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Woolworths is focusing in on office kitchens across the country as part of the launch of its grocery delivery platform aimed solely at business clients.

The supermarket giant first trialled its “Woolworths at Work” site in 2020 – when most professional services firms were working from home. Despite this, the retailer was able to test and refine the program by delivering to essential services operators.

“A really big part of our focus is essential service businesses – early learning businesses and aged care. They were our core customers that we helped serve,” Woolworths at Work general manager Jarad Nass said.

Now lockdowns are in the rearview mirror, Woolworths hopes to take a slice of Australia’s business supplies market by offering one platform for cleaning products, office supplies and groceries for corporate clients.

Unlike users on Woolworths’ main retail site, business customers have access to real-time spend reports and billing information, free next-day delivery for orders over $99 and more options to get products delivered on Monday mornings.

While Australia’s winter COVID-19 and flu season have led to renewed calls for more staff to work at home, Nass is confident there is still strong interest from workplaces for a one-stop shop for office supplies and groceries.

“What we’ve learned is that it is a very dynamic working environment at the moment, [but] there is still a lot of demand for this service,” Nass said.

Beyond office towers, Woolworths is largely focused on organisations such as schools, hospitals and aged-care facilities, which have been the main sectors using the platform.

The retailer has been working to increase business-to-business sales over the past year. Its B2B food segment, which includes PFD Food Services, its international exports and wholesale business, generated $1.4 billion in sales in the first half of 2022 – an increase of 376 per cent on the same period in 2021.

Woolworths at Work isn’t the first new grocery delivery format Woolworths has tried this year. It also launched one-hour deliveries in a small group of Sydney suburbs via its Metro60 app in June. 

Fellow supermarket giant Coles also has a dedicated business delivery channel, with free delivery on orders worth more than $250.

The Reserve Bank of Australia raised the official cash rate another 50 basis points of Tuesday, putting further pressure on the operating costs of households and businesses.

Despite this, analysts have been viewing the outlook for supermarkets as robust, given businesses and individuals will likely be spending a larger portion of their budgets on everyday essentials rather than luxuries.

Citi analysts have upgraded their 2023 earnings estimates for Woolworths by 3 per cent and Coles by 4 per cent, given expectations that inflation will increase like-for-like sales growth figures over the next year.

Woolworths shares are 7.3 per cent higher for the month, while Coles is trading 7.2 per cent higher compared with the beginning of July.

Meal kit company Marley Spoon has launched Wine Store, offering customers the option of pairing wines with their choice of meals.

Katy Holder, head of culinary operations at Marley Spoon, shared that the company teamed up with Kristy Farell, wine expert at Pernod Ricard Winemakers, to find “brilliant pairings” for the best meal and wine experience. 

“We know many of our customers love to cook and enjoy a glass of wine with their meal; however, we also know sometimes it can be a little daunting choosing the right wine,” said Holder.  

“Working with Kristy has been great to understand how many varietals complement and enhance our diverse local and international dishes, giving customers a drop to suit all preferences and tastes.”

According to the company, customers don’t need to worry about knowing the difference between a Rosé or Riesling as they can find the wine best suited for their meals with just a click of the button. While those who are more “wine savvy” can search by varietal to find matching wines and add them to their cart.

Customers can choose from a selection of local Australian and international wines, including brands such as Brancott Estate, Campo Viejo, Jacob’s Creek, Mumm Marlborough, St Hugo, and more. 

Rolf Weber, CEO and COO at Marley Spoon, added that launching Wine Store by Marley Spoon was a no-brainer.

“We’re excited to join forces with Pernod Ricard Winemakers, who have an impressive portfolio of wines, to give customers a convenient service they’d usually find at a bar or restaurant in the comfort of their home,” said Weber.

Coles Group has raised $1.7 million to assist not-for-profit charity SecondBite to continue delivering unsold edible food to those experiencing food insecurity across Australia.

