Woolworths chief executive Brad Banducci said roast chicken and veg is back on the menu – and so is a reimagined spag bol – as more shoppers eat at home and trade down to cheaper private labels as they tighten their budgets.
Consumers are staying in instead of going to restaurants and drawing on family recipes, helping to boost sales at the nation’s largest supermarkets chain, which posted an 8 per cent increase to $16.34 billion in the March quarter.
Woolworths chief executive Brad Banducci says food price inflation is moderating. Rhett Wyman
This was underpinned by its food businesses, which flourished with improving availability of products as supply chains slowly recovered. Some food price inflation eased while other average prices customers paid remained stubbornly high.
Another sign of belt tightening is private label coffee bean sales increasing, with consumers starting to skip their morning café coffee.
“People are under pressure they hadn’t been before, and we need to lean in and go on the journey with them,” Mr Banducci said. “They are becoming more functional in how they shop, which is why our entry-level own brands are working for them.
“Interestingly, they are having more real occasions at home. The number one product is a roast chicken and vegetable [meal]. The second most-had recipe right now in Australia is the old spag bol we all know, except that people have substituted, because of the price of mince meat, to a more value alternative.”
The nation’s biggest grocery chain said on Tuesday that sales in its Australian food business climbed 7.6 per cent to $12.3 billion in the 13 weeks to April 2, with same store sales up 6.6 per cent. Sales at WooliesX (including e-commerce) rose 9 per cent to $1.29 billion.
Mr Banducci added that many customers are still willing to pay for convenience, whether it’s picking up in-store or getting groceries delivered. He said the group has not benefitted from start-up MilkRun going under, since that occurred mid-April.
Shoppers did seek out private label items, which grew sales by 9.1 per cent in third quarter, with Woolworths own-brand pantry items like flour, sugar and chilled dairy both growing more than 20 per cent. Value-added fresh ranges by Macro Wholefoods Market, also owned by Woolworths, grew at over 30 per cent.
So far in the quarter-to-date, Mr Banducci said sales are in-line with the March quarter, with “solid sales growth in our food businesses and growth moderating in Big W”.
Average food prices paid increased 5.8 per cent in the three months, down from 7.7 per cent in the second quarter, and lower than rival Coles Group at 6.2 per cent. Long life inflation was driven by supplier cost price increases.
Improved growing conditions
Mr Banducci said requests for price increases from packaged goods suppliers has reduced materially in April, but milk, cheese, butter and bread remain elevated. Pet food also has been an issue. Shoppers did get some reprieve, with improved fruit and vegetable growing conditions helping to lower some fresh goods prices.
Steven Cain, who finished as the CEO of Coles on Friday, had also noted a shift in consumers trading down and the fast growth of private label. Coles supermarkets recorded quarterly sales of $8.6 billion, up 7 per cent.
Bank of America analyst David Errington said quarterly sales were very strong in Woolworths food, beating expectations, but he questioned on a call how it would keep shoppers coming back with its own-brand offer, which appeared to be making up less of total sales compared to rival Coles.
Mr Banducci said it’s about price, convenience and range. Woolworths head of Australian supermarkets Natalie Davis added there is a clear sign shoppers will keep seeking value and trading down to affordable protein like poultry and into Woolworths’ own ranges.
The Reserve Bank’s surprise 0.25 of a percentage point cash rate increase to 3.85 per cent on Tuesday will also place more pressure on mortgage holders and lower income earners, who are already showing signs of being highly selective at discount chain Big W.
While Big W sales jumped 5.7 per cent to $1.046 billion in the latest quarter, growth slowed over the three months as apparel sales for items such as kids’ pyjamas were hampered by a late start to winter. Comparable sales increased 5.5 per cent. Mr Banducci said shoppers are returning to stores, but this was offset by a decline in items per basket.
Shoppers shopping carefully
Woolworths’ Australian B2B sales increased 16.4 per cent, and a 28 per cent increase in sales at its PFD business was driven by strong growth across all its major customer segments in the quarter.
The $47.3 billion company’s NZ food business, Countdown, continued to recover with sales up 8.5 per cent to $2.018 billion. Mr Banducci said there are continuing supply chain challenges, particularly after the impact of Cyclone Gabrielle.
Woolworths is still waiting for the tick of approval from the competition regulator for its purchase of a 55 per cent stake in pet store business, Petspiration Group.