Woolworths Confident in ACCC’s Investigation
The Australian Competition and Consumer Commission (ACCC) will investigate Woolworths Group’s (ASX: WOW) new expansion plans. This is because Woolworths Group is planning a $1 billion investment into a wholesale business, focusing on the distribution for education, childcare, healthcare, disability, and government sectors.
There are concerns regarding the move's impact upon levels of competition in the sector as Woolworths Group continues to grow and expand. The Chairman of the ACCC indicated that Woolworths expansion into the area has the potential to reduce competition rather than expand it, stating, "more competition means a better outcome for consumers," however "we have to weigh up, does it damage competition."
In response to the ACCC investigation, a Woolworths spokesperson defended the Groups plans, arguing, that Woolworths "would benefit from having a dedicated website, consolidated invoicing and easy-to-use expense reporting. That is why we are developing a convenient extension of our existing online grocery business for these organisations."
Mr Sims also added how the ACCC's ability to take action on the Group was limited and that the Food and Grocery Code is a "pretty weak code." "The essential problem with the code is it has no sanctions if you breach it." As a result, Investors reacted confidently to the news with Woolworths share opening point seven of a per cent higher on the open and currently trades slightly above yesterdays close.
The investigation comes off the back of a previous announcement of a $700 to $800 million investment into a new logistics centre in Moorebank in Sydney. The development aims to expand their Sydney regional distribution centre and transform the operational function of its supply chain.
The plan also includes the closure of Minchinbury Regional, Melbourne national and Sydney national distribution centres and the addition of two new purpose-built facilities located in Moorebank. These two facilities will conduct regional and national distribution, aimed to improve automation, truck movement and capacity efficiency along with improved safety standards for employees. The Moorebank centre is reflective of aggressive expansion plans held by Woolworths Group.
In a trading update on the 23rd of June Woolworths announced an expected Earnings Before Interest and Taxation (EBIT) of 3,200 to $3,250 million, centre around strong sales growth in Australia and New Zealand food sales. Woolworths CEO Brad Banducci instead believes "the operating environment continues to normalise," and described the efforts of Woolworths Group employees as "humbling."
As of the 17th of July 2020, Woolworths Group is trading at $38.79, an 11 per cent discount from its $43.92 peak in February. The supermarket giant is placed well to combat the challenges posed by current economic conditions and will reveal its FY2020 results on the 27th of August 2020.