The proposed merger between Chemist Warehouse and Sigma will create a business with close to $760 million of combined annual EBIT with growth of 12%-19% over the next four years. However, the first hurdle is ACCC approval which may be a drawn-out process. While there is an impressive growth profile, the prospects for rollout beyond Australia and New Zealand is still in its infancy. The upside case would see continued elevated like-for-like sales growth and a seamless integration of the Chemist Warehouse contract.

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.