By Mike Cherney


SYDNEY--Coles CEO Leah Weckert rejected allegations of price gouging in Australian supermarkets on a call with reporters Tuesday, reiterating how the company is likely to defend itself as public scrutiny of the sector intensifies.

Coles's profit margin has been stable for at least the last five years, even though food prices have increased as elevated inflation flowed through the broader economy, Weckert said. She spoke after the company reported a statutory net profit of 589 million Australian dollars (US$385 million) for the half year through December.

While Coles and rival Woolworths dominate the sector, there is still plenty of competition--including from independent grocers, Aldi, Costco, and online retailers like Amazon--which is why food-price inflation in Australia has been lower than in comparable countries, she said.

"From my perspective, it is a very competitive market," she said of Australia's supermarket sector. "We are having to work hard every day to work out how we attract customers into our stores."

Analysts have flagged increased political risk for Australian supermarket shares in recent months as consumers fret about the rising cost of living. Australian regulators are investigating pricing and competition in the sector, a Senate committee in Parliament is looking at similar issues, and a separate review of Australia's grocery code of conduct is ongoing.

Australian Prime Minister Anthony Albanese has said Coles and Woolworths have excessive power but has stopped short of calling for the companies to be broken up, noting that hundreds of thousands of people rely on supermarkets for their jobs. Instead, he said he'd look at any recommendations for how to encourage new entrants into the market.

"We have a private sector economy in Australia and not a command and control economy," Albanese said last week. "We're not the old Soviet Union. So, we need to be very careful about the language that we use."

On Tuesday, Coles presented figures that showed food price inflation in Australia was 18.8% from December 2019 to 2023, lower than the U.K., Europe, U.S., New Zealand and Canada. Food inflation in the U.K. was the highest in the group, at 29.5%.

"Food inflation has been faced everywhere in the world," Weckert said. "It is a global issue. It is not unique to Australia."

Many of the factors driving food price inflation are also out of the grocer's control, she said.

"That food inflation that we have seen come through, it is driven by higher input prices," she said. "That's higher cost of fertilizer, it's higher raw-material costs like wheat, which really spiked when the Ukraine war started. It's higher shipping, packaging and labor costs."

Although margins have been stable--she said Coles makes around A$2.60 for every A$100 a customer spends--she said profits are essential to any business. Weckert said Coles employs 120,000 people, foots a large tax bill and pays out dividends to 440,000 shareholders, 80% of whom own small stakes and are mom-and-pop investors.

Coles shares were up some 7.4% to A$17.05 in Tuesday morning trading. Some analysts expected the stock to rise, at least in the short term, after what was perceived to be a strong half-year result and a positive trading update to start the fiscal third quarter.


Write to Mike Cherney at mike.cherney@wsj.com


(END) Dow Jones Newswires

02-26-24 2043ET