Woolworths has recorded a rare slide in profit after customers grappling with rising living costs abruptly shifted some of their weekly grocery spend away from Australia’s biggest supermarket chain.
The financial result, a near 21% drop in its six-month net profit to $739m, was also weighed down by industrial disruptions at Woolworths’ warehouses and an intense focus by customers searching for discounts.
There is also evidence that reputation damage to the major chains, punctuated by legal proceedings over allegations they misled shoppers by offering “illusory” discounts on hundreds of common products, is having an effect.
Woolworths and Coles are defending the action pursued by the consumer regulator.
The Woolworths chief executive, Amanda Bardwell, said on Wednesday that shopping habits had shifted in an “accelerated way” over the past six months.
“Customers are still choosing to shop with us, they’re just not adding as many items as they were previously as they look to cross shop across a number of different retailers,” said Bardwell, who took over the CEO role in September.
“Customers are under pressure in terms of cost-of-living pressure but it really wasn’t until mid calendar 2024 that we started to see a real acceleration in value-seeking behaviour.”
Woolworths, which owns supermarkets in Australia and New Zealand and operates the Big W department store chain, has announced a $400m cost-saving program which it said would result in some redundancies.
Its dominant money spinner, the Australian supermarket division, still recorded a 2.7% lift in the value of grocery sales to $26.7bn in the six-month period but its profit margins were squeezed due in part to increased discernment from shoppers seeking deals.
It also cited “higher meat input costs” for the compression in margins, which tracks the difference between the prices paid to suppliers and those charged to consumers.
Woolworths’ share price slipped by almost 3% in early afternoon trading. It declared an interim dividend of 39c a share, down from the 47c offered a year ago.
The result marks a rare contraction in profitability for a company that has printed large returns throughout the pandemic and inflationary period, attracting public and political scrutiny.
Woolworths noted in its financials that “customers scores” were trending positively last year before being affected by the strikes, the Australian Competition and Consumer Commission’s (ACCC) legal proceedings, and an interim report by the regulator which raised concerns about the pricing practices of the dominant retailers.
Those scores track how people feel about Woolworths, which can trigger a change in buying practices.
Bardwell said: “Has there been some additional media attention on the supermarket sector? Absolutely.”
The Australian Competition and Consumer Commission is due to hand its final report into the supermarket sector to the government by the end of the week, after earlier raising concerns that the “oligopolistic” market may limit incentives to compete vigorously.
Bardwell said the retailer was still seeing strong food and pantry product sales but that some customers were going elsewhere for personal care products, household items and pet supplies.
Woolworths estimates the impact to sales from the industrial action at its warehouses, undertaken by workers during pay negotiations, was about $240m.
The financial results offer another glimpse into the behaviour of consumers, many of whom made major changes to their spending routines last year amid persistent cost pressures.
The Reserve Bank governor, Michele Bullock, said last week she expected many people would start feeling better “over the coming year” about living costs as wages increase.
