Woolworths Powers Ahead with Dominant 37% Market Share and Bold FY25 Outlook.

About Woolworths Group Limited

Woolworths Group Limited (Woolworths, ASX: WOW) opened its first Australian store on Pitt Street, Sydney in 1924 and its first supermarket in 1960. Today Woolworths employs 201,413 people across Australia and New Zealand and services 25 million customers on average each week.

Large operating scale favours the incumbents

Australia is the only nation on earth with a continent all to itself and so large-scale logistics and distribution capabilities are key infrastructure requirements for a national grocery chain. Being a large continent, climatic conditions and growing seasons vary between states and so national transport and storage infrastructure coverage are factors that determine product availability and condition. Supply chain disruption from extreme weather events, bushfires, and rail outages are common events faced by a national grocery chain. The combination of these factors, plus the fact that Australia doesn’t have the population to support a third national grocery chain, favour the two major incumbents in Coles and Woolworths.

This is why the Australian grocery market is dominated by Woolworths and Coles with market shares of 37 percent and 28 percent respectively. This market structure leaves minimal opportunity for smaller players like Aldi with 10 percent and Metcash with 7 percent market share to compete with the two major national grocery chains.

Woolworths is Australia’s largest grocery chain, with 1,111 Supermarkets and Metro stores. The premium sites that Woolworths currently occupies, together with its integrated distribution infrastructure, are significant barriers to entry for new entrants that cannot be easily replicated.

Grocery retailing in Australia is a high-volume, low-margin business that requires operating scale that delivers efficiency and high productivity. Woolworths earning around 3.6 cents in every dollar in its Australian Food Group is testimony to the efficiency and productivity levels required to prosper in the Australian grocery sector.

FY25 favourable outlook supported by cost efficiencies and easing inflation

Woolworths’ largest reporting segment is Australian Food which accounts for 75 percent of total sales at $50.7 billion and 96 percent of Earnings Before Interest and Tax at $3.11 billion. Australian Food sales grew by 5.6 percent and EBIT by 8.6 percent in FY24. Australian Food generated a gross margin of 28 .9 percent on sales, up from 28.1 percent in FY23. These are solid numbers that are likely to trend higher in FY25.

Management commentary accompanying the full year profit announcement on 28 August stated that sales momentum improved in the June quarter and has continued into FY25 with Australian Food sales up by 3 percent in the first 8 weeks of FY25.  The announcement went on to state that inflation had moderated in the second half-year enabling Woolworths to pass on lower average cost prices to customers of 0.2 percent and 0.6 percent in the third and fourth quarters of FY24.

The early signs of modest improvement in trading conditions portends well for FY25.  Preliminary signs that inflation is moderating and the prospect of slightly lower interest rates in calendar year 2025 may ease cost of living pressures on consumers.

Recently commissioned distribution centres to enhance supply chain efficiency and ongoing investment in digital technology where average weekly visits to digital assets now exceed store transactions, position Woolworths for an improved financial performance in FY25 and beyond.