At face value, supermarket shoppers might think those giant retailers are creaming it. Photo / 123RF
At face value, supermarket shoppers might think those giant retailers are creaming it. Photo / 123RF
COMMENT:
It was hardly unexpected to see sales at Countdown shoot higher in the run-up to the lockdown as people stocked up on all those essentials they couldn't bear to do without.
What was surprising was the extent of those gains – more than 50 per cent in the weekbefore March, with some trading days twice that of a year earlier.
That's a lot of toilet paper.
All up, Countdown's sales were $1.93 billion in the 13 weeks ended April 5, compared with $1.69b a year earlier.
And that wasn't just due to the massive spike in traffic. Prices rose 5.1 per cent as supermarkets had to pay above the odds for staples such as dairy, flour, meat and fresh fruit and vegetables.
Oh, and suspending its usual promotions contributed about one percentage point of that price squeeze.
At face value, supermarket shoppers might think those giant retailers are creaming it.
As with most other service providers people can't do without – banking, power, broadband – they love to hate supermarkets.
Those supermarkets copped more than their share of criticism through the lockdown, with accusations of price-gouging, skimping on safety measures, and unfair treatment of staff.
Some of those complaints were justified and others were just poppycock but nothing warranted supermarket workers being abused for trying to enforce distancing rules. And no one would argue supermarket staff are paid enough to deal with that.
Countdown's sales were $1.93 billion in the 13 weeks ended April 5, compared with $1.69b a year earlier. Photo / Brett Phibbs
Those large workforces are supported by skinny margins, and panic-buying of the sort we saw was only a temporary boost for the supermarkets.
"It's a low-margin business and very much a high-volume business," said Mark Lister, head of private wealth at Craigs Investment Partners.
"Margin and average price can move the dial quite significantly for them."
Countdown is very much a big player for its Australian parent, Woolworths, accounting for about 10.5 per cent of its $60b annual revenue in 2019 and 9.9 per cent of its A$5.6b ($5.9b) of earnings before interest, tax and depreciation.
Quarterly sales for the group were up 10.7 per cent at A$10.7b, with its hotels unit the only laggard, for obvious reasons.
Woolworths' big driver is Australian food retailing, including the Woolworths supermarkets, BIG W and Dan Murphy's. After all, scale matters when they're chasing volume.
Sales continued to rise in the first three weeks of April – the benefit of being allowed to open under the restrictions on both sides of the Tasman – with Australian food sales growth in "mid single digits."
However, it's not all rosy for the supermarket operator as the cost of doing business safely got more expensive. Woolworths expects to spend an extra A$225 million to A$275m as it takes on 22,000 temporary staff, boosts warehouse capacity, scales up its online capabilities, and stumps up for more security, cleaning and personal protective equipment.
Like New Zealand's Foodstuffs and Countdown, Australian supermarkets are dominated by two chains, Coles and Woolworths.
Coles, spun out of Wesfarmers in 2018, fared even better than its rival. Sales were up 12.4 per cent at A$9.23b in the 12 weeks ended March 29 – a shorter period and an earlier finish.
Although both Coles and Woolworths are hazy on the outlook, investors have been supportive. The Australian benchmark S&P/200 Index has dropped about 18 per cent so far this year, whereas Woolworths is down just 3.2 per cent and Coles is up 4.5 per cent.
Craigs is a fan of the Australian supermarket sector and has been a long-time backer of Woolworths, which Lister said was the more sophisticated of the two majors, although Coles was trading at a more attractive price.
And, while both chains struggled to offer a clear outlook, both are well-placed heading into the inevitable recession and looming unemployment.
Households will always spend a certain amount at the supermarket, which typically ride through economic downturns as people give up those little luxuries like Friday night fish 'n' chips for home-cooking.
"They tend to fare relatively better in tough times," Fat Prophets head of research Greg Smith said.
He hasn't been a fan of Woolworths for some time. The supermarket chain got away from its bread and butter with a poorly executed foray into hardware that cost billions, he said.
However, it had since refocused on food retailing under chief executive Brad Banducci and reaped the benefits of doing so, with its ebtida margin back above 8 per cent, having dropped 5 per cent for a time.
And, while it was hard to say how long the supermarkets would enjoy the tailwind of being allowed to trade through the Covid-19 restrictions, the economic downturn was sure to keep some of that momentum going for them.
But, while Kiwis are enjoying the sudden reappearance of takeaways, it's also a reminder that eating out is a heck of a lot more expensive than cooking dinner.
