"Bag rage" hits sales growth at Australia's Woolworths; shares fall

[SYDNEY] Australia's biggest grocer Woolworths Group flagged on Monday it was rapidly losing sales momentum after starting to charge shoppers for plastic bags, sending its shares lower.

The slowdown, combined with signs of a revival at major rival Coles, signals a possible end to years of outsized growth at Woolworths, which has dropped prices heavily to win business.

It also shows the impact of "bag rage", as the remarkable backlash against removing free one-use plastic bags from checkouts has been dubbed, with customers turning elsewhere or cutting purchases they couldn't carry home.

"Although it is a temporary impact it's a slight negative - it's changing consumer behaviour," said Jason The, Chief Investment Officer at fund manager Vertium Asset Management, which owns Woolworths' shares.

"I was like most people with these bag changes ... I ended up just carrying my stuff, and basically walked out with two goods, just one in each hand - I'd normally buy extra."

Woolworths' shares fell 3.5 per cent at start of trading on Monday to a two-month low, before erasing some of the losses to be down 1.0 per cent at A$29.23, while the broader market rose 0.1 per cent.

Its comparable sales growth for the second half of the financial year that ended on June 30 slipped by a quarter to 3.7 per cent, even as the company more than tripled the amount of permanently discounted stock over the year.

And in the first seven weeks of the 2019 financial year - when "bag rage" hit such a fever pitch that Coles' backflipped on its plan to charge for plastic bags - sales growth was just 1.3 per cent. Coles is part of Australian conglomerate Wesfarmers Ltd, though it is due to be spun out in November.

Woolworths removed one-use plastic bags from its stores on June 20 and began charging for reusable ones on July 8.

"In the early stages of the adjustment we did see our customers have slightly less items in their basket," Woolworths' Chief Executive Officer Brad Banducci said on a conference call, adding it also led to packing problems.

"Both of those issues we see falling away, quite frankly, at the moment ... we see customers remembering to bring their bags," he said.

Woolworths' underlying net profit for the year rose 12.9 per cent to A$1.6 billion (S$1.65 billion), behind market expectations for A$1.68 billion. Underlying net profit excludes one-offs.

The company declared a final dividend of 50 Australian cents per share, the same as last year. It also declared a 2018 special dividend of 10 Australian cents a share.

BLOOMBERG