28 March, 2017
Courtesy of the Australian
Woolworths chief executive Brad Banducci has warned that rising energy costs will eventually force the food giant to increase grocery prices.
Mr Banducci, speaking at a business forum in Melbourne on Tuesday, said while Woolworths was trying a range of strategies to cut energy costs, including installing more energy efficient lighting and refrigeration, energy cost increases would more than outweigh these savings.
“We manage what we can manage with energy efficiency. But given the cost increases that are coming through right now, we are trying to outrun a bear, but I am not sure we can,” Mr Banducci said.
“We will have to in some way, very cautiously and carefully, pass those through to our customers, unfortunately.”
Mr Banducci said Woolworths was working to understand the full impact of energy costs rising. He said the company has a range of an energy contracts and so rising costs will flow through over an extended period.
“We are doing a lot of work on at the moment, and I just don’t know the answer right now,” he said when asked when price increases might start filtering through.
“But it is a concern. It’s just a question of timing.”
Any energy-related price increases would break a long run of falling grocery prices in Australia.
Woolworths has invested more than $1 billion in lower prices and improved service as it fights to wrest back market share from rival Coles. Woolworth sales increase 3.1 per cent in the December quarter, the fastest growth since July 2014, besting Coles like-for-like sales growth for the first time in more than seven years.
Mr Banducci said on Tuesday that Woolworths had “more work to do” on price and denied that the company’s move to cut prices had come at the expense of its suppliers.
“What we’ve been trying to address is that customers need products that are affordable and they need trust on price,” he said.
“You are not seeing a profit shift from one side of the supply chain to the other.”
Mr Banducci said Woolworths energy bill, which is $360 million, was increasing as the company focused more on health food, which Mr Banducci has made one of his priorities.
Health food tends to be fresher than mainstream food, and therefore need more chilled space on the supermarket floor
But the Woolworths chief said that while research showed 60 per cent of shoppers want to buy healthier food, affordability is a roadblock. He said organic food, for example, was on average double the cost of non-organic alternatives.
“We do need to make these products affordable,” Mr Banducci said.
Despite the high prices, Mr Banducci said that increasing the number of “good for you” products in a store had been shown to drive sales.
In Woolworths new Warringah store, for example, there were 35 per cent more healthy food products than in a standard store, but sales were up 45 per cent.
Mr Banducci said three “superfoods” were the biggest sellers in Woolworths fruit department: berries, which account for 25 per cent of fruit sales, followed by bananas and the hipster favourite, avocados.
A Coles spokesman said that the chain “has recorded price deflation every year for the past seven years, and we are committed to continue lowering the cost of a weekly shop for our customers.”