The ACCC Supermarkets Inquiry report has 20 recommendations. None of these recommendations step change earnings, but the report does highlight three things. Firstly, supermarkets will have more margin volatility in fresh produce; secondly, it provides a reminder that price inflation does lift the industry profit pool; thirdly it will be difficult for Coles and Woolworths to grow market share given limits on new stores and elevated gross margins in some categories.

Woolworths has said that each of its businesses must “stand on its own two feet”. For Big W, perhaps it could be cut off at the knees at some point. While an exit is hard to execute, in some form, we expect it may occur over the next 18 months. For the retail industry it will be highly disruptive given the floor space needs to generate more sales and gross profit. A mix of other retailers could generate as much as $2.3 billion, or 50%, more in sales than the prevailing level.  While in the short-run, it may benefit a retailer like Kmart, the medium-term risk is all major retailers with geographic overlap lose some sales, namely Coles, Woolworths, Kmart and Target.

Most retailers have highlighted how much tougher their NZ operations have been over the past year. The magnitude of the interest rate pain combined with lower levels of household savings has created a much tougher backdrop. However, conditions are improving and rate cuts have been significant with more to come. NZ retail sales should recover over 2025, more so in the second-half. We have pulled together a chart pack that provides a perspective on the NZ economic outlook, retail sales forecasts and financial performance of major retailers in that market. We include both ASX-listed retailers and NZ-centric retailers.

Woolworths reported sales up 4%, but EBIT down 14% in 1H25. We expect the company will have a challenging 2H25e as well. Management is starting to address its challenges. CEO, Amanda Bardwell, said that the company will assess the shape of its business portfolio. Each business unit must have reasonable prospects on a 3-5 year view. Overhead costs are being cut and there is a tougher stance on the low returning Big W and NZ divisions.