Blog: Dean BestRetail riptide

Dean Best | 11 August 2008

Last week’s headlines were once again dominated by evidence that the global credit crunch is continuing to take effect.

The latest US retailer to issue a downbeat set of results is Whole Foods Markets, who posted a 30.9% drop in net income to US$33.9m. The up-scale natural and organic retailer said that the economic slowdown has hit earnings, with consumers looking to cut spending while fuel and food prices continue to rise.

In this climate, Whole Foods’ moniker of the “Whole Paycheque” and its reputation for offering expensive luxury items is proving a millstone around the company’s neck.

Whole Foods has responded to these troubled waters by battening down the hatches. The company will ditch its dividend and slow down spending and store expansion in the near-term.

While investors looking for quick gains may not welcome this news – and Whole Foods’ share price has dipped nearly 50% in the past year – it certainly makes sense in terms of the group’s long-term growth. Whole Foods is still digesting its Wild Oats acquisition and stepping down expansion during a period of consumer recession sounds like good common sense.

Meanwhile, last week our pages also featured news from the world of retail Down Under, when the Australian Competition and Consumer Commission handed down its long-awaited inquiry into the grocery market.

The ACCC concluded that Australia’s retail sector is “workably competitive”. The watchdog recommended a number of legislative changes to increase competition, including the introduction of unit pricing, changes at a federal level to the Horticulture Act and changes at state level to zoning and planning restrictions. The Australian government has also launched a grocery price comparison site.

The lack of any real criticism of Woolworths’ and Coles’ market dominance has opened the ACCC up to accusations that the report is a whitewash for the powerful supermarket duopoly.

Australian consumers have questioned the value of the GroceryChoice website, and already it is being redesigned by the government. Australian farmers and producers have chastised the ACCC for its failure to examine issues in the supply chain and revoked its claim that farm-gate prices have risen at a similar rate to retail prices. And today (11 August) a Senate hearing on unit pricing was addressed by independent supermarkets, who said that their businesses would suffer were the measure to be introduced.

While the ACCC inquiry into the sector has drawn to a close, it is clear that the issue is a political hot potato and the debate looks set to continue. 

Katy Humphries, Deputy Editor


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