In the current cost of living crisis does OzBargain believe that Coles and Woolworths are price gouging?
Do You Believe Coles/Woolworths Are Price Gouging in The Current Inflation Climate?
Iwantthebestprice on 08/09/2023 - 22:50
Last edited 09/09/2023 - 09:22 by 1 other user
Last edited 09/09/2023 - 09:22 by 1 other user
Poll Options
- 311Yes
- 44No
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Comments
Ignorant comment. Net margin ~2%.
Should a business 1000x the size of another earn the same $ profit?
Ignorant comment indeed "net margin 2% as one needs to delve further into the balance sheet to fully understand their profitability.
The food division sales increased yoy by 5%, yet the EBIT increased by over 19% - clear evidence they are price gouging.
The balance sheet shows their current financial position, not their financial performance for the year.
Their profit statement shows their financial performance, but as it is somewhat subjective, can be fudged by accountants.
Woolworths is generally pretty good with accurately and consistently reporting their performance, so the accountants haven't massaged the numbers too much.Looking at their margins:
Gross Profit (GP) margins increased slightly to 26.71% from 26.25% in 2022.
Earnings Before Interest and Tax (EBIT) margins increased slightly to 4.66% from 4.42% in 2022.
Profit Before Tax (PBT) margins increased slightly to 3.61% from 3.44% in 2022.
And Net Profit After Tax (NPAT) margins decreased slightly to 2.53% from 2.56% in 2022 (they paid a higher % tax in 2023, hence the lower NPAT margin).Based on the above, I wouldn't call that excessive price gouging. Its all pretty normal and within reason.
Some divisions will have higher margins and greater profitability, but others will be lower.If you don't trust the Profit Statement, then look at both the Balance Sheet and Cashflow Statements together to determine performance.
All the Financial Statements are linked, and if you look through them properly you can sometimes find discrepancies.@Malik Nasser: Are you talking about the P/L for the Woolworths entire group, of just the food division which this thread is implied to discuss?
Two entirely different scenarios
Gross Profit (GP) margins increased slightly to 26.71% from 26.25% in 2022.
Is that the markup, rather than profit? Revenue vs amount paid for goods? Probably a lot lower than most retailers.
@bargaino: Yes.
GP is Revenue less cost to purchase the goods from their suppliers (COGS - cost of goods sold).
EBIT is GP less operating expenses (operating expenses being wages, rent, insurance, depreciation and amortisation, etc…)
PBT is EBIT less interest expense (and/or plus interest earned on cash)
NPAT is PBT less tax paidAll 'margins' is just that value divided by the revenue (so % of revenue):
GP margin = GP/Revenue (as percentage)
EBIT margin = EBIT/Revenue (as percentage)
PBT margin = PBT/Revenue (as percentage)
NPAT margin = NPAT/Revenue (as percentage)
Ignorant calculation.
You look at trends in total amounts over time like Malik Nasser's below (and excl one-offs, etc.), not change in, especially for small balancing items such as EBIT. What if there was a big one off expense item last year, such as allowance for COVID operations?
Predict same same poll result as 'does a bear shit in the woods'.
if a tree falls in the forest, does it make a sound?
Does a cow moo?
Where is the hell yes option?
It's not a matter of belief. It's a fact. They are
Where is your proof?
If the cost for them to purchase their goods and services has also gone up, is it unreasonable for them to pass it along to the end customer?
Looking at Woolworths, their Net Profit margin has actually gone down in 2023 Vs 2022 (2.53% from 2.56% in 2022).
What facts do you have that show otherwise?The answer to your question is driven by the same equation as fuel cartel gouging. They can, so they do, and they are
Cartels can price gouge, but it will also show up in their Financial Statements as greater profitability (hence the proof).
For Woolworths, while they are in somewhat of a duopoly, their profitability has not increased materially.
Yes their prices have gone up, but their expenses have also gone up. Their profit margins have remained relatively stable.
They are just passing on the increased expense to the end customer, but have maintained their cut as a middleman (not outrageous price gouging).
That's only because their tax burden changed significantly in 2023, if you take EBIT their margin went up.
The facts to show otherwise is that the Australian Food Business 5% increase in sales and a 19.1% increase in EBIT. EBIT to sales for the Australian Food Business rose 70bps, from 5.3% to 6%. For a supermarket where margins are low and people don't tend to drastically increase or decrease the amount they eat that's absolutely insane.
With all the claims of keeping prices low, passing on benefits to the customer and Woolworths own brands being a better deal for customers, you'd expect EBIT to increase in line with sales.
It makes sense too. If they kept margins steady then Woolworths would have to hope something like 10% of Coles customers would come to them to make the same amount of dollars. That also requires huge capital investment. The complete lack of competition in the market means that both sides are better off just increasing prices to see where the top is that people will pay.
I haven't looked too deeply into their report.
Regarding the 5% increase in revenue which increased EBIT by 19.1%, this is operating leverage, and what you would expect of any good company.
As they sell more, the marginal cost per unit decreases.
Regarding lack of competition, I would think they have a decent amount of competition (Coles, Aldi, Costco, Metcash/IGA, other independent grocers).
