Add CategoryFollowing the Reserve Bank of Australia’s ninth consecutive cash rate rise announced last week, and the signal that more are to come, it’s clear that the pain felt by consumers and businesses alike is going to continue late into 2023. At this week’s ARA Leader’s Forum, MST Marquee’s Craig Woolford signalled that the effects of such high rate rises are likely to be felt in the retail industry for years to come, as customers change their shopping habits to deal with increased c
d costs in every part of their lives. That’s not to say there won’t be an impact sooner rather than later, and Australia’s supermarket duopoly is already feeling the effects, and reaping the rewards, of changing customer behaviour. “There’s still plenty of pain in the supply chain” One of the key challenges, and opportunities, for the year ahead will be stock availability, Coles’ outgoing chief executive Steven Cain told analysts this week. “Many of our suppliers are facing ongoing challenges […] which is impacting our availability,” Cain said. “In terms of everybody thinking that a recovery [is happening], there’s still plenty of pain in the supply chain, which we will need to deal with.” Woolworths Group’s managing director Brad Banducci agreed, stating that while the impact on Woolworths’ supply chain hadn’t been as pronounced as compared to the height of the pandemic, stock availability has been one of its customers’ biggest pain points. “Our availability […] is not where we want it to be, and so we see an enormous opportunity [there],” Banducci said. “The easiest way for us to improve our customer [experience] is in [stock] availability.” One of the issues, according to Banducci, is that now it isn’t necessarily a widespread supply chain issue causing products to be unavailable, but product-specific issues, with certain lines such as dog food, frozen potatoes, chicken and vegetables becoming harder to source. However, Banducci did note that Woolworths had largely fallen back into a normal operating rhythm, largely thanks to its more than $780 million investment into its supply chain operations. “There’s been some very material costs [involved], and our shareholders have been very patient, [but] it’s nice to see some of the benefits come through,” Banducci said. A key focus: promotions or margin? As the cost of living has continued to rise over the last six months, both Coles and Woolworths have made efforts to keep the price of certain products flat. Beyond their respective private-label brands, which have all performed well as customers shift their spending habits, Banducci added that Woolworths’ promotional activity has been very successful during the first half of the year. “Our next-gen promotional program [has made us] much better at promotional effectiveness,” Banducci said. The downside to these increased sales is a lack of margin growth, Banducci conceded. Conversely, Coles’ Smarter Selling program has helped it to retain margin, and is expected to deliver $1 billion in savings by the end of the financial year. Rising theft One of the more troubling trends impacting supermarkets is in theft, or ‘non-payments’, as Banducci explained. Grocery prices rose 9.2 per cent through the December quarter, according to ABS data. And while this is being done in an attempt to balance the inflationary pressures in supply chain and manufacturing, it’s also pushing some people to apply their own five-finger discount. This issue has been slightly more pronounced in Woolworths’ New Zealand business, Countdown, which recently saw a brazen attempted theft at an Auckland Countdown store where two women attempted to exit the store with a trolley-load of groceries without paying. “[Theft] is above where we have been monetarily […] and if we’re not careful we could end up a bit more in the New Zealand scenario [in Australia], so we’ve taken a lot of lessons out of that,” Banducci said. “We just need to stay on top of it, and continue to work on our plan to continue to roll out our various stock loss initiatives.” According to Professor Michael Townsley from Griffith University’s Criminology Institute, retail crime fell during the pandemic, but has spiked in recent months due to increased cost-of-living pressures. Additionally, an annual Criminology study recently found that, in comparison to prior years, more perishables and meat are being stolen now . “These aren’t necessarily organised crime units that are doing this, and it strikes me that it rhymes with the increased cost-of-living pressures,” Townsley said. “We’ve got people that wouldn’t have stolen in the past, but now steal just to eat, or to provide for their family. It’s quite concerning.”