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The lure of being caught up in the wave of detractors who blame the cost of living woes on corporate greed and price gouging is stronger than it’s even been. Coles’ latest billion-dollar profit will only embolden that chorus.
Talk back lines are choked with callers denouncing big business as profiteers that are punishing cash-strapped households to fill their coffers.
Coles boss Leah Weckert has delivered her first result.
But as Coles boss Leah Weckert found out on Tuesday, while some are criticising the company for making too much money, the retailer’s shareholders are criticising it for not making enough.
Coles’ shares slumped over 6 per cent on the back of its results. The retailer’s earnings before interest and tax landed a whisker shy of $2 billion in the 2023 financial year. Net profit for the period came in at $1.09 billion.
When it comes to answering their critics, Weckert and Commonwealth Bank boss Matt Comyn (who delivered a record $10.2 billion result earlier this month) are singing from the same hymn sheet. Their companies need to be solidly profitable to provide services – be they loans or groceries – and employ hundreds of thousands of workers.
Attempting to explain why any company isn’t earning too much money requires chief executives contorting their sales pitch.
It’s an unnatural and uncomfortable position when companies employ armies of people whose purpose is to send out a message pushing the strength of their profit performance. But large consumer-facing companies these days have to satisfy both shareholders and customers – who often hold opposing views.
To be sure, maximising profits is embedded in the DNA of most companies, and there are a number of industries that have over capitalised on their pricing power to drive profits and returns to shareholders.
Aviation and insurance are two that stand out, as does telecommunications to a lesser extent. However, some companies deliver big profit numbers just because they are particularly large and Coles fits neatly into that basket. It has a market capitalisation of $22 billion and 800 stores.
It did produce sales that were around 6 per cent ahead of last year, but that reflects food inflation – which is real.
In other words, the wholesalers and manufactures that supply Coles increased their prices which were passed onto customers. Coles’ margin on those sales barely rose.
The company said food price inflation for the 52 weeks reached 6.7 per cent – easing during the year from 7.4 per cent in the first half to 6 per cent in the second. And it continues to come down with the fourth quarter at 5.8 per cent.
Some categories like vegetables are already experiencing deflation, as is meat. But dairy (higher farm gate prices) and bakery items (higher wheat prices) remain sticky and there are no signs of improvement.
There is clearly a movement in other countries like the UK to put some controls around food pricing, but the push in Australia for price caps on essential foods has been fairly muted.
And while cash strapped consumers are questioning Coles’ contribution to their hardship, the shareholders are unhappy with the result – thumping the grocery giant’s share price on Tuesday.
Meanwhile, analysts were disappointed that supermarket earnings in the second half (as opposed to group earnings) came in 5 per cent below year-on-year.
While higher wages and provisions for employee entitlements pushed up costs, Weckert is also dealing with another significant profit cruncher – theft.
It’s on overseas phenomenon that has now seemingly found fertile ground in Australia. It stems in from rising cost of living pressures but also what Coles labels as organised crime, where higher value items like cosmetics are stolen and sold on the black market.
Coles has announced another major cost reduction program, the proceeds of which will partly be allocated to “investing in price”. So, prices of some things on Coles’ shelves will come down.
And while supermarkets say they invest in price to ensure all Australians can feed their families healthily, the reality is this squarely a business decision.
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