During Tuesday’s Senate hearings into supermarket prices,Greens senator and inquiry chair Nick McKim pressed Banducci about Woolworths’ return on equity – the figure used to measure a company’s financial performance and its ability to generate returns for shareholders – and accused him of “PR spin” and “bullshitting[your] way through this committee”.
Woolworths Group chief executive Brad Banducci could not shake off questions about return on equity.Dion Georgopoulos
Banducci refused to address the metric across several hours and attempted to draw attention instead to the company’s return on investment,which infuriated McKim,who interrupted the chief executive several times and accused him of “cherry-picking” data points.
“I feel compelled[to say] that it is open to the Senate to hold a witness in contempt when they refuse to answer a legitimate question,” McKim said.
“This is important,Mr Banducci. This is very important because it is open to the Senate to hold you in contempt,and that carries potential sanctions including up to six months’ imprisonment for you.”
After several more attempts to explain that the supermarket did not focus on the metric,Banducci eventually conceded he didn’t know the answer and would take the question on notice.
“We make a reasonable profit,both a 10 per cent return on funds employed after tax and also a 10 per cent total shareholder return over the last five years. And as I said earlier,much of this goes back to Australian households in the form of superannuation and dividends,” Banducci told the inquiry.
Woolworths’ average return on equity for the past five years is 25.3 per cent,according to data from Factset. Coles’ is 33.9 per cent.
During the hearing,McKim said Banducci was unwilling to confirm this figure because he didn’t “like the story that it’s telling” because the figure was “more than 2½ times the return on equity made by Australian banks,which are the most profitable banking corporations in the world”.
The average return on equity of Australia’s big four banks across the past five years is 9.9 per cent.
Coles chief executive Leah Weckert also appeared before the inquiry on Tuesday.Dion Georgopoulos
McKim later posed the same question to Coles chief executive Leah Weckert,who said her company’s return on equity was 31 per cent for 2023.
However,she argued this metric was not typically used in the grocery sector and said the figure appeared higher because the leases,not owns,99 per cent of its stores,unlike UK-based supermarkets such as Tesco or Sainsbury’s,which own about 30 per cent of their stores.
“They would hold equity against those buildings and those pieces of land on the balance sheet. As we don’t own those assets,we don’t hold equity on the balance sheet … therefore the denominator we’re dividing by here is lower and so you end up with a higher[return on equity],” Weckert said.
Both ASX-listed supermarkets finished the trading day about 1.2 per cent lower.
Dr,also fronted the hearing on Tuesday afternoon and was asked about his position on stronger divestiture powers for the competition watchdog,which could mean the supermarkets are forced to sell stores if they became too big.
Emerson,a former minister for small business in the Labor government,expressed in the review’s interim report that he did not believe divestiture would necessarily lead to more competition and could inadvertently lead to the opposite result.
Former ACCC chair Allan Fels fronted the inquiry yesterday and disagreed with this assessment,asking whether Emerson “did any study of[divestiture] whatsoever”.
“He’s just picked up line one of the standard big retailer response,without really going into it,” Fels said.
Emerson said Fels was entitled to his view but was wrong in saying he had parroted lines from the major supermarkets. “If I’d be doing that,I’d be recommending a voluntary code weaker than water. I’m not doing that.”
Dr Craig Emerson with Treasury Assistant Secretary,Food and Grocery Code Review Anna Barker during Tuesday’s Senate committee hearing.Dion Georgopoulos
When asked whether Bunnings should be included in the food and grocery code of conduct – – Emerson said he was continuing engagement with Bunnings and Greenlife Industry Australia.
“Whatever we would do,I would hope that Bunnings fully complied with the letter and spirit of the code,whether they’re covered by it or not,” he said.
On whether the code would reduce prices for consumers,Emerson said many suppliers were earning just enough to keep operating but not enough to invest in new technologies to provide better products,potentially lower prices or make healthy profits.
“I think it’s an unsatisfactory situation where many are on such tight margins that they’re not necessarily closing tomorrow,” said Emerson. “That’s why adherence to this mandatory code of conduct is not only in the interest of the suppliers,it’s in the interest of consumers.”
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