Woolworths’ ownership of discount department store Big W gives it additional insight into the evolving shopping habits of its customers. In previous downturns, shoppers looked to discount department stores to budget more effectively.

But this cost-of-living crisis is sufficiently deep that even Big W is suffering thanks to customers either closing their wallets to bigger ticket items such as electronics or buying their children a $10 treat rather than one for $30. The only silver lining is that “premium” shoppers who typically don’t inhabit discount department stores are now using them to grab a bit of value on products such as make-up and skin care.

This trading down activity wasn’t enough to save Big W from a nearly 64 per cent fall in earnings in the second half of 2023 compared with the same period in the previous year.

And on Friday we will learn how Big W’s arch rival Kmart has fared as its owner, Wesfarmers, reports its results.

Both the large supermarket groups are outlining similar headwinds and tailwinds in their businesses.

The largest tailwind is a reduction or even the elimination of those large COVID costs and the normalisation of supply chains that left them short of products during the pandemic. In the post-pandemic environment, they can have a more stable workforce.

As Banducci says, a more normal rhythm has returned to Woolworths’ operations. But the post- COVID surge in inflation has presented its own set of headwinds to profitability.

The headwind de jour for supermarkets in this financial season is theft, which is even worse at Woolworths’ New Zealand stores.

It was called out by Coles this week as a scourge, a wave of criminality that has been moving around the world in response to the global cost-of-living crisis.

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Theft, be it by organised crime that fleeces the shelves of higher value items to resell, or by customers who are financially stretched, is not a new issue. But it fell away as an issue during COVID when fewer people shopped in bricks and mortar stores.

Both supermarkets are employing technology to reduce theft. At Woolworths, self-service checkouts trolleys are scanned to check if all products have been accounted for. Meanwhile, Coles has additional staff watching customers using self-service.

While much has been made of the pilfering headwind, wages are a particularly big cost for both supermarkets with large pay rises and higher energy bills to remain a drag on profits in financial year 2024.

The good news is that both Coles and Woolworths had strong sales numbers in the final quarter of the 2023 financial year, a trend that Woolworths said had continued in the first six weeks of 2024.

The bad news is that inflation is still a problem in some food categories such as bread and dairy and in some packaged goods.

And as long as the supermarket customers remain under pressure, so too will be supermarkets.

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