Woolworths forecast a difficult 12 months of trading conditions ahead

About Woolworths Group Limited

Woolworths Group (Woolworths, the Group, ASX: WOW) was founded in 1924 and today is Australia’s largest supermarket chain with a 37 percent market share of Australia’s grocery market. Major competitors include Coles with 28 percent and Aldi with 10 percent market share respectively.

Competition and cost-of-living pressure continues 

Woolworths management have forecast a difficult 12 months of trading conditions ahead for much of the June 2025 financial year. Management have referred to robust competition and customer caution despite material moderation in inflation in the past few months. Customers are feeling cost-of-living pressure and Woolworths are responding with lower prices on own brand products and over 6000 weekly specials in the current trading environment. Woolworths are mindful of maintaining their brand strength and are rolling out other cost saving and reward campaign initiatives to maintain customer loyalty.

However, Woolworths have observed that while customers are fatigued by inflation, the rapid increase in grocery prices over the last two years follow a period of modest food inflation for much of the previous part of the decade. Woolworths point out that household budgets are being affected by increases in mortgages, rents, utilities, insurance, and other key household expenses. Woolworths contend that because customers shop at their stores multiple times a week, grocery price increases are more highly visible compared to other household living costs.

Supply chain efficiency benefits from 2027

Woolworths has major supply chain investments and other infrastructure under construction that will deliver material financial and operational efficiency benefits from 2027. Significant projects include the Auburn Customer Fulfilment Centre and the Moorebank National Distribution Centre that are currently under construction. Management anticipates site commissioning, ramp up and dual-running costs of $90 to $100 million in FY25 and FY26 before financial benefits flow from FY27.

Woolworths continues to invest in digital technology and its analytics enabled platform business to support customers and Woolworths Group partners, while simultaneously enhancing productivity.

Population growth supports store and sales growth

Currently the Woolworths store network comprises 1002 Woolworths Supermarkets, 104 Woolworths Metro Food Stores, 719 Direct-to-boots, 7 Customer Fulfilment Centres,

3 estores and 56 mini-Woolies. This extensive store network in premium locations is backed-up by an efficient supply chain network that is becoming increasingly automated. The combination of more than 1800 outlets and a growing number of strategically located distribution centres has cemented Woolworths’ dominant market position in the domestic grocery sector. This market dominance provides scale benefits including operating efficiency, pricing power, and earnings tailwinds.

The current challenging trading conditions are likely to persist over the next 12 months. However, it’s not the state of the business today that matters as much as how well Woolworths is positioned for the future. Inflation should continue to moderate and interest rates will normalise and the Group’s investment in future operating efficiency combined with population growth should support consistent earnings growth beyond the 2025 calendar year.