Through the partnership, the retailer has donated unsold edible food to more than 1400 community groups across the country. Other contributions received will be spent on SecondBite’s ongoing operating expenses such as transport, fuel, and refrigeration to help deliver food.

Steve Clifford, SecondBite CEO, said the money raised will help provide vital food relief in the form of cooked meals, food hampers and community pantries.

“The importance of putting a regular, nutritious meal on the table is something we can all relate to, and clearly the need we’re seeing and hearing about resonated with so many Coles customers.”

Matt Swindells, Coles’ chief operations & sustainability officer, said: “We are incredibly proud of our partnership with SecondBite to not only help feed Aussies in need but to also help divert food waste from landfill so that we can become Australia’s most sustainable supermarket.”

Since 2011, the supermarket and its distribution centres across the country have provided around 185 million meals to SecondBite and its network of community food partners.

A new partnership between Woolworths Group and Pact will use 18,000 tonnes of recycled plastics in the packaging of the retailer’s own-brand products.

Pact Group Holdings provides specialty packaging and recycling solutions to commercial and industrial sectors.

Through this collaboration, Woolworths’ product range such as milk bottles, meat trays and beverage bottles will be made with recycled plastic taken from household recycling and container deposit schemes.

Rob McCartney, Woolworths Group MD of format & network development, said the business is working hard to remove plastic from packaging however finds it necessary to protect quality and food safety in some products.

“Across the scale of our range, the real challenge is sourcing quality recycled material in the volumes we need and ensuring it’s coming from within Australia to support the development of our local circular economy and avoid shipping emissions.”

Sanjay Dayal, Pact Group CEO and MD, said the company knows that consumers and businesses are increasingly demanding recycled and recyclable plastic packaging. “Pact is working with committed partners like Woolworths Group to drive that change.”

He added plastic packaging that is designed “effectively” can be used repeatedly creating a local circular economy.

Pact operates five plastic recycling facilities in Australia and is investing $76 million to install new technology and equipment across its packaging manufacturing facilities.

It has already supplied Woolworths with 50 million reusable and recyclable plastic produce crates in replacement of traditional single-use cardboard and polystyrene boxes.

Aldi Australia says it is inevitable grocery prices will rise further in coming months, but the German chain will look to pass as little of these increased costs on to customers as possible.

The discount supermarket aims to be between 15 per cent and 25 per cent more affordable than larger rivals but – like Coles and Woolworths – has accepted price rises across the board as producers battle rising input costs.

Aldi, which has 580 stores in Australia, expects to gain as affordability of living costs becomes more important for consumers in the next year.

Adrian Christie, Aldi’s director of customer interactions, said inflation is impacting the chain’s operations and food suppliers.

“However, Australians can be assured that every aspect of Aldi was built to minimise inflationary pressure, and pass on as little cost to customers as possible,” he told The Australian Financial Review.

“Some grocery prices will inevitably increase in the months ahead, but we want to reinforce our commitment to customers that we will maintain our price leadership relative to our competitors.”

Supermarket inflation reached 6.9 per cent in the June quarter, an acceleration from 5.4 per cent in the March quarter, and was underpinned by bread, cereals, eggs and oils, according to the latest Australian Bureau of Statistics consumer price index data.

Australia’s annual inflation rate jumped to 6.1 per cent, its highest level in more than two decades, the data showed on Wednesday.

Fruit and vegetables prices rose 5.8 per cent on the previous quarter due to flooding in key production areas of NSW and Queensland that disrupted domestic supplies.

Rabobank senior food retail analyst Michael Harvey said there had been an increase right “across the grocery basket”, and warned there was likely more to come with the peak in inflation potentially not yet reached.

MST Marquee head of consumer research Craig Woolford noted prices for packaged goods jumped to their highest in more than 30 years in the June quarter.

“Packaged grocery inflation is at 4.3 per cent compared with a 25-year average of 1.1 per cent. With round two price rises by many suppliers starting to flow, packaged grocery inflation could reach 5 per cent to 7 per cent by the end of the calendar year,” he said.

