Coles and Woolworths extend losses following ACCC lawsuit
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The news: Coles and Woolworths extended losses on the ASX after the consumer regulator commenced separate legal proceedings against the grocery giants over their discount pricing strategies on Monday.
The numbers: Coles shares lowered 2.5% to $18.12 by 11:20am AEST, having closed 3.4% lower on Monday. Woolworths was down 2.2% to $33.06 after ending Monday's session 3.5% lower.
The context: Goldman Sachs analysts said they see negative consumer sentiment towards the major supermarkets as "the key risk", which may negatively impact sales.
However, it is "too early to assess any potential penalties", they said, noting that the maximum penalty for a breach of Australian Consumer Law is $50 million per breach.
Jarden analysts said they do not see the longer-term impact to either Coles or Woolworths as material. They expect a fine and commitment to pricing practices, which would also need to cover the pair's competitors.
The analysts also called the timing of the proceedings "surprising", given that the topic is expected to be addressed in the regulator's grocery inquiry findings, due to be released soon.
What they said: "Overall, this could result in a protracted legal process that will be reliant on what is a reasonable period between raising and cutting prices, for which there is no law but [Coles] / [Woolworths] do have internal protocols", Jarden analysts said.
"We also would see a reasonable chance of an agreement out-of-court," they said.
"Overall, we see process as likely to benefit Aldi, [Metcash] and other players in grocery near term not facing negative press and brand damage".
The sources: Jarden research, Goldman Sachs research
