Macro Intelligence: Coles and Woolworths under pressure amid rising food prices
The ASX Consumer Staples sector sees a shaky start in 2024, with major players like Coles and Woolworths impacted by price-gouging claims and adverse weather conditions.
Article written by Juliette Saly (ausbiz)
Unsteady start to 2024 for consumer staples
The S&P/ASX 200 Consumer Staples sector (XSJ) has had a shaky start to 2024, declining close to 3% versus a 2% gain in the broader ASX 200 Index (XJO).
Resilience in essential goods
Along with Coles (COL) and Woolworths (WOW), Treasury Wine Estates (TWE), Endeavour Group (EDV), and a2 Milk (A2M) are among the mid-large cap stocks in the index, which is rebalanced quarterly. Companies in the index tend to be resilient to economic cycles as food, beverages, and personal household goods are bought all year round.
Peer Analysis data show earnings growth in the sector has averaged 0.42% over the past three years
S&P/ASX 200 consumer staples year-to-date chart
Coles and Woolworths vs weather woes
Big supermarket giants Coles and Woolworths have been accused of using their duopoly to price-gouge consumers.
However, weather effects have also pushed up food prices, including cocoa, which is now more expensive than copper.
Cocoa prices are now trading above US 9,000 a tonne and have nearly doubled in 2024, even outpacing gains in bitcoin. The commodity is being affected by dry weather conditions or the El Niño impact, which is limiting supply. The supermarkets maintain that higher costs for basic foods are being caused by weather patterns, with their costs being passed onto consumers.
There are multiple inquiries running into the issue of supermarket pricing, including an inquiry by the competition watchdog, the ACCC, which is due to report its findings in 2025.
Cocoa price increase
Woolworths shares tumble: is it time to buy the dip?
Supermarket giant Woolworths has had a bad start to 2024, and its shares are down around 14% over the past 12 months.
Multiple indicators point to a long-term bearish trend with the 200-day moving average falling, suggesting demand for the stock is low. The 5-day moving average is beneath the 50-day moving average which is also a sign investors see little opportunity in buying the stock at this time.
Woolworths daily chart
Woolworths 20-, 50-, 100- moving average
Coles outperforms Woolworths in 2024
Looking at Coles, its share price has risen around 2% so far in 2024, in line with gains in the overall ASX 200. And over the past 12 months, its decline of around 8% is better than that of Woolworths, and just slightly better than the performance of the broader consumer staples index.
ASX Tradewatch data show shares are in a near-term uptrend with the 20-day moving average rising, implying that investors see an opportunity for profit.
Coles daily chart
Citi buys in, Morgan Stanley holds back
Macquarie recently upgraded Woolworths to “Outperform” from neutral, with a 12-month target price of AUD 35. That’s around an 8% upside from current trading levels.
Citi has a Buy rating, while Morgan Stanley is underweight on the stock, with a AUD 32 price target.
Goldman Sachs is very optimistic on Woolworths' fortunes, given the company’s recent earnings and leadership shakeup, which saw CEO Brad Banducci announce his resignation, effective from September.
Goldman labels Woolworths a “conviction buy” and has a 12-month price target of AUD 40.40, stating:
“We believe the business has among the highest consumer stickiness and loyalty among peers, and hence has a strong ability to drive market share gains via its omnichannel advantage, as well as its ability to pass through any cost inflation to protect its margins beyond market expectations.”
Analyst mean ratings and future projections
Analysts evaluate potential of major retailers
Meanwhile, Thomas Atkinson from FX Evolution told ausbiz that traders should look for momentum in the stock before buying the dip, suggesting a break above AUD 33.28 is the level to watch.
Macquarie also recently upgraded Coles to “Outperform,” with a price target of AUD 17.50, which implies a near 6% upside. Most analysts are positive on Coles, with Ord Minnett the least bullish, citing a price target of AUD 15 per share and a “Lighten” recommendation.
The average recommendation on Reuters data is a HOLD with a price target (PT) of AUD 17.24, a 4% upside from current trading levels.
Sentiment indicator chart
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Speculate on commodities
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
1In the case of all DFBs, there is a fixed expiry at some point in the future.
Turn knowledge into success
Practice makes perfect. Take what you’ve learned in this commodities strategy article, and try it out risk-free in your demo account.
Ready to trade commodities?
Put the lessons in this article to use in a live account. Upgrading is quick and simple.
- Deal on our wide range of major and niche commodities
- Protect your capital with risk management tools
- Enjoy some of the best spreads on the market – Spot Gold from 0.3 points
Inspired to trade?
Put the knowledge you’ve gained from this article into practice. Log in to your account now.
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.