News

7 Jul, 2022
Retail sales set $34.2 billion record as inflation mounts
SOURCE:
Ragtrader
Ragtrader

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.”

7 Jul, 2022
‘Far from short term’: Bubs Australia eyes long-term American dream
SOURCE:
The Age
The Age

Bubs Australia chairman Dennis Lin has said he is confident the infant formula maker can continue to supply the giant US market in the long term after the company announced a $63 million capital raising.

The ASX-listed company has so far delivered 360,000 of 1.25 million tins of baby formula to the US through a temporary enforcement discretion scheduled to end on November 14, but Lin said the company was in discussions with the regulator to provide ongoing supply to the world’s biggest economy beyond this cut-off date.

“Overall, our confidence is relatively high in being able to continue to supply American families in whatever shape or form, regulatory-wise, beyond the 14th of November. We’re just working with the [FDA] in terms of how that might look for it to be seamless,” Lin said.

The US, which is still grappling with an infant formula shortage that began in February, is experiencing out-of-stock rates of 74 per cent, according to retail tracking data. Lin doesn’t expect the shortage to ease until September. “This is far from a short-term thing,” he said.

On Tuesday, the company went into a trading halt after announcing a $63 million capital raising. The funds will be used to increase the number of staff and turbocharge its Melbourne manufacturing facility.

The equity raising to take place consists of a $32.4 million institutional placement and a $30.6 million entitlement offer.

The equity raising is expected to raise 121.2 million new shares, or 19.8 per cent of Bubs’ existing shares, at $0.52 per share, which is an 18.8 per cent discount on the price of $0.64 when Monday trading closed.

“We’re raising money not because we’re in trouble. We’re raising money because we need growth capital,” Lin said.America’s formula crisis was triggered after a major manufacturing plant of Abbott Laboratories, the biggest baby formula supplier in the US, was forced to shut down in February after a serious bacterial infection from formula manufactured in that plant made four infants sick, two of whom later died.

“We have a window here where our product is good for Australia, China and the US. That means we don’t need to be sanctioning different base ingredients or even different packaging for six of our core infant formula products for three of our core markets,” Lin said.

Around $11 million will be used on operating expenses in the US, including marketing, administration, employment, and consultancy fees.

The final $3 million will go towards covering the cost of the capital raising itself.

Bubs Australia has been working alongside the Biden administration to airlift millions of its products through ‘Operation Fly Formula’. A fourth plane carrying 90,195 tins of baby formula will soon arrive in Philadelphia.

The country’s infant formula shortage has fast-tracked its progress in the US market by 18 months, according to Bubs founder and CEO Kristy Carr.

While Bubs gains a stronger foothold in the US market, dual-listed dairy giant A2 Milk is still awaiting approval from the US FDA through the same fast-tracked process that gave Bubs Australia the green light more than a month ago.

On June 28, organic Australian baby food and formula company Bellamy’s Organics was granted US FDA approval to ship two of its formula products to the US. Bellamy’s has committed at least 696,000 tins, with 300,000 ready for immediate delivery.

American parents were also reportedly stockpiling baby formula during the COVID pandemic, which also disrupted global supply chains.

Abbott’s Michigan plant was cleared to restart production in early June, and was open for less than two weeks before flooding from severe storms forced it to close again.

Prior to the US FDA’s exceptional enforcement discretion that temporarily permits global infant formula manufacturers to supply products, about 90 per cent of the US market was tightly held by three key players: Abbott’s, Reckitt and Nestlé.

7 Jul, 2022
Time for take off: Luggage brand July plans global stores as sales increase
Inside Retail

After a catastrophic few years for the travel industry, Australian luggage brand July is back on track and launching a new bricks-and-mortar presence in Sydney and the US.

The business, which saw sales fall more than 90 per cent during the worst of the pandemic when the travel industry was forced to shut down, is now enjoying a year-on-year revenue spike of 1500 per cent, and 50 per cent month-on-month.

July co-founder Athan Didaskalou said the business will be launching a store in Sydney’s The Galeries shopping centre in September, then focus on launching stores in New York and Los Angeles soon. 

“The secret sauce for us has got to be our physical retail,” Didaskalou told Inside Retail

“In the early days [of July] it was a bit of a flex for us – we knew there was a customer that would need luggage [to travel] the next day, and there’s no e-commerce solution for that. 

“But we’re starting to realise that, when we do our revenue per square metre [analysis], our stores are phenomenally profitable. We want to expand our physical retail presence as much as we can.”