Following a consumer survey, Barrenjoey head of consumer research Tom Kierath said consumers are indicating they are likely to spend more at Aldi in the next year, at the expense of Coles, Woolworths and Metcash-backed IGA as they seek deals.

Electronics, a typically deflationary category, prices rose by 4 per cent in the June quarter. Other non-food categories like hardware, furniture and auto parts all rose.

Mr Woolford said while these categories are seeing high inflation, consumers are still spending. But he expects prices to rise further in the coming six months because many suppliers have been caught with higher transport, wage and energy costs.

“We could see another 1 to 3 percentage points of retail inflation over the remainder of 2022,” he said.

Living costs were up nearly 9 per cent in the June quarter – well above wages growth of just 3 per cent.

Aldi in the UK overnight said it would give its UK staff a pay rise for the second time this year amid the rising cost of living and as it battles to keep staff.

Mr Christie, of Aldi Australia, which only employees permanent or part-time staff with no casuals, said when asked about a pay raise for local staff that the company offers market-leading rates of pay in the supermarket sector.

“We are very conscious of the impact of inflation on the cost of living for our employees. Like our UK counterparts, we pride ourselves on the benefits including pay offered to our employees,” he said.

Grocery giant Woolworths Group has snapped up retail digital media company Shopper Media Group for $150 million cash.

Woolworths apparently outbid several private equity suitors.

Woolworths’ retail media business, Cartology, will buy all the equity in the digital, out-of-home, media company that offers targeted shopper advertising through a national screen network of more than 2000 screens in more than 400 shopping centres.

Cartology helps the Woolworths supplier base engage better with customers along the path to purchase by providing detailed customer data and insights into ad campaign effectiveness.

It is the exclusive retail media partner for brands to connect with Woolworths’ 13 million Everyday Rewards members.

Chief executive Brad Banducci said retail media is developing rapidly and is an important part of the evolution of Woolworths.

“We’re excited about the opportunity to bring together the complementary capabilities of our retail media business, Cartology, with Shopper’s expertise in out of home media,” he said in an ASX statement on Monday.

Cartology managing director Mike Tyquin said Shopper Media’s screen network offers advertisers outstanding retail context and proximity.

“Shopper has invested heavily in technology, helping the business pave the way for innovation in retail out-of-home media,” he added.

“The acquisition of the business is an important next step in further unlocking the growth potential of Cartology and accelerating our goal to become the trusted media partner of choice for brands and retailers.

“It will allow us to provide our clients more opportunities to reach their customers via seamless and targeted advertising solutions.”

The transaction is subject to competition regulator approval and the satisfaction of customary closing conditions, with completion expected to occur by the end of calendar 2022.

Shopper Media was founded in 2015 and has about 50 staff. Co-founder and former chief executive, Ben Walker, died in January.

Cartology was established in 2019 as Woolworths’ retail media business and employs more than 200 across Australia and New Zealand. It launched in NZ in February.

Its network comprises more than 1500 digital advertising screens in stores, including in 1218 stores across Woolworths Supermarkets and Dan Murphy’s liquor outlets, the latest annual report says.

Coles has increased the price of its milk by nearly 20 per cent in a move that has relieved farmers, but already irritated some customers. The supermarket said it was necessary to raise the price due to the rising cost of sourcing, transportation, and packaging. 

Coles Brand Fresh White Milk 1L bottles will increase by 25c, 2L bottles by 50c, and 3L bottles by 60c, while the Coles Brand UHT White Milk 1L bottles will increase by 25c.

Michael Hampson, CEO of dairy co-operative Norco, which supplies the Coles brand Milk in Southern Queensland and Northern NSW, said that the increased farmgate price significantly impacted dairy farmers. 

“Through our long-term partnership with Coles, we have been able to support our 300 farmer members with a record farm-gate milk price increase across the total 200 million litres that our members supply to our 100 per cent farmer-owned co-operative,” he said.

