale prices and is sold cheaper.
Speaking to a potato farmer a few months ago, he said that he has thought about entering a supply contract with the supermarkets, as their gate price for first grade spuds is significantly better than the chip factory, but, it comes at additional supply costs. There are specs needing to be met (increasing ‘waste’), purchase of equipment for brushing/washing and bagging and risks of being unable to deliver on contracted volumes. The later would mean they would need to buy in first grade product to meet shortfalls.
He stated that if they don’t meet supply the contract amount on their farm, it is likely there would be an overall supply shortage across the market (say due to poor weather) which pushes up wholesome price of spuds. There is a high risk they would buy spuds at a higher price than the supermarket contract price, to meet the contracted supply shortfall.
The other problem is what to do with second grade spuds as they have little value and become a operational cost to deal with.
He said, if all the ducks line up, it can be highly profitable. If they don’t, financial impacts could be significant.
They decided it was better or lower overall risk for them to continue supplying the local chip factory, even though they fight each year for better contract prices to ensure their costs are covered + a bit more.
May I suggest it means we don’t know either way assuming the prices are reasonably stated or not. Which for some may have even greater meaning. If we don’t know how are we to know other than to ask for more? Not a reason to be dismissive of the proposition.
The major supermarket businesses know they have a dominant position both as purchasers of product and suppliers to consumers. So what given they share similar supply chains if in the future they purchase more product from OS rather than locally?
I wasn’t been dismissive. I was indicating that there is a lot unknown and relying on unqualified quotes from politicians is risky.
I also explained the farm gate price differential and retail prices applies across the fruit and vege selling industry, irrespective of whether it is a supermarket or independent mum & dad type retailer. It isn’t confined to Woolworths and Coles which suggests the claims about margins may not be driven by the supermarkets.
If the supermarkets are forced to reduce their fruit and vege margins, it is likely to be to the detriment of farmers and other retailers.
