Woolworths making headlines for all the wrong reasons

The public relations department at Woolworths (ASX: WOW) must be in over-drive at the moment with the leading retailer recently facing issues on a number of fronts.

Firstly, there has been the controversy over private labels which have been directed at both Woolworths and Coles, owned by Wesfarmers (ASX: WES). This controversy involved claims that the supermarket giants were using suppliers’ intellectual property to develop their own private label products and ultimately led to a voluntary code of conduct being signed with the Australian Food and Grocery Council.  The signing of the code took the heat out of the issue, however this week Woolworths appeared to still be trying to deflect attention by singling out rival chain Aldi and some of their private label products for scrutiny.

Secondly, both Coles and Woolworth have “lost” their ability to offer customers fuel savings greater than four cents per litre after bowing to pressure from the Australian Competition and Consumer Commission (ACCC) to voluntarily stop offering deals in excess of four cents. This action is expected to help Metcash (ASX: MTS) compete more evenly with the two majors.

Thirdly, once again Woolworths has found itself in the sights of the ACCC, with the regulator taking action against an alleged laundry detergent cartel. It alleges Woolworths was “knowingly concerned in the alleged arrangements.” Should the ACCC be successful in proving its allegations then Woolworths could potentially face “pecuniary penalties, declarations, injunctions, compliance programs and costs.”

Foolish takeaway

It’s unlikely that any of the recent issues which have created negative publicity and headlines for Woolworths will have a significantly negative impact on the share price. However investors should be alert to developments, whether they be caused by regulatory issues (such as ACCC actions) or from some other source, as occasionally short-term issues can lead to great long-term buying opportunities.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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