The Australian supermarket sector is under scrutiny given higher grocery prices. This report is written to give perspective about prices, profit margins and potential risk areas as the Senate inquiry is held over the next four months. Price increases in supermarkets largely reflect higher costs. However, retail prices have risen faster than the producer prices in fresh produce and red meat. Like almost all Australian businesses, supermarkets have faced higher costs and their profit margins are only slightly higher than pre COVID-19 levels.
Consumers love a bargain and retailers usually like giving them one. In Issue 5 of Price Watch, we profile the pricing tactics used by major Australian retailers, the legal boundaries for price tactics and where retailers can trip themselves up. There is a lot of wasted promotional money in retail and there is earnings upside in the order of 3% to 5% by taking an analytical approach to promotions. Super Retail Group and Woolworths have introduced new systems to manage promotions, improving the efficiency of promotional spend and lifting gross margins.
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