The Woolworths Group Ltd (ASX: WOW) and Coles Group Limited (ASX: COL) share prices could be worth watching as they battle international suppliers.
Woolworths and Coles are Australia’s two largest supermarkets with national networks of grocery stores and distribution centres. Woolworths Group also operates Big W, Dan Murphy’s and BWS. Coles operates Liquorland, First Choice Liquor and Vintage Cellars.
What’s Going On With Woolworths And Coles?
According to Australian Financial Review reported, the two supermarket giants are calling international suppliers’ bluff by not sanctioning price rises because of higher commodity costs.
Global food giant Nestle has supposedly halted supplying Uncle Tobys oats to Woolworths because the supermarket wouldn’t increase prices by 6%.
Pet food giant Mars Petcare has stopped supplying Coles and Woolworths with Whiskas, Pedigree, My Dog and Dine, also due to a lack of price increases.
The AFR quoted a Nestle spokesman who commented, “We have a supply issue with Woolworths which we’re both working hard to resolve to make sure that they are available there soon.”
In response to the reports, Woolworths and Coles said there were product shortages but expects the products to be back on the shelves soon.
The supermarket duopoly has long been accused of treating suppliers unfairly, although no-one is accusing the supermarkets of that yet.
Woolworths and Coles are trying to keep prices as low as possible because competitors like Aldi and Costco are offering products for even lower prices.
Even so, both of them are reporting that product prices, excluding tobacco, are falling by around 2% on the shelves.
Rising costs and fixed revenue for suppliers is not an acceptable position over the long term. Nestle wants to increase prices because the drought has led to wheat and barley prices doubling over the past couple of years and milk prices have also increased with lower milk production.
I think it can be a dangerous idea to invest in businesses that are struggling to raise prices with few alternative avenues for growth.
At the moment I would put Woolworths closer to a sell than a buy if it were in my portfolio. Instead, I would rather invest in one of the reliable and proven businesses in the free report below.
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