Chris McKeen / Stuff
Countdown owner says year just closed was undoubtedly one of the most challenging for its business in recent memory.
Countdown owner Woolworth NZ says its operating profit has fallen 12.5% to $ 316 million, but the company and Consumer NZ are drawing different conclusions about what that says about competition.
The operating profit drop is despite the Government’s concerns about the profitability of the supermarket sector and consumer concerns over rising food prices.
Woolworths NZ said its sales in the year to June 26 rose by 5.8% to $ 7.6b, but its earnings before interest charges and tax (Ebit) were down by $ 45m, from $ 361m the previous year.
Its net profit after tax amounted to 1.8% of each dollar spent in its stores, it said.
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Woolworths NZ has been contacted for confirmation that its net profit also fell, year on year, in line with its drop in Ebit, but has not yet provided that.
Managing director Spencer Sonn said price competition “across the retail food sector” was robust and it remained committed to delivering the best value possible.
But Consumer NZ chief executive Jon Duffy said it did not believe robust competition was behind the drop in the supermarket group’s operating profit.
Instead, he believed it was an early effect of moves to tighten the regulation of the industry.
“The Commerce Commission had found that competition in the sector is lack luster and not working well for consumers,” Duffy said.
“We think the increased focus supermarket profitability has been under following the Commerce Commission’s report and moves from the Government to regulate the sector to protect consumers is more likely behind the decline.
“Suppliers may be feeling more able to pass through cost increases than previously, when, as we have heard, the duopoly could force them to absorb those,” Duffy said.
The “increased focus” on consumer prices at the tills was also likely to have tempered the duopoly’s willingness to be seen to be passing significant price increases onto consumers, he said.
“Evidence of this can be seen in the price rollbacks and prices freezes the supermarket giants have rolled out since May.”
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Prime Minister Jacinda Ardern and Commerce Minister David Clark discuss supermarket reforms.
The Commerce Commission used different metrics to assess the profitability of the supermarket industry earlier this year.
It concluded that Woolworths NZ and Foodstuffs were between them making “excess returns” over their cost of capital of about $ 430ma year and that their prices appeared “relatively high by international standards”.
But Sonn said the financial year just closed was “undoubtedly one of the most challenging” for its business in recent memory.
The company is ultimately owned by Woolworths in Australia.
Rises in the prices it paid suppliers for dairy products and “key imported food lines” were a common theme across the year, Woolworths NZ said in a statement.
The price the supermarket firm paid for butter and margarine rose 11%, cheese was up 15% and frozen fruit up 30%, it said.
The cost of sourcing toilet rolls and tissues rose 24% and price at which it could buy pet food was up 9% and flour costs up 19%, it said.
“When we look ahead to the next financial year, the outlook is still very challenging,” Sonn said.
“We know that our customers are facing higher cost-of-living pressures from all parts of the economy, not just groceries, and likewise New Zealand suppliers, and growers and farmers in particular, are feeling the impact of unpredictable weather, higher input costs and labor shortages, ”he said.
“We’re deeply committed to all our communities across New Zealand … and we also want to do the right thing for our team in terms of increased wages,” he said.
The company’s trading statement – which flowed from the annual results reported by its parent in Australia – come a day after the Government ratcheted up pressure on Countdown and Woolworths to deliver better value by announcing it would press ahead with a “wholesale backstop”.
Prime Minister Jacinda Ardern said that would ensure their “stockroom doors” were opened up to rival retailers.