Waiting for the other shoe to drop: Woolies and Coles will lose even if profits rise

The trouble is, the public doesn’t really care that the two companies may have experienced higher costs in other areas such as labour, theft (they call it loss), power supply, or even depreciation.

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Nor does the public give a toss that food inflation at both big supermarket chains has been benign for a year.

All shoppers understand is that their wallets seem lighter these days after they pass through the checkout.

This is understandable. What both supermarkets’ bosses have highlighted this week in their half-yearly results is that a new value-conscious and brand-promiscuous consumer has emerged, particularly over the past nine months.

Supermarkets are selling non-discretionary items, but their own brands – “Coles” or “Woolworths” – are discretionary.

Customers are shopping around, particularly for those expensive non-food items such as personal care and cleaning products, where they will happily supplement their weekly haul with goods from Amazon, Chemist Warehouse or Costco.

While customers may experience a certain sameness about the two supermarket chains, the investor experience has been entirely different.

Woolworths has had a particularly difficult year, which began when its previous chief executive, Brad Banducci, delivered a clumsy baton pass to his successor, Bardwell, whose job has included being hauled in by the consumer watchdog to give evidence before its supermarket inquiry and navigating a damaging industrial dispute, which resulted in stock shortages that wiped its supermarket shelves bare and cost profits.

On Wednesday, Bardwell delivered an underwhelming December half-year result that included a fall in earnings from the group’s marquee division, its Australian supermarkets, and a diabolical 46 per cent fall in profits from Big W.

(In comparison, Big W’s competitor Kmart delivered a 7 per cent improvement in profit over the same period.)

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Over at Coles, the mood was more upbeat as chief executive Weckert capitalised on Woolworths’ own goal to pick up a bit of extra sales and profit. She was rewarded with a 5 per cent share price rise.

Given there is no tolerance for either supermarket chain to raise prices and competition is intense, the strategy from both companies has been to reduce their costs to protect profits.

Weckert has been managing this well, where Bardwell, who seems more reactive, has announced a cost-out drive and a review of all the company’s assets.