Woolworths confesses to higher margins in Australia

Posted by Daniel Palmer on 20th May 2008

Woolworths Chief Executive, Michael Luscombe, has admitted at the ACCC’s grocery price inquiry that Woolworths’ mark-ups are higher in Australia than New Zealand.

Mr Luscombe said the margins are lower in New Zealand because Woolworths is not the price leader there. “We may have to sometimes reduce prices further in New Zealand to make money,” Mr Luscombe said. Woolworths’ New Zealand businesses have not been in operation anywhere near as long as their Australian operations and this is suggested as part of the reason behind lower margins. “The issue in New Zealand is we have a very strong competitor who has been very stable for a long time.”

Mr Luscombe did, however, indicate his belief that competition was as strong in Australia as in New Zealand.

Mr Luscombe also disputed the ACCC’s claim that about 80 per cent of the market share in the Australian grocery industry is held by Woolworths and Coles; outlining internal polling which indicated Coles has just under 25 per cent and Woolworths just under 31 per cent. The claim was met with astonishment by ACCC Chairman Graeme Samuel, “Who’s got the rest?” Mr Samuel asked. If the figures provided by Woolworths are accurate it would mean that over 40 per cent of the market is made up of independents – a surprisingly high figure in the eyes of the ACCC Chairman.

Woolworths did admit they had higher margins in Australia than five years ago but maintained their prices were cheaper than those of their competition, with food costs a primary driver of recent high inflation. They also disregarded a recent survey conducted by consumer group CHOICE which found Woolworths prices to be 8 per cent higher than Coles.

The grocery price inquiry is nearing the end with Coles due to front up in Melbourne next week and the final report to be produced by July 31. The meeting with Coles will be particularly interesting in the wake of comments made yesterday by Mr Samuel regarding statements by both IGA and Woolworths – both companies have implied store managers are instructed to match prices of their competition. “If Coles’ instruction to its managers is exactly the same as Woolworths, we’ve got a pretty cosy arrangement at that stage, haven’t we?” Mr Samuel concluded.