July launched into the US in [2021] when travel in opened up again, and, while its budget pieces didn’t perform well in that market, it’s more premium ‘trunk’ style products are in constant demand and the business “literally can’t make them fast enough”.

And, following its successful expansion into the US, July is likely to try to gain a foothold in the UK with an eye to expanding into Europe.

Under one roof

Back home in Australia, the business’ physical spaces have continued growing, despite the slow return to international travel.

Throughout the pandemic, July decked out its warehouse and headquarters in Melbourne with a new coat of paint, and created a retail space at the front-of-house.

And, though Didaskalou admitted it can be hard to focus on work when customers are shopping just metres away, the feedback gained by having a direct line to its audience has already led to some product improvements. 

“For example, for our ‘carrier lite’ bags, a lot of people have come in and said its too small. And we’ve [been] sitting there, working and listening in, so we made it expandable,” he said. “That insight came from being able to just sit next to the retail store and listening to people.”

Working together under the one roof has also helped the July team to bond, with warehouse, retail and head office workers being able to meet and speak on a daily basis.

Australians “anxious” about delivery times

Throughout the pandemic, Australians’ confidence in shopping online grew by leaps and bounds, and when travel was back on the cards, July saw many more customers shopping its ranges online.

However, after the difficulties delivery providers have faced in the last few years, Didaskalou is seeing far more consumer confidence in buying online where click-and-collect is an option.

“In Australia, there’s still a bit of anxiety around when [online purchases] will arrive,” Didaskalou said. 

“Australia Post and other players have a big job on their hands, [but] people just don’t expect their purchases to arrive anytime soon, so the option for click-and-collect has made things so much easier.”

However, with only two stores in Melbourne and one to come in Sydney, most Australians are unable to use the click-and-collect option at July. 

The way the business deals with this currently is by having several warehouses across the country, and working with small, private courier networks that commit to fast deliveries. That way, if a customer in Perth, for example, purchases a product, it doesn’t have to ship from the other side of the country.

7 Jul, 2022
Why the inflation problem may not be as big as we think
Financial Review

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.

7 Jul, 2022
Metcash boss says shop local trend paying off
The Sydney Morning Herald

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.

17 Jun, 2022
Fruit and veg price surge hits living costs
Forced to reduce margins: Standard Market Company general manager Chris Frame at Newstead, in inner-north Brisbane.

Surging fruit and vegetable prices driven upwards by flooding and increased operating costs for farmers have become the latest addition to household cost-of-­living pressures.

Fresh produce has risen in price across the board, adding to the weekly grocery bill for Australian households, despite favourable growing conditions pre­dicted to provide a record harvest.

The global problem, driven by increased input costs for farmers for everything from fertiliser, chemicals, diesel and labour to transport, was further exacerbated by flooding in vegetable-growing regions in southeast Queens­land and northern NSW.

A federal Department of Agriculture, Water and the Environment spokesman said underlying price pressures would “remain in place at least through to the end of the year”.

In the Brisbane riverside suburb of Newstead, Standard Market Company general manager Chris Frame said he’d been forced to reduce his margins so that customers would not be turned off.

“We’re finding things are so expensive we’re having to reduce our normal margins just so we don’t appear ridiculous,” he said.

“This week, we paid $200 for a box of beans, which is $20/kg.”

Usually a box of beans would cost $7-$12/kg.

“It’s just the nature of the retail game, we have to deal with it,” Mr Frame said. “We’ve never seen prices like this ever before.”

In supermarkets, broccoli was at $3.90 a kg in 2018 and is now $8.90 a kg. A cauliflower, $2 each in 2018, is now $4.50, while an iceberg lettuce, previously $2.80, is now $5.50.

Market analyst Andrew White­law from Thomas Elder Markets said fertiliser and chemical costs had been driven up because of higher gas prices and the war in Ukraine. “You’ve got all these major costs that, up until now, farmers didn’t have any opportunity to pass on,” he said.

“Now there’s a cost price squeeze where the cost of growing whatever it is you grow is increasing at a rate in many cases higher than the price you get at market.”

Ausveg spokesman Tyson Cattle said growers had been absorbing cost of production increases since the Covid pandemic outbreak. “Growers have had a 35 to 45 per cent increase in the cost of production since before Covid,” he said. “On the retail end, fruit and veg prices have gone up only about 7.5 per cent from February 2020 to February this year.”

He said price rises would calm as growers planted and harvested new crops – usually a 12 to 16-week turnaround – but “it’s our view we’re going to have to see a more consistent high price.”

17 Jun, 2022
‘Don’t be shocked’: Grocery prices to jump higher, experts warn
SOURCE:
The Age
Experts predict grocery prices will keep rising for the rest of the year.

