By Ian McIlwraith
It's a great time for customers - but for retail company investors and suppliers, not so much.
Like every other retailer in the country, Woolworths boss Michael Luscombe is slashing shelf prices to get us back into his shops at a time when our wallets are no longer beefed up by the steroids of government stimulus cheques.
As expected, Woolies' sales topped $50 billion for the first time in its history - they just rang up another $10,000 in sales in the time it took you to read that.
What they did not do, though, is achieve the magical ''double-digit'' increases in sales of previous years; a result that, while not unexpected, caused the sharemarket to slice 49 cents a share off the stock to $26.19 by the day's end.
In spite of the increase in its sales being closer to 5 per cent than 10 per cent this time around, and going backwards at Big W, Luscombe has not stepped away from his forecasts of earnings growing by between 8 per cent and 11 per cent this year.
As one analyst pointed out to him this morning in a conference call, that goal suggests Woolies has made big inroads into its costs if it thinks it can still make that sort of return. Luscombe agreed, but was giving away no secrets on exactly what they had done, ahead of when he announces the year's profit in about a month.
Most of us have seen one blatant example in recent times - the move to offer customers the chance to check their own purchases through cash registers. What you buy is cheaper because the retailers now need fewer school kids on the payroll.
Price deflation
Luscombe flagged long ago that the head-to-head ``I've got more products on special than you, nyah, nyah'' between him and his rival at Coles, Ian McLeod, was leading to what the retailers call ''price deflation''.
That means we are getting most goods, on average, more cheaply. Woolies said today that those shrinking shelf prices have extended from fresh produce to include general merchandise and grocery items.
The supermarkets have deliberately created that environment by producing, and promoting strongly, their own items in key categories - toilet papers, milk, frozen foods, table spreads, cheeses etc.
Before that, the retailers were already pressuring suppliers to sell them goods at lower prices, and to bear more of the cost of discounted prices in the weekly catalogue sales.
The supermarkets' selling of housebrands at lower prices caught traditional suppliers of well-known brands in a pincer movement, and forced the manufacturers to bring their own recommended retail pricing down to retain sales volumes. For makers and importers of goods, their customers have also become one of their fiercest competitors.
Of course, shopkeepers that lower the retail price can only increase their profits by simultaneously getting the wholesale price down, reduce the costs of getting those goods to market and - most importantly - convincing customers to buy in bulk, and more frequently.
Luscombe says Woolies is doing just that, claiming it is still ''best of breed'' in supermarket retailing. Four weeks from now, investors will be able to judge whether it is working for them, too.
imcilwraith@theage.com.au
BusinessDay