WES sales results next week will be even more fascinating than...

WES sales results next week will be even more fascinating than usual given the underwhelming results from WOW yesterday. Interesting article below from the Courier Mail although I note it was penned by the same Terry McCrann that's taken a few opportunities in the past to sink the slipper into WES / Coles.

First blood shed in supermarket war
Terry McCrann From: The Courier-Mail January 25, 2011

I CAN'T recall a Woolworths profit downgrade before.

Actually, I can, the last was smack in the middle of the 1990 recession when the jobless rate went into double digits.

This is a big deal. It's not just the weather but the climate that's changed for our biggest, most successful and ruthlessly effective retailer, and it's definitely not become warmer.

Woolies CEO Michael Luscombe nominated four negative factors that made for very "different" - an alternative word for "difficult" - trading conditions compared to a year ago.

They were tightened consumer spending, increased interest rates, higher utility prices which bit into the discretionary consumer dollar and unseasonally poor weather. There was an unstated and arguably more significant fifth factor the actions of Woolies' "major competitor".


This was obliquely and rather cutely pointed to by the reference to Woolies "lowering its prices for the benefit of customers in a dynamic market".

For "dynamic market" read Coles embarking on the most aggressive price and marketing war that Woolies has faced in its quarter-century life since relisting.

For "lowering its prices" read Woolies finally abandoning its initial response to the Coles assault, of broadly holding its prices and margins and sacrificing sales.

This was shown graphically in the fine print. Its normal goods inflation - what it calls its "standard shelf price movement index" - rose by 0.5 per cent over the year. That's the increase in its normal prices across the supermarket range, but when the effect of "promotions and volumes" are included, its prices were actually down 4.3 per cent.

That is a huge difference. It announces Woolies fighting Coles price-cutting fire with fire; hence the profit downgrade.

That said, it is even more impressive that Woolies still expects to increase profit, albeit by less, but for how long?

We are in the early stages of a long war in the supermarkets. Consumers will win, suppliers are going to be badly burned.