“This is especially important as farmers face pressures from rising production costs, with many still recovering from the devastating impacts of recent unprecedented weather events.”

Last month, Coles signed updated contracts with 100 Australian dairy farms to supply milk directly for its brand, including an increase in the farmgate price paid by the company, with multi-year contracts for farmers. 

In addition, the company has agreed to significant increases in wholesale prices in markets where Coles Brand milk is sourced from processors, as the farmgate price the company pays to dairy farmers has substantially risen.

However, the recent increase in milk prices isn’t being taken lightly by consumers. A recent post on a Facebook group, “Simple Savers”, shared a picture of a carton of 3L milk with a $4.50 price tag that received hundreds of reactions.

Some members in the group pointed out that $4.50 was still cheap for milk, while others said it was “ridiculous” with prices that keep climbing.

Leah Weckert, chief commercial officer for Coles, said raising prices is something that the company never takes lightly. However, the increased supply-chain costs, including higher payments to dairy farmers and processors, had forced the company’s hand.

“The feedback we’ve received from farmers and processors following the recent increases in farmgate and wholesale prices has been very positive, and we hope customers will help us continue to support them by purchasing their great quality Australian milk,” she added.

While everyone is now obsessed about surging inflation, most people have missed that the big global forces underpinning price spikes are reversing.

Inflation caused by pandemic-induced supply chain disruptions, the war in Ukraine and ultra-loose monetary policy is turning around. The international forces driving the inflation of goods, food, energy and housing appear to be unwinding.

In the past few days, money market traders have started to notice, paring back bets on ultra-aggressive interest rate rises by central banks and pushing down bond yields, partly on concerns about a possible US recession.

Money markets are now pricing in a 3.1 per cent Reserve Bank of Australia cash rate by year-end, down from 4 per cent projected last week.

Former RBA board member John Edwards says: “I suspect inflation is beginning to crest out to the extent that it’s driven by oil and food prices, which are a very substantial contribution.”

“I think in the second half of the year there may be a bit more optimism that inflation is not going to continue to increase in quarterly terms.”

Four finance professionals AFR Weekend spoke to for this article – two economists, an equity fund manager and bond fund manager – all agreed.

But their opinions appear to be slightly contrarian, or at least not universally shared among many observers who have jumped on the inflation bandwagon.

A Sydney-based equity fund manager says global inflation will probably subside in the next six to 12 months.

“Out of all the input costs, it’s very difficult to find one that is going up right now,” he says. “Oil is the last holdout, probably because big funds globally all got long at the same time.

“As we speak it’s breaking lower. Everything else is pulling back.”

The easing of the international cost of commodities and raw materials will not immediately show up in consumer prices because of delays in input costs transmitting to the supermarket shelf. Consumer prices will keep rising in the short term.

It was only a few months ago that central banks were arguing high inflation was transitory. Then everyone fretted it was permanent. Perhaps it’s somewhere in between.

Freight rates soften

International freight costs have fallen about 30 per cent from a peak earlier this year. The world’s three-company international shipping oligopoly drove up average rates for a 40-foot container from about $US1500, to $US10,000. Prices have since slipped back to about $US7000, according to the global freight composite index.

“Freight rates are really important for us because we’re a remote, trading economy,” Outlook Economics director Peter Downes says.

Blockages in the supply chain and logistics remain a challenge, especially in China, but President Xi Jinping can’t keep locking down forever, after he is officially reconfirmed as “president for life” later this year – as is widely expected.

Globally, a big jump in soft commodity prices such as corn, wheat, canola, cotton, live cattle, lamb and pork has driven food inflation. After surging, prices for most of these farm products have declined.

Housing and other construction costs jumped because of a surge in the price of building materials and supply chain blockages.

But the international price of hard commodities such as iron ore has eased and copper is trading at an 18-month low. The price of steel and timber, also key construction materials, are way down after blowing out.

