MM
I deal with Woolworths, and in my experience they are masters at grabbing a bit more for themselves (they use parlance like half for shareholders, half for customers etc.)
Inflation, in this case food inflation is generally good for both retailers and suppliers as invaribly some price gouging takes place. However this is tempered to some extent by scrutiny from Media on key grocery lines such as bread, milk, cheese etc. Generally in my experience key quotable items are increased inline with supplier increases but specialty or more discretionary products are gouged.
Successful retailers like Woolworths are fantastic business models. Don't be fooled by media articles interpreting cheaper milk or eggs as a sign supermarkets are competing on margins.
Lets look at WOW's EBITDA margins over the last 9 years.
FY02 4.73%
FY03 5.01%
FY04 5.17%
FY05 5.46%
FY06 5.93%
FY07 6.35%
FY08 6.76%
FY09 7.19%
FY10 7.50%
This margin growth is a combination of savings in CODB (which has fallen to around 20% of sales) through benefits derived from Project Refresh, but also from improvemnents in Gross margin.
I am and have been a buyer of WOW (low $26) for some time. Happy to quietly accumlate and forget about this one!
It is an outstanding business with not many peers on the ASX, I find them extremely well managed, focused and capable in dealings I have had with Woolworths personel over the years.
No reason at all not to expect continual margin expansion.
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