They are essentially just a commodity business, and their competitive advantage is their size.
If neither Coles or Woolworth were around then prices would be considerably higher.
They are providing a valuable service, people just take it for granted.
If they tried to get too greedy and raise their prices too much, then more competition will enter the market, so they would essentially just be shooting themselves in the foot.I haven't looked too deeply into their report.
You asked for evidence, here it is, then you doubled down on what you kept saying.
Competition won't quickly enter the supermarket industry, it's silly to believe that capitalism works like that. If anyone tries enter it will take them years, they won't have supplier contracts and once they get into the game Coles and Woolies will just drop their prices to win back customers.
@freefall101: That's fair enough.
In saying that, I at least spent a few minutes to look into their reported financial report to check the numbers before commenting. That's a lot more than 90% of the people here making gut feeling comments.
Regarding competition, yes it will take years before anyone would consider entering, but once they do enter, even if Coles and Woolworth do drop their prices, they will not exit quickly. They will have incurred significant cost in setting up shop, so will persevere for as long as possible, even if it is only marginally profitable. More competition is a win for customers. So in the short term customers will be screwed over, in the long term customers will win. Coles and Woolworths are relatively smart, so they will not want to entice another competitor into the market. They are unlikely to seriously price gouge.
Coles and Woolies will just drop their prices to win back customers
Isn't this what we all want?
It's a free market, they can put the prices at whatever they want.
If you think a product is overpriced, buy something or somewhere else. Or don't buy it at all.
That's what I do. People are too lazy to walk across the road to aldi I guess.
a lot of people comment they dont have an aldi close by and are kinda forced to shop at the two because of lack of options….think outer outer suburbs
Queensland is a large state; Aldi only has shops in the SE bit, mostly Brisbane. If you live regionally have have to pay exorbitant prices for food. You can't "shop around".
I noticed Aldi price rises on butter chicken & tuna this week
Interesting response to this. I don’t believe the “Murdoch media empire” manufactured 30% electricity and gas price increase, or rent increase in all capital cities by 27%, or fuel which is up almost 43% year on year. Or the fact that:
“In grocery products, the biggest increase was found in dairy products, which had an annual price increase of 14.9 per cent.”
And this is from the SBS so far from your war cry of “Murdoch media empire” bullcrap.
https://www.sbs.com.au/news/article/these-are-the-grocery-it…Maybe go back to under the rock you came from if you think that half the county ain’t dealing with a crisis while coles and wollies both post +1 billion $ profits..
lol…we cant afford groceries, utilities, fuel, rent & mortgages because….."mUrdOch!"
give me a (profanity) break
What sort of lunacy is this.
Their Fuel servos are even worse.
100% they are. The only thing that keeps me going to Woolworths at the moment are the 90% markdowns each day. The shopping experience is miserable though. Looking at shelf prices just makes me angry. Then those hundreds of cameras dangling from the ceiling, the AI checkouts, playing back recodings of you scanning groceries.. not fun any of it.
You’re lucky that you still get 90% markdowns. Both my local wools and coles now give really low markdowns, often only 5-10% on the day of best before and it’s common to see meat past the best before without any markdown. A couple months ago I counted over a dozen different types of meat products that were past the best before.
All the stores around me have been doing them, even the stingey one which never used to. They sometimes vary the time though which makes it a bit difficult.
The amount of theft they experience is astronomical, there's no wonder they're heavily investing in tech to prevent shoplifting.
Due to those few that do steal means the rest of us have to be watched like hawks.
Be happy!
England had something like 20% grocery price hikes post covid.
Here we have a flatten the curve issue.
Eat less, shed some weight!…so ya reckon 2 weeks until the prices go back to normal and we can afford potato chips again?
nah, 2 - 4 years and everything will double in cost!
People who are feeling the pinch may buy Homebrand stuff instead of the branded commodities where WoolColes can make a larger margin on instead of just shelfing revenue.
just shelfing revenue.
Sounds painful
You would be a fool to not believe so. Unless you are an American Slave who believes in Capitalism. Just keep this in mind you are still in doubt - Woolies and Coles made more than a billion dollars in profit, Mind you not revenue.
Coles - 1.1bn [net profit]
CEO salary - 3.3mWoolworths - 1.62bn [net profit]
CEO salary - 7.6mim going to say yes
[source nab trade]
I'd be pissed if I was the Coles CEO …. maybe they get other options as part of salary package?
Since groceries is a need, they fully aware of what they are doing.
It's also interesting that the duopoly has more than 70% grocery market share in Australia where as other countries, larger chains is no where near 70%, most are under 40%. I understand Australia has a small population, but doesn't give the excuse to rip into everyone, if anything, from how large they are and the amount of PROFIT they made, their prices should be lower.
So throw away profit & greed,
and there won't be any thieves.
There should be a poll option that says F$#$% O@th.
There won’t be a middle class anymore, the rich get richer and the poor get poorer
= communism
We're witnessing it right now in capitalism so…
The classic
*Points at problems under capitalism*
"This is what would happen under communism"
Gouging depends on profit margin, not profit. Walmart for example made a profit of 40B in America.