Fresh fruit and vegetables, cooking oil and staples such as bread and pasta are among grocery items expected to climb in price as supermarkets and stores face increasing costs along supply chains.

Vegetable and fruit prices rose by 6.6 per cent and 4.9 per cent respectively in the first three months of 2022, according to latest CPI figures. But shoppers hoping for the pinch on their wallets to ease will find little respite, experts say.

“In terms of looking forward, we don’t see any relief for the rest of the year,” said Sean Smith, the chief of Frugl, an app that tracks and compares grocery prices. “Overall, the prices are going to go up. And that will continue.”

A perfect storm of factors has pushed retail costs higher. These include border closures during COVID which has led to critical labour shortages that big business has now flagged as a priority for the Labor government. Floods in Queensland and northern NSW have adversely impacted crops and transportation, while Russia’s war on Ukraine has exacerbated matters by reducing global supply of oil and wheat.

Farmers and retailers have tried to absorb these rising costs over the past few months, Smith said. But “our view is that they’ve really reached breaking point, and they just can’t absorb any more”.

What will cost more?

Soft drinks, instant coffee, cooking oil, some canned goods and beef sausages are among the grocery items that have seen the sharpest price rises. Since the end of 2021, shoppers are now paying 50 per cent more for a 2-litre bottle of Coca Cola and Moccona instant coffee, according to Frugl data provided to The Herald and The Age. Meanwhile, Crisco’s sunflower oil has increased 20-30 per cent.

Baked beans and spaghetti in tomato sauce have risen by more than 30 per cent in some instances, while an eight-pack of beef sausages has increased by as much as 20 per cent.

National Farmers Federation chief economist Ash Salardini pointed to the long-lasting impacts of Russia’s invasion of Ukraine. Together, the two countries make up 30 per cent of global grain supply and are known as the world’s breadbasket. They are also key exporters of vegetable oils.

“Things like bread, anything that requires wheat – I daresay you’re going to be paying 20 to 30 per cent more,” Salardini told this masthead.

Most of that has already been priced in, but there’s further to go, he said. “Don’t expect any drops in the next 12 months. If you see 5-10 per cent increases, don’t be shocked.”

Smith believes the cost of fresh produce will climb. “I don’t think this is coming. It’s happening now,” he said. “The fresh aisles ... are just quite bare.” This will push up demand elsewhere. “If there’s a shortage in fresh [produce] – there’ll be a shortage in frozen as well.”

Coles boss Steven Cain has remarked that the current inflationary pressures were the worst he has seen in some time, while Woolworths chief Brad Banducci said his supermarkets had seen 2-3 per cent price rises.

In response to cost of living pressures, both supermarket giants have lowered the price of hundreds of everyday items. Aldi and IGA noted the entire industry was facing cost pressures that would be passed on to consumers to some degree.

“We remain committed to passing on the smallest cost increases sustainable and maintaining our price gap to the competition,” an Aldi spokesperson said.

IGA stores have individual relationships with local suppliers but customers would probably face cost increases in items supplied by wholesale distributor Metcash, IGA’s parent company.

“Where they have legitimate reasons to increase prices, we will need to pass on these cost increases to our independent retailers,” an IGA spokesperson said. “We help to address the impact of this on shoppers by seeking to supply our retailers with a wide range of products at different price points to provide shoppers with pricing options.”

Australian Farmers Markets Association chair Jane Adams urged Australians to shop at local businesses and markets as a way to reduce costs and ensure a viable alternative to supermarkets, which have much longer supply chain links.

“If the farmer’s input costs are within better control, that balance can be passed onto the consumer,” Adams said, pointing out that local producers have greater control and flexibility over issues such as packaging.

“While you’re doing that, you’re supporting Australia’s farmers and artisan food makers.”

17 Jun, 2022
Woolworths freezes price of everyday items
Woolworths CEO Brad Banducci said a head of lettuce now cost more than $6.

Woolworths Group boss Brad Banducci says due to rising inflation – where a head of lettuce now costs more than $6 – the retailer is freezing prices on everyday essentials such as flour, sugar, vinegar, laundry powder and nappies until the end of the year.

According to an email going out to customers from Mr Banducci this week, the trolley price freeze mostly of Woolworths-branded products, is in addition to the more than 300 products Woolworths added to its “prices dropped for winter” program last month.

Food inflation in Australia began to increase towards the end of last year following years of low inflation, driven by domestic freight costs climbing, shortages of pallets and higher global commodity prices due to the war in Ukraine.

