(Recasts and writes through with fresh CEO quote, shares,
analyst quote)
By Byron Kaye and Archishma Iyer
May 2 (Reuters) - Top Australian grocer Woolworths Group
Ltd posted a bigger than expected rise in third-quarter
sales as shoppers bought more of its cheaper house-brand
products to cut costs amid spiralling living expenses.
The March quarter update illustrates the impact on
non-discretionary consumption patterns in the country after a
year of interest rate hikes failed to squash inflation.
It also shows the delicate challenge facing the central
bank: despite the rate hikes, inflation remains well above its
target range, but the spending patterns show that the financial
strain is spreading through the suburbs.
Woolworths, which together with smaller rival Coles Group
Ltd sells two-thirds of Australian groceries by dollar
value, said Australian food sales jumped 7.6% in the three
months, besting analyst forecasts of about 6%, as it passed on
supplier costs to customers.
Average store prices grew slower, at 5.8%, and the
Sydney-based company said more shoppers turned to its own-brand
products for staples like rice and oil, for which sales surged
9.1%. Woolworths doesn't report profit in quarterly results.
The Reserve Bank of Australia, which is tasked with setting
interest rates to keep inflation between 2% and 3%, was expected
to hold rates steady for a second month later on Tuesday after a
period of global banking instability. Economists and politicians
have said, though, that inflation has slowed from a late 2022
peak.
"There are a lot of moving pieces right now as people change
the way they shop due to inflation," said Woolworths CEO Brad
Banducci on an analyst call.
Budget conscious families who "live in the suburban
catchment are under more pressure than they have historically
been," he added, blaming higher mortgage and rent costs
primarily.
These "saver families" were returning to modest favourites,
such as roast chicken with vegetables and "the old spag bol",
slang for spaghetti bolognese, to cut spending. The grocer was
also selling more coffee beans as shoppers opted against buying
coffee in cafes, Banducci said.
Woolworths shares dipped 0.5% by mid-session, in line with
the broader market , as analysts welcomed a better than
expected sales result but noted that persistent inflation would
weigh on the company's costs.
"There are signs of moderating inflation but it remains
elevated," said Jefferies analysts in a client note.
($1 = 1.5103 Australian dollars)
(Reporting by Byron Kaye in Sydney and Archishma Iyer and
Jaskiran Singh in Bengaluru; Editing by Shailesh Kuber,
Uttaresh Venkateshwaran and Muralikumar Anantharaman)
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