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Coles and Woolworths profit: Sad reason behind supermarket giants' success

As Aussies pull back on spending, the supermarket duopoly benefit - but there is a light at the end of the tunnel.

Coles and Woolworths have both recorded multi-billion dollar profits, and one of the key factors is rather depressing. While the cost of fresh food has dropped across the board, we’re buying more of it because we can’t afford to eat out as much with friends and family.

Coles has posted a $9.2bn first quarter sales revenue, an increase of 4.7 per cent on the same period last year. While major rival Woolworths posted their own results, showing a $12.96bn in food retail sales, an increase of 6.1 per cent.

Australian households are feeling extreme pressure as the cost of energy rises, a housing shortage puts pressure on the rental market and everyday necessities like petrol continue to climb. This is pushing inflation up, and the trickle down effect is that Aussies simply can’t afford to eat out.

Have you got a story to tell? Contact belinda.grantgeary@yahooinc.com

Coles Woolworths profits
Coles and Woolworths are raking in profits as cash strapped Aussies have no choice but to head to the supermarket. (Credit: Yahoo Finance Australia)

Coles, Woolies cash in on takeaway troubles

"Aussies are trying to scrimp and save wherever possible but the money we're not spending on going out or takeaway food usually just funnels back to the supermarkets,” financial expert David Koch told Yahoo Finance.

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"And when prices go up they seldom come down as we all get used to paying more for less. The mega-store duopoly doesn't help either as there's less competition to help drive down prices.”

Fortunately, the latest Bureau of Statistics inflation data shows the cost of fresh food went down by 6.4 per cent from a year ago. But it’s still one of the biggest financial pain points for Aussies, who are heading to major supermarkets more often instead of wining and dining out or even ordering in.

More than a third of Australians said the rising cost of groceries has had the biggest impact on their budget and was the biggest financial burden, above mortgage repayments and energy prices, according to a Compare the Market survey.

The data shows that the average Aussie spends $199.46 on groceries per week, which is around $864 a month or $10,372 a year and a $1,565 jump in yearly spend from 2021.

There’s light at the end of the tunnel

But Koch said the supermarkets’ results could show “some inflationary light at the end of the tunnel”.

"While insurance, energy and petrol prices are driving the CPI, Woolworth's update had this comment…

'Importantly for our customers, inflation in our Food businesses continued to moderate over the quarter driven mainly by deflation in Fruit & Vegetables and Meat, as lower input costs in these categories have led to lower retail prices.'

"So good signs from the coal face that supermarket price increases could be heading back to normal,” the Compare the Market economic director said.

What’s behind Coles and Woolworths profits?

The price of fresh produce – including meat, vegetables, fruit, deli items and bakery products – has dropped 12 per cent at Woolworths and 14 per cent at Coles compared to a year ago

Inflation excluding tobacco and fresh food was at 5.7 per cent for Coles compared to the previous year and 4 per cent for Woolworths, driven by high milk, cheese, egg and oil prices.

Coles said customers were “increasingly eating and entertaining at home, seeking out loyalty points and bonus offers, and looking for more affordable alternatives as they seek more value in response to cost-of-living pressures.”

It also attributed its $9.2b sales revenue jump to the Magical Builders collectable campaign. The Harry Potter paper figurines were sold at Coles and Coles Express.

Loyalty programs across both supermarkets also saw a boost, with Flybuys increasing members by 9.9 per cent amid a 22 per cent jump in member only offers.

Woolworths made a play in August to drop prices for members which played into its 6.8 per cent growth in Everyday Rewards membership.

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