The head of the nation’s largest grocery chain said initially it affected mostly meat and imported products, but had since hit almost every category.

“Most recently, we have seen material inflation in vegetables given the very poor growing season on the eastern seaboard, due to the rain, high humidity and low light levels – hence what you may see on cucumbers, capsicums and lettuces, amongst others,” he said in the email.

“Incidentally, our current price for iceberg lettuce on the eastern seaboard is between $6 and $6.90 a head, much higher than we would like, but our biggest challenge is keeping stock in supply,”

Mr Banducci said because the average family in Australia spent more than $200 a week on groceries, the price freeze until the end of the year on everyday items such as Woolworths Essentials laundry powder, Woolworths pasta and frozen peas and Little Ones nappies was important.

In May, about 40 per cent of Woolworths’ Australian supermarket suppliers had asked for an increase to prices. That represents 50 per cent of its sales, which jumped 5.4 per cent to $11.43 billion in the third quarter.

Average prices rose 2.7 per cent in the March quarter at Woolworths, with increasing shelf price inflation driven by industry-wide input cost pressures and lower promotions on products due to stock availability issues.

All companies are battling rising costs from logistics and energy costs to labor, which is set to worsen with the Fair Work Commission’s decision on Wednesday to increase the minimum wage by 5.2 per cent worth about $40 a week from July.

Woolworths and, to a lesser extent, Coles are also taking advantage of rising prices to expand their gross margins – for example, lifting shelf prices by 10 per cent when wholesale prices rise 8 per cent – to offset pressure on their own cost of doing business.

The retailers walk a fine line as they want to avoid being seen as taking price when their customers are grappling with surging costs of living.

Supermarket rival Aldi was quick to jump on Woolworths price freeze, with a spokesperson telling the Financial Review that its low price model means “quantifiable savings on your whole basket every time you check out” rather than just promotions on a select-range of goods.

A recent Aldi Price Report, with research undertaken by PwC and data analytics group YouGov, revealed that last year the chain saved families almost $2,500 each.

“With inflation continuing to impact Australians’ weekly grocery shop, it is our ambition to take as much stress out of the weekly shop as possible, so that every time someone walks through our doors, they can be confident that they are getting the best prices on the highest quality groceries, across their whole basket,” an Aldi spokesperson said.

Coles did not reply to questions about if it too will offer a similar price freeze on everyday items to ensure continuity of price for customers until the year-end.

17 Jun, 2022
Tip of the iceberg: Let us explain why more veggie prices will rise
SOURCE:
The Age
Vegetable growers Marco and Amo Mason on their Werribee South farm.

This time last year, Marco Mason had just finished ploughing 12 hectares of iceberg lettuce back into the ground after frost all but destroyed the crop.

Now, the humble vegetable is among his star performers, fetching record wholesale prices and helping offset the rising cost of production at his Werribee South farm.

Earlier this year, Mason watched in disbelief as the wholesale price for a box of 12 lettuces soared from the typical $20 to $100.

“Every second or third day, it was going up by $10 a box,” he said. “It probably will be our most profitable year yet.”

The iceberg lettuce, previously considered among the least sexy of leafy vegetables, captured headlines when prices hit $12 a head. A shortage of supply has only made the iceberg more desirable.

Fast-food chains struggled to secure enough lettuce for their burgers, with KFC switching to a lettuce/cabbage blend.

Although prices are now about $6, this is a substantial increase on the sub-$3 last year when there was far less demand for iceberg lettuce. At the current price, iceberg lettuce rivals affordable cuts of meat or chicken on the family dinner table.

Mason said widespread damage to farmland caused by devastating floods in Queensland was the single greatest cause of skyrocketing iceberg prices.

Not only were crops wiped out in the floods, but farmers in fertile growing regions cannot run tractors on sodden fields to plant more vegetables.

Queensland is a major supplier of lettuce, particularly during the cooler months in Victoria.

The 2020/21 Australian Horticulture Statistics Handbook showed Queensland accounted for 37 per cent of fresh lettuce varieties, compared with 43 per cent in Victoria. Queensland’s production reached almost 51,000 tonnes of lettuce in that year.

This week, Mason’s farm was harvesting the last of its iceberg lettuce crop, which was spread across about 162 hectares. He said the price peak had probably passed for iceberg and there would be a market correction within a fortnight.

But Mason said wholesalers were preparing for more price hikes in other vegetables, including broccoli, amid further supply gaps in Queensland.

“A lot of vegetable lines will be pretty expensive over the next few months,” he said.