Moreover, car manufacturers are ramping back up production and computer chip prices are falling as more supply comes on stream.

“A lot of the supply chain disruption is coming out of the system,” Downes says.

Energy prices key

Energy prices remain volatile because of the war between Russia and Ukraine. Liquefied natural gas prices have fallen since the invasion of Ukraine in February.

US shale oil production is ramping up to help offset boycotts of Russian oil, which appears to be diverting to other markets not imposing sanctions on Moscow.

Energy is a big input cost into food, transport and manufacturing – contributing to price changes across the economy. But Brent crude, the global benchmark, was selling for about $US110 a barrel on Friday, significantly below its pandemic-high of $US139 a barrel.

To be sure, there will be lags before the mitigation in commodity prices and other business inputs feed through to the prices of end products.

In fact, the earlier cost spikes are still flowing through and will show up in higher consumer prices in the second half of the year.

For example, the Reserve Bank of Australia expects domestic inflation to peak at 7 per cent by about December – more than double its 2 per cent to 3 per cent target band.

Nevertheless, there are reasons to believe inflation will noticeably fall thereafter.

One is that persistently high inflation can only occur if prices keep going up at the same high rate. If the price of a good flattens out, its contribution to inflation is zero.

Even if prices remain above their pre-pandemic levels but fall from their peak, this is deflationary and subtracts from measured inflation.

Anchoring expectations

Crucial to all of this is ensuring inflation expectations remain anchored. Central banks need to convince the public that the recent major price spikes won’t be repeated.

That is not guaranteed. The credibility of central banks has taken a hit, after they underestimated inflation and their economic forecasts during pandemic lockdowns turned out to be far too gloomy.

Indeed, RBA governor Philip Lowe this week admitted the bank had suffered reputational damage. In an attempt to influence inflation psychology, Lowe is warning against oversized wage increases.

Lowe politely but unmistakably cautioned the Albanese government, unions, workers and business that across-the-board wage increases of 4 per cent to 5 per cent were not sustainable and risked stoking a 1970s-style wage price spiral.

Although he suggested the economy could probably cope with the Fair Work Commission’s 5.2 per cent minium wage rise as a one-off, Lowe stressed that 3.5 per cent wage rises were more sustainable across the economy.

Central banks are belatedly racing to crush inflation expectations to prevent the next leg up in inflation from the demand side.

It explains why the RBA and US Federal Reserve are raising rates by 0.5 of a percentage point and 0.75 of a percentage point respectively. Fed chairman Jerome Powell is open to a full 1 percentage point increase at its July meeting.

With central banks seemingly determined to act, bond markets are signalling that inflation may not become as bad as previously feared.

Central banks may not need to tighten quite as much, especially as they front load super-sized rate rises and try to convince the public they are gung-ho about squashing inflation.

Bond yields

Bond yields may have may peaked in the short term. The Australian 10-year bond yield has declined to 3.7 per cent, from a recent high of 4.2 per cent less than two weeks ago.

The peak RBA cash rate projected by money markets is now about 4.1 per cent, down from 4.6 per cent.

Nevertheless, reaching a 4 per cent cash rate by year-end as money market investors were betting would require the most aggressive interest rate cycle in Australia’s history, Lowe said this week.

Lowe said it was unlikely, but had the humility not to completely rule it out, given the market’s forecasts have been more accurate than the RBA over the past couple of years.

A few days later, markets are now pricing in a 3.1 per cent cash rate by December.

Higher inflation will not be completely unwelcome by governments eager to inflate their way out of massive debts and central banks keen to replenish their ammunition and keep interest rates away from zero.

The $4 billion ASX-listed retailer acknowledged during its 2022 results on Monday that inflationary pressures were causing uncertainty for customers and suppliers, but chief executive Doug Jones said he was confident Metcash could compete with the supermarket giants throughout this period.

