Probe call as supermarket profits exceed food costs
Woolworths New Zealand's underlying profit margins have increased much faster than the cost of food for the past three years.
Australian-owned Woolworths, which operates Countdown supermarkets locally, said the results were due to improved efficiency, but the Green Party said an investigation into supermarket pricing is overdue and the industry is in need of tighter regulation.
Calculations by the Sunday Star-Times show that once unusual costs and income are stripped out of Woolworths NZ's accounts – items such as losses on the company's investment in The Warehouse and the impact of the Christchurch earthquakes – the business posted year-on-year increases in earnings before interest and tax of 14.3%, 19.3% and 9.6% over the period.
Recorded food inflation over the same time-frame was 7%, -0.7% and 7.5%, according to Statistics New Zealand.
The supermarket operator's latest financial statements show that it earned gross revenue of $22.33 for each $100 of sales shoppers put through its tills in the year to the end of June 2011. That was up from $21.95 in 2010 and $21.61 the year before.
That's higher than UK chains Tesco and Sainsburys, which earned gross revenue of 8.30 and 5.50 respectively for every 100 that went through their tills.
Green MP Mojo Mathers said the country needs to act on food prices, and promote "genuine" competition.
"We are overdue for an investigation into supermarket pricing practices," she told the Sunday Star-Times. "We need a supermarket code of conduct and a supermarket ombudsman set up to enforce the code."
Such measures, now established in the UK and being considered in Australia, will help create a level playing field for consumers and producers, Mathers said.
Consumers and growers are being squeezed by the pricing practices of the two main New Zealand supermarket chains, she said.
However, Woolworths said its margin and earnings improvements are the result of investment in efficient systems that have delivered food price increases below the rate of inflation.
"We think there is a really great business story in our results over the past three years, which, in the main, is due to the significant investment Woolworths has been making in Progressive Enterprises and our brand Countdown," said Dave Chambers, the managing director of Woolworths' subsidiary Progressive Enterprises.
"This investment in new systems, new warehouses, and new and refurbished stores is now well in excess of $1 billion and has meant our Countdown stores are more appealing to customers, as evidenced by our sales growing ahead of the market," he said.
As a result, the company has reduced wastage, stock losses and trimmed stock in the supply chain.
Chambers said retail food prices at Countdown, including the 2.2% impact of the increase in GST, was 4.8% for the year between June 2010 and June 2011, compared with an official 7.5% rate of food inflation over the same period.
"We have invested in our total supply chain, and as a result we have been increasing the number of suppliers who distribute through our distribution centres, rather than direct to store," Chambers said.
"This increases the gross margin on those products, as we have to recover the warehousing and transportation costs now in our system.
"The benefits of reducing the number of deliveries to a store is significant in increasing efficiency, thereby reducing costs."
Chambers said less than five cents in the dollar before tax represents a relatively modest return, compared to other industries.
- © Fairfax NZ News