In Woolworths’ latest fresh market update, fruit and veg general manager Paul Turner said heavy rain and low sunlight in Queensland had resulted in reduced supply and quality of many vegetables.

“We’re still seeing challenges with lettuce and berry supply, so while the new crops have been planted, it will take a few weeks for stocks to return to more stable levels,” he said.

A Coles spokeswoman said floods in northern NSW and Queensland earlier this year, in addition to recent cold weather, had impacted supply of lettuce, berries, beans, tomatoes, broccoli and herbs.

National Farmers Federation acting chief executive Ash Salardini said the pandemic had also caused havoc for the freight industry, and that was particularly problematic for the highly perishable iceberg lettuce.

He said the extra spoilage of crops might also contribute to higher prices.

“Iceberg lettuce does not last very long,” he said. “It has a very short shelf life.”

AusVeg spokesman Tyson Cattle said the sharp increase in lettuce prices was caused by the lack of supply from Queensland.

“This time of year, Victoria doesn’t have the capacity to backfill that supply,” he said.

He said farmers in Queensland food bowls, including the Lockyer Valley, were unable to run tractors on flooded fields.

However, he said the iceberg price boom did not necessarily mean farmers who were able to harvest their crops were reaping huge profits.

Cattle said the cost of production had increased by up to 45 per cent in the two years to February. But retail prices had risen only 7.5 per cent in that period, he said.

Cattle said workforce shortages had resulted in many farmers reducing their production levels.

3 Jun, 2022
Advertisement Companies Retail Print article Beer and wine shoppers still a little timid at large malls
Steve Donohue, the chief executive of Endeavour Group, which owns the Dan Murphy’s and BWS liquor chains

The chief executive of Endeavour Group, which owns the Dan Murphy’s and BWS liquor retailing outlets, says foot traffic in large shopping malls has not fully returned to pre-COVID-19 levels but a “degree of normality” is back in strip shopping and stand-alone stores.

Steve Donohue said on Thursday the group was also experiencing solid demand for the large volumes of new products on its shelves, and that was helping to preserve profit margins at a time when inflationary pressures in the supply chain are rising.

Mr Donohue said the group aims to open between 20 and 30 outlets annually, with emphasis on Queensland and South Australia.

Dan Murphy’s, in particular, has a strong base in Victoria where the business started, while expansion in Western Australia is harder to pursue because of regulations around the granting of new liquor licences.

Endeavour operates 258 Dan Murphy’s stores, 1411 BWS liquor outlets and a hotels business with 340 outlets. It is a large player in gaming through a combined 12,400-plus poker machines across many of those hotels, making it the largest owner of poker machines in Australia, and the third-largest gaming operator in Australia after Crown Resorts and The Star.

About 60 fund managers and investors went on a tour of some of Endeavour’s pubs and retail outlets in Melbourne on Thursday as part of an investor day, and Mr Donohue spoke to The Australian Financial Review by phone mid-afternoon.

Endeavour was demerged from supermarket giant Woolworths and listed as a separate entity on the ASX in June last year. Woolworths still retains a 14.6 per cent stake in Endeavour.

Endeavour shares had gained about 25 per cent in the 11 months since the company became a stand-alone entity, but slid on Thursday by 6 per cent to $7.20.

Mr Donohue said it was difficult to forecast what effect rising electricity prices would have on the group’s retail and hotels operations, with energy prices one of the components of general inflationary pressures. Rising wage pressures in an industry where labour shortages are common, rising rents and increased prices of goods from suppliers were all feeding into costs increasing.

Endeavour is making sure it tailors its product range carefully to local catchment areas.

“People really want locally made products,” he said. This had been starkly evident in the large amount of new gin products on the market, and in the craft beer segment.

“You are getting a very bespoke range in local stores.”

Dan Murphy’s and BWS made huge gains in their online businesses during the pandemic as at-home consumption rose sharply. Foot traffic volumes into bricks-and-mortar stores in stand-alone locations and in strip shopping venues were “returning to a degree of normality”.

But large shopping centres were still some way off, with people still showing some reluctance in those venues.

“I think malls haven’t quite got back to pre-pandemic levels,” he said.

Endeavour Group said its new product development pipeline for the liquor stores was running at about 11,000 new stock-keeping units a year, compared with 5000 in 2015. New products coming onto the shelves generally bring higher margins because they are not subject to the same level of discounting which tends to be prevalent in older brands.

MST Marquee analyst Craig Woolford said a capital spending forecast of between $320 million and $460 million annually may result in some small downgrades to cash flow forecasts. He has a “hold” rating on the stock and a 12-month price target of $7.45.

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