Woolworths Reinstates Purchase Restrictions in Victoria | KOSEC

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Woolworths Reinstates Purchase Restrictions in Victoria

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Australia’s largest supermarket chain, Woolworths Group, has reinstated purchase restrictions in Victoria. The decision follows after the state recorded its tenth consecutive day of double-digit increase in virus cases. In each shopping trip, each Victorian consumer can only purchase up to 2 essential items which include toilet paper, flour, paper towel, hand sanitiser and pasta, among others.

The Group deems its action to be a “preventative” measure as there exist initial signs of consumers aggressively stocking up on groceries in areas that have become critical hotspots for new COVID-19 cases. Nevertheless, Managing Director of Woolworths supermarkets, Claire Peters has assured the public that the Group has ample stock in its warehouses to replenish supermarkets shelves regularly. Likewise, Coles, the country’s second-largest supermarket chain, has followed suit by imposing purchase restrictions in Victoria. More broadly speaking, retailers are not looking forward to the panic buying seen earlier in the year, which could potentially disrupt grocery supplies.

Woolworths has reacted swiftly to the situation by ramping up deliveries to meet the 40 per cent surge in online shopping. The resumption of online sales follows the resurgence of COVID-19 cases in the state’s north and west, which discouraged in-store shopping. On top of its current fleet of 200 delivery vehicles, Woolworths plans to add dozens of new trucks alongside assistance from couriers and deliver partners such as Drive Yello and Sherpa. Nevertheless, all Woolworths stores within the state offer the option for community pick up where customers can choose to have family members or neighbours to collect their groceries.

Earlier in the week, the Group had revealed its latest trading update. Specifically, up to the ten weeks ending 14 June, Q4 sales growth in both Australian Food and New Zealand Food have posted an 8.6 and 15.1 per cent increase, respectively. While both segments have benefitted because of the lockdown measures implemented during the pandemic, there too exists downsides. More notably, the COVID-19 pandemic has, in turn, resulted in higher operating costs. Consequently, an additional $220-$275 million have been spent in the areas of store hygiene, social distancing as well as to improve flexibility within supply chains.

Aside to $80 million incurred as a result of interest and remediation costs associated with underpayment for retail salaried team members, Woolworths further expects another payout in H2 FY20. Specifically, the firm expects to record an additional $105 million as part of ongoing remediation efforts. This expense comprises of accrued interest on incomplete back-payments, historical retail time, attendance records and the extension of the review to other awards that applies to the Group.

Nevertheless, for FY20, the Group anticipates reporting earnings before interest and taxes (post-AASB16 and significant items) to fall between the range of $3,200-$3,250 million. While figures are subject to year-end finalisation, Woolworths Group will be able to release finalised result when it reports on 27 August 2020.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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