Morningstar analyst expects consumers to keep spending on essential groceries at the expense of discretionary goods such as fashion and home improvement.
But, analysts warn the next half may not be as rosy against the volatile economic backdrop.Top-line growth at the supermarkets will be “in good shape” this season as inflation feeds into higher prices, says Craig Stafford, Barrenjoey’s head of research. But, he’s monitoring how the supermarkets are managing higher labour and pandemic-related costs.
Taking lessons from the US reporting season, Alex Whight, portfolio manager at Milford Asset Management, said big retailers such as Walmart and Albertsons are showing early signs of “trading down” from national brands into their own private labels, and to smaller product sizes. “Consumers could switch within a product, for example from Dairy Farmers milk to Coles-brand milk, but they could also switch from beef to a cheaper protein like chicken,” he said.During Australia’s early 1990s recession, Morningstar research found that EBIT margins from Coles and Woolworths were steady.
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