Supermarkets set to pass rising costs on to customers: Citi

AFR – WOOLWORTHS CEO. Reporter: Sue Mitchell. Woolworths Leichhardt supermarket, Leichhardt Marketplace Photo shows, Woolworths CEO Brad Banducci pictured at their Leichhardt store as he points out what woolies is doing to win back customers and restore sales growth . Photo by, Peter Rae Thursday 20 October, 2016 Photo: Peter RaeShoppers should kiss goodbye steady prices in the supermarket.


Supermarkets are paying more for electricity, meat and fruit and vegetables, and will soon pass these price rises on to customers, said investment bank Citi.

“Australian supermarket industry growth is near 30-year lows of 2.5 per cent,” said Citi analysts led by Craig Woolford. “The reason is a simple one. Price inflation is absent in this market.

“Cost pressures are building around raw materials and energy prices, which is likely to trigger higher inflation in our view.”

The analysts point out that sugar, palm oil, coffee, dairy and oil prices are all up by double digits in the past year, and raw material ingredients and packaging in grocery items accounted for about 20 per cent of retail prices.

Furthermore, the analysts note that meat prices are on the rise due to export demand, and fresh produce inflation will rise by between 5 and 10 per cent in the next three months given flood and cyclone damage.

Woolworths chief executive Brad Banducci recently warned that soaring electricity prices were a “material issue” and would lead to higher prices on the shelves. At $360 million a year, electricity is Woolworths’ third largest cost, behind labour and rent.

“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 in late March.

“We will have to in some way, very cautiously and carefully, pass those through to our customers, unfortunately.”