29 February 2024
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Supermarkets to be shamed to price fairly & their share prices will fall

Peter Switzer
31 January 2024

There’s nothing like terrible political polling to get a government moving to win back voters! That’s why we saw a broken promise on tax cuts from the Albanese government. And it’s why the share prices of Woolworths and Coles should be on a slide as the PM and Treasurer find money for a consumer watchdog to dob in big supermarkets if they engage in rip-off pricing.

This news is timely as we get the latest Consumer Price Index (CPI) numbers today, which will determine if the Reserve Bank raises rates next Tuesday or whether we’ve seen the last of these excessive rate hikes.

The New Daily, a news outlet owned by Industry Super Funds, reports today that Choice, which has monitored consumer prices and products as well as services for decades will be given $1.1 million in taxpayer money to report on the prices of the big supermarkets, to help lower the cost of living. This voter concern has been a major reason for the Government’s slide in the polls.

The recovery of the blue line below shows how Peter Dutton’s Coalition has surged in popularity by the December 31 poll and explains why tax cut changes and why supermarkets will be targeted to cut prices.

The reaction from Coles and Woolies will be new advertising campaigns extolling the virtues of their new pricing policies and who knows, Coles might resurrect the rock band Status Quo for a remake of its “Down, down, prices are down…” ad!

The reaction from the stock market has to be ‘share prices are down, down, share prices are down’. In fact, year-to-date, markets have suspected Labor’s drive to get re-loved via reducing the cost of living to voters would hit the bottom lines of Coles and Woolies.

Since the start of 2024, the overall stock market is down 0.36% after a huge November and December, where stock prices rose 12%.

Over those months, Woolies was up only 6.5% and year-to-date is off 4.2% and Coles is down 2.8%. I tip these price falls will only get bigger as Choice highlights the supermarket’s problematic prices, and the media go along for the ride.

The role of Choice is intended to report on exploitative prices, which will attract media exposure. Savvier consumers will shop better, and supermarkets will have to respond with lower prices.

This won’t be good for profits, and it will be interesting to see how the supermarkets will respond. In the past, they have cut prices on the regularly bought products such as milk, meat, butter, etc and then hiked the prices on more expensive goods that higher income shoppers might purchase.

The New Daily says retail expert Brian Walker expects the supermarkets will be strategic in their pricing response and others will be forced to share the pain. “There will be some short-term pricing strategy changes, perhaps,” Walker said. “Some margin changes and working harder with suppliers or pushing harder.”

Those smaller and big businesses supplying the supermarkets will be put under pressure to lower their prices and it will mean these operators will be less profitable as well. “Woolworths’ supermarkets posted before tax earnings of $2.8 billion for financial year 2023, while Coles recorded almost $1.1 billion in after-tax profits, according to public financial filings,” The New Daily’s Matthew Elmas reported.

The companies can afford the price cuts that are bound to be a political issue until the next election, which should happen around May next year. Over that time, supermarket shareholders and suppliers to big grocery businesses will be copping the backwash of Albo looking for his lost supporters.

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