AU: Supermarkets' brave new world
"There is now a more competitive environment for supermarkets than I've seen since my years in the regulatory environment," says Graeme Samuel, who chaired the Australian Competition and Consumer Commission for eight years to 2011.
Grant O'Brien, CEO of Woolworths
The nation's No. 1 retailer Woolworths has been cutting prices for years as it seeks to ward off the resurgent supermarket chain Coles. Both giants reported price deflation at their most recent half-year resultsin February. People really took notice though when Woolworths recently slashed its full-year profit growth guidance to as low as 1.8 per cent. It did so in favour of investing at least half a billion dollars on improving its supermarkets. The move came with a declaration it "won't be beaten on price".
Even after years of price crunching this is a seismic moment.
Investment bank UBS analysts responded that the Australian food and liquor market was "entering a period of structural change".
Some note there is room to move – Woolworths is among the highest-margin publicly listed supermarkets worldwide.
Deutsche Bank predicts the "relatively favourable dynamics" in food and liquor – from a supermarket's point of view – might be coming to an end. Coles and German discounter Aldi will likely retaliate as Woolworths cut its prices, it says in a note to clients. That could lead to a period of sharp deflation, low sales growth and declining profitability for the industry.
Samuel says the bullets have already been flying for some time in a price war over certain products.
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