He said that while all retailers face uncertainties of rising inflation, “independent retailers are in a great place”.

Jones said a lift in sales across the company’s grocery arm over the past seven weeks suggests the business is in a strong position, with customers maintaining a preference for independent supermarkets even after COVID lockdowns.

“[Our sales are] showing that shoppers are sticking with independent stores and that trend is now becoming a habit,” he told analysts after revealing a 2.7 per cent lift Metcash’s annual profits to $245.4 million.

Jones told The Sydney Morning Herald and The Age the company’s wholesale logistics structure would give the company flexibility during times of supply chain challenges and product shortages. He said Metcash’s position as a wholesaler was different from other supermarkets such as Coles and Woolworths, with its focus on providing store owners across its network with a wide range of suppliers from around the country.

“The model supports retailers buying locally from local suppliers. We have a robust supply chain that allows us to respond [to challenges],” he said.

Metcash’s food retailers reported an earnings jump of 4.1 per cent during 2022, while liquor was up 9.8 per cent and hardware sales were 40.7 per cent higher as the company’s IHG and Total Tools businesses benefited from the residential construction boom.

The company’s investors will receive an 11 cent fully franked dividend for the half, compared to 9.5 per cent at the same time last year, meaning the full-year dividend of 21.5 cents is up by 23 per cent.

The market welcomed the numbers, with Metcash shares jumping as much as 6.3 per cent throughout the morning to a high of $4.49 before closing at $4.12.

Metcash revealed on Monday it had entered a long-term leasing agreement with Goodman Group for a 115,000 square metre distribution centre at Truganina in Melbourne’s outer west to replace its current Victorian distribution site in Laverton.

The building, which is expected to be completed in 2024, will carry a fitout cost of $70 million. “We are delighted to be able to announce this significant long-term investment for our independent retailers in Victoria, which is a reflection of our continued focus on championing their success,” Jones said.

Total group sales have jumped by 8.6 per cent in the first seven weeks of the 2023 year, but the company warned growing inflation could impact the outlook.

Chief financial officer Alistair Bell told analysts that business was building strongly on what had been a stellar year of trade. “We will continue to invest in inventory, [even] while inflation remains high,” he said.

Jarden analyst Ben Gilbert said that the strong sales figures for the first months of this year could mean stock watchers up their consensus expectations for the company.

The earnings figures could encourage the market to “become more confident that [Metcash] can hold onto a large portion of the share gained through COVID than previously anticipated”, he said in a note to clients.

Australian retail sales have set a new record for the third straight month with $34.2 billion spent in stores and online in May – a 10.4% increase on a year ago and up 0.9% on the previous month, according to figures released today by the Australian Bureau of Statistics.

Australian Retailers Association (ARA) CEO Paul Zahra cautioned that while sales are strong, the growth is unlikely to be sustainable, and also reflects the higher consumer prices that are now flowing through the economy as inflationary pressures take hold.

“It’s pleasing to see retail sales maintaining their strong trajectory - however, the figures aren’t necessarily a true reflection of how the sector is performing in an inflationary landscape. The high sales volumes can be partially attributed to the higher consumer prices we’re seeing across the economy, particularly in the food industries. Whilst sales are elevated, business costs are increasing enormously, in many areas at a far higher rate,” Zahra said. 

“It’s unlikely we’ll see retail spending maintain these levels as the rising cost of living begins to take hold on family budgets. A generation of homeowners are experiencing their first interest rate hikes, so there’ll be some natural belt tightening. When people rein in spending, discretionary purchases are some of the first things they cut.

“Leasing costs are going up for many businesses, along with fuel and energy, while supply chains continue to be constrained. There’s been no let up to the disruption since Covid hit; things have only intensified since the war in Ukraine and many small businesses in particular are challenged right now.

“These challenges are running alongside the labour and skills shortages that continue to hamstring many in the industry. The majority of ARA members say the situation has gotten worse over the past three months, and without government intervention, the situation will only deteriorate.”