Are they increasing their profit margins? Yes, but I look at companies like Cadbury who's profit margins have increased way more. If we think groceries jumping 20% is due to Colesworth price gouging, you're being mislead.
We should be targeting this corporations instead of just attacking Colesworth.
I'm honestly more annoyed at eating out these days, it's like $20-$30 for $3 worth of ingredients or $21 for a cocktail with 2 shots.
They are, and so are everyone else. And when information comes down, you can bet prices won't.
No, instead I think local markets / grocery stores are suicidal, otherwise how could they sell everything so cheap (in comparison with Colesworth)?
And since I'm a terrible person, now I buy most groceries from those low price suicidal local markets to show my support to Colesworth.Woolies data reveals Aussies are moving away from healthy diets
Australians are not eating enough vegetables
Translate: Aussies no longer buying veggies from us
So a combined 2.6 Billion in profit between the two of them. Given the vast majority of households shop at one or the other, and there is approx 9.3 million households in the country, that's only around $5 profit per week from each household. Given the scale of the two businesses, the convenience they offer in terms of all food items in one place (I won't go off topic into the inconvenience of self checkout etc etc), and the number of locations, hours open, etc, I don't think it's too unreasonable that they get to keep a whole $5 out of the $200 to $300 (or more) that each household spends with them on food each week. Yes 2.6 Billion may sound like a lot as a stand alone figure, but just look at the sheer volume of what actually goes through those businesses, and it's only a tiny percentage left as profit.
(I do think there are plenty of other unscrupulous things they do, if not completely dodgy, but I don't think $5 a week per household for then convenience and availability they offer is unfair.)
Yep, people always mention Aldi but they've got no where near the amount of stores, range, quality of goods, and the same opening hours Colesworth does. There's been reports saying Aldi has a higher profit margin than Colesworth but no one says anything.
You're right. If something like roast chicken that is not easy to deal with in-store, Aldi simply does not sell it. It smartly only deals with profit steady stuff, operates for effective business hours period.
Which is completely fine, it's great we have options and we should have more competition but people need to realise there's a reason Aldi is "cheaper" like you said, just like how markets sell fruit and veg at half the cost but people still shop at Colesworth, the cost of moving the goods and having a larger store costs more money…
Question: What is the average markup on food in Colesworth? 100%? It seems like there is an enormous difference between what a farmer is paid, and what we pay to purchase an item from a retailer.
Moving beyond food, factories can mass produce items at an incredibly low cost per item/unit, but at retail we can pay 10 times as much for a single item. I recall somebody posting about needing a part for their truck. A local retailer was charging $200; they end up purchasing 10 parts for $140 from a Chinese wholesaler. I really resent distributor and retailer gouging. We need a command economy where the government sets the price of everything (well, at least essential items) to prevent greedflation.
For Woolworths, Gross Profit (GP) margins were 26.71%.
So for every $100 spent, $73.29 goes back to the supplier / manufacturer, and Woolworths get $26.71.
After paying their operating expenses (wages, rents, insurance, administration, etc…), they are left with $4.66.
After paying interest and tax, they are left with $2.53, which they can either keep within the business, pay down debt, or otherwise distribute to shareholders.
Let's return these figures to rough DOLLARS. Cost of goods sold $47 BILLION. $17 BILLION gross profit. $1.6 BILLION net profit. Looks pretty different to "left with $4.66".
I've no real problem with Colesworth. If you don't like the way a company is behaving, don't deal with them. Full stop.
You're saying you don't think you pay farmers enough, and want to pay more. Sounds reasonable, but I'm out, thanks.
Yes, why wouldn't they?
They are a business, to make a profit.
Also, this inflation is consumer driven, whilst consumers continue to pay silly prices the prices will continue to inflate. YOU ARE THE PROBLEM
Change your spending habits, shop elsewhere and only buy on special etc.253 people voted yes but barely a shred of evidence. It's just as bad as reddit.
Ok, your comment implies you're a no voter. So where's your evidence that they're not?
Looking at their profit margins compared to other companies like Cadbury and even other supermarkets like Aldi. It's mostly been mentioned on this thread. I just mean there's more evidence from people voting 'no' then people voting 'yes' despite being disproportionately larger.
If Woolworths and Coles are price gouging, then so are Aldi, IGA, Drake and every single supermarket in Australia.
Do you guys really think its some secret conspiracy and everyone is colluding to keep prices high?
Absolutely ridiculous. Everyone are just acting like sheep and whining about Coles/Woolies without coming up with their own opinion.
If you are going to come in and make claims… why don't you back them up instead of whining like the rest?
It doesn't matter squat what any of you think unless you own shares. You're the customers stuck in a duopoly that Colesworth has worked hard and spent a lot to create. Now, value is returned to the shareholders.
Stop expecting companies to have morals. They do not. They exist to maximise profit for shareholders.
If you don't like this, go talk to your local member. This situation exists because of legislation.
p.s. I invest ethically according to my morals, and suggest you do the same.
