What's dragging the Woolworths share price lower today?

Wage rises and product price freezes: The situation is quickly changing for Woolworths.

| More on:
Confused woman at a supermarket.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Woolworths share price is lower, but many supermarket product prices are now fixed for the rest of the year in an effort to help customers 
  • The wage increase could help around 145,000 Woolworths staff 
  • Macquarie thinks the current situation isn’t helpful for Woolworths’ earnings 

The Woolworths Group Ltd (ASX: WOW) share price is down today as investors get to grips with the latest developments for the supermarket business. At the time of writing, the Woolworths share price is trading down 0.93% at $32.99.

Woolworths is already dealing with elevated inflation on a variety of products, with suppliers asking for price rises. But, Woolworths is also thinking about how to help customers as well.

Price freeze

Earlier this week, the supermarket business announced price freezes on a number of staple products.

According to Seven West Media Ltd (ASX: SWM) reporting, this is the first time that Woolworths has committed to price freezes in a century of operating.

Some of the products that won't see a price rise this year, which are predominately Woolworths brand products, are: flour, sugar, vinegar, oats, eggs, tea bags, coffee, canned tomatoes, tomato sauce, pasta, frozen peas, cheese blocks and shredded cheese, bread rolls, bacon, chicken tenders, cans of tuna, yoghurt, juice, laundry powder, dishwashing liquid, fabric conditioner, sponges and bin bags.

The Woolworths CEO Brad Banducci said:

Food inflation in Australia began to increase towards the end of last year following many years of low inflation. Initially it affected mostly meat and imported products, but has since grown to impact almost every category.

Most recently, we have seen material inflation in vegetables given the very poor growing season on the Eastern Seaboard, due to the rain, high humidity and low light levels – hence what you may see on cucumbers, capsicums and lettuces amongst others.

Food inflation isn't the only factor that the supermarket is having to deal with. The company will now also have a higher wage bill as it enacts wage increases. Higher costs could reduce profitability, which in turn may have (or already has had) an impact on the Woolworths share price.

Wage increase

As reported by The Australian, around 145,000 Woolworths staff are covered by the Fair Work Commission's decision to increase the minimum wage by 5.2% and the award rate by 4.6%.

Woolworths will be passing on a $40 a week pay rise. A spokesman from Woolworths was quoted by the newspaper, who said:

Following today's Fair Work decision, we will be passing on the annual pay increases under the modern award to our hourly-paid Woolworths Supermarket, Metro and Big W retail workers from July and will review for our salaried retail team members.

We have previously said we support an increase in team member wages that keep pace with underlying cost-of-living increases and are committed to doing the right thing.

Broker unconvinced

The broker Macquarie was not a fan of these two developments – its Woolworths share price target is now $36.40. However, this still implies a possible upside of around 10%.

Macquarie rates Woolworths as neutral. The Australian reported that Macquarie analyst Ross Curran said:

We note that supermarkets often struggle to take margin during economic disruption.

We are at the bottom of consensus for FY23 and FY24.

Based on Macquarie estimates, the Woolworths share price is valued at 28 times FY22's estimated earnings with a possible grossed-up dividend yield of 3.6%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

A couple of friends at a rooftop party enjoying some hot and tasty Domino's pizza
Dividend Investing

Own Domino's shares? Today is pay day!

Eligible Domino’s shareholders can expect some welcome passive income today.

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Photo of two women shopping.
Earnings Results

Premier Investments share price jumps 9% on results and demerger plans

The Smiggle and Peter Alexander owner has released its results. How did it perform?

Read more »

a woman with lots of shopping bags looks upwards towards the sky as if she is pondering something.
Consumer Staples & Discretionary Shares

How a potential demerger could deliver a 10% upside for this ASX 200 stock

Investors might have even more reasons to love this ASX 200 stock if rumours are true.

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Consumer Staples & Discretionary Shares

Why Goldman Sachs expects market-beating returns from Super Retail shares

Goldman Sachs thinks this retail share could offer big returns for investors.

Read more »

A happy boy with his dad dabs like a hero while his father checks his phone.
52-Week Highs

Why is the A2 Milk share price up 46% year to date and at a 52-week high?

This infant formula company's shares have delivered the goods this year.

Read more »

Happy man on a supermarket trolley full of groceries with a woman standing beside him.
Consumer Staples & Discretionary Shares

2 things I'm waiting for before buying Coles shares

I'm waiting for two things before I add Coles to my share portfolio.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Consumer Staples & Discretionary Shares

If I'd put $5,000 in Wesfarmers shares at the start of 2024, here's what I'd have now

Are investors smiling this year? Let's see how its shares have performed.

Read more »