Woolworths’ Brad Banducci was never going to find a Senate inquiry a welcoming environment. But this was bad, even for him.
Banducci’s train-crash performance on Four Corners is already legend amongst comms and PR people — televised testimony to the adage that media training can only get you so far.
But his performance in front of the Senate inquiry into Australia’s supermarket sector was something else again. Asked by chair Nick McKim a relatively straightforward question about return on equity, Banducci attempted to spin his answer, explaining that Woolworths preferred the metric of return on investment — a slightly different measure that includes the company’s borrowings.
That’s fine, McKim replied, but what’s your return on equity?
We don’t use return on equity, Banducci answered, once again mentioning return on investment. McKim persisted, and Banducci kept spinning. The maddening circus went back and forth, back and forth. All told, Banducci refused to answer McKim’s question on return on equity more than 30 times.
Eventually McKim adjourned the inquiry to seek legal advice. When he returned, he warned Banducci he could be held in contempt if he refused to answer the committee’s questions. Even then, Banducci stuck with his prepared lines. Labor’s Glenn Sterle offered Banducci some helpful advice (answer the questions, Brad). Eventually, McKim lost his patience and threatened Banducci with jail time.
The Australian Financial Review and some in the opposition, including Matt Canavan, have been heavily critical of McKim. Apparently it was the elected senator, not the highly paid CEO, who should have shown more courtesy and deference. The AFR has been waging a pro-Woolies campaign for some time now, calling McKim “financially illiterate”, and pleading that “big profit margins at Woolworths and Coles are only part of the story.”
McKim doesn’t seem too worried. The controversy is of course exactly what the crusading Greens senator wants. “One more condemning editorial will make me stop, I promise”, he tweeted.
Banducci’s remarkable display of cluelessness shows a particular mindset from Australia’s business class. They don’t much like being held to account.
While the business class clutches its pearls, ordinary consumers should cheer McKim on. Scrutiny on the supermarkets is long overdue. The Australian constitution gives the Senate wide powers of investigation. This role has long included the power to bring citizens and businesspeople before it. The current inquiry has been established to “inquire into and report on the price setting practices and market power of major supermarkets.” Given nearly all of us go shopping, it’s hard to argue this is not in the public interest.
Perhaps because of the extra scrutiny, the debate about supermarket pricing has moved in some interesting directions in recent weeks. While consumers remain enraged at prices, the business media has started to argue that supermarket profits are no big deal.
The argument is basically that margins are low, and therefore there is no price gouging. As Coles’ far more polished Leah Weckert told the inquiry, “For every $100 spent in our stores, Coles makes $2.60 in profit.” No worries, then.
The low-margins argument is convenient for supermarket defenders. It is also deeply misleading. Profiteering is not simply a narrow matter of the percentage of profits made on sales. Volume also matters. Supermarkets have some of the highest sales of any businesses in the economy. Between them, Coles and Woolworths pull in an astonishing $105 billion in sales a year, raking in more than $5 billion in earnings. All this in a country where the charity Foodbank estimates 3.7 million people experience moderate to severe food insecurity.
As McKim told Banducci, everyone understands that supermarkets have low margins and high volumes. The issues long identified with Australia’s duopoly are much bigger than merely their profit margins: it’s their market concentration and power, the way they treat their suppliers, their anti-competitive practices, and, finally, that their prices are so damn high.
Australia’s supermarket duopoly boasts healthy profits by any sensible definition of the term. If you comb through their annual results, the two supermarket chains are doing very nicely indeed. In 2023, Coles earned $1.859 billion on $40.5 billion of sales. Woolworths earned $3.116 billion on $64.3 billion of sales. If you break down the results further, it gets even better for shareholders (or worse for consumers). For its “Australian food” line item, Woolworths booked earnings of $2.865 billion on $48.0 billion in sales. Woolies’ earnings on Australian food grew by a chunky 9.5% last year.
Despite Banducci’s bluster, international comparisons are relatively easy to do, and they aren’t favourable to Coles or Woolworths. American and British comparators make smaller margins. The gigantic Walmart empire, one of the world’s largest retailers, booked US$648.1 billion of sales in fiscal year 2024, for earnings of US$27 billion – a margin of 4.1%.
As Wollongong University’s Andrew Schmulow told the committee later in the day, “Mr Banducci is a very smart and very numerate man.”
Banducci was a management consultant and he has done a very good job in driving Woolworths’ market share. There’s only one reason why he doesn’t like to talk about return on equity. It’s because it doesn’t suit the narrative. The narrative is: “Oh woe is us, our margins are so low. Have some sympathy for us.”
But the fact that the margins are low doesn’t mean there’s something wrong with the business. The fact that the margins are low is because that’s the business that the supermarkets are in. They don’t make anything. They don’t manufacture anything. They don’t mine anything out of the ground. They don’t have a research and development budget. They’re the physical version of eBay. All they do is sell stuff.
Beyond the bare numbers, the supermarket margins debate also raises uncomfortable questions about the nature of contemporary capitalism. What is an appropriate profit rate on the essential products people need to survive?
It’s certainly possible to imagine a different operating model for these businesses. Fresh food could be subsidised, for instance. Prices could be deeply discounted on a narrow range of true essentials. Workers, many of whom get by on just above minimum wages, could be paid more. More food could be given away to the needy.
Quite shockingly, it is even possible to imagine breaking up the duopoly, or encouraging an approach to providing Australians with food and groceries that is not organised around returning profit to shareholders. No, you’re right. It’ll never catch on.
What did you make of Brad Banducci’s latest performance? Is it time to break up Australia’s supermarket duopoly? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
