Higher wages bills are top of company bosses’ lists of growing costs that they say will likely dent revenue and profit over coming months.
Official wages rose for the third consecutive quarter, and the wages price index has surpassed the inflation rate for the first time in almost three years. Chief executives this week said wage inflation is chief among rising costs, alongside rents, power prices and insurance.
Several alluded to lower public appetite to understand or tolerate price increases, suggesting many will look to efficiencies to ensure reasonable results.
With half-year reporting season coming to a close late next week, it also indicates many companies will be under scrutiny come full-year results in August over how they are managing cost pressures.
Anthony Heraghty, chief executive of Super Retail Group — owner of Rebel Sport, Supercheap Autos, Macpac and BCF — said the current year was “probably the most inflationary environment from a cost of doing business perspective that we’ve seen in many years”.
“We’ve seen and called out for some time that with underlying inflation elevated, that does flow through to rental costs, we have absolutely seen wage inflation come through into our stores and through our support offices, electricity inflation and the like,” he told The West Australian.
Woolworths boss Brad Banducci said though a 6.25 per cent wage lift, including a boost to super, was needed for his team members, rising demand for eCommerce and new stores had added to costs. The company had lifted productivity and hoped for more improvement.
“Wage price inflation does need to come down and it is, but . . . if the cost of the average item comes down, it puts a lot of pressure into the P&L (profit and loss), so that will be the challenge in the next 12 to 24 months,” he said, emphasising Woolworths would pursue profit growth outside of stores, such as via its in-house media arm.
“But it’s going to be a relatively painful transition from a world of product inflation to a world of elevated wage or input inflation and very muted price inflation, and we don’t resile from acknowledging that.”
Mr Banducci said Woolworths, “just like every other corporate in this country” had to tightly manage “above store” costs — a retail term for back- and head-office roles.
“You can expect extreme prudency in the context of this half and into FY25,” he said.
As the biggest employer in Australia, Mr Banducci said Woolworths had “immense obligations to do the right thing” for staff, which included supporting the 5.75 per cent lift to the minimum wage.
“For our team it was needed. They’re key customers who have key value issues.”
Commonwealth Bank senior economist Belinda Allen noted public sector wages and new and settling enterprise agreements had driven much of the annual growth of 4.2 per cent in the wages price index but private wage growth was slowing.
“The loosening of the labour market seen in recent months is dampening wages growth pressure in individual agreements,” she said.
“While real wages growth is positive, real household disposable income remains negative.”
EY senior economist Paula Gadsby said WA wages lifted 4.7 per cent in the year — the highest since the peak of the mining boom in 2012, outpacing most of the country given the State’s tight labour market.
“If demand for labour continues to soften, and lower average wage expectations eventuate, as reported by firms in the Bank’s liaison program, this will help the Reserve Bank steer inflation back into the target band,” she said.
Mr Heraghty said cost management did not come with “magic bullets” and Super Retail Group would work a year in advance to ensure stores performed as customers needed.
“If you start reacting to cost management in the moment and cut deeply, you just do the business damage,” he said. “You need a run-up for cost management . . . and our business is very focused on outlook and making sure we’re disciplined.”
Domino’s Pizza chief executive Don Meij said wage inflation was overshadowing food inflation, which had pushed the retailer to push up prices, then hastily pull them back.
“(It’s now) little incremental movements here and there,” he said. “What we’re seeing globally is still some wage inflation. For example in the Netherlands, we just took a 15 per cent wage increase in January.
“That seems to be more of the cost increases … there was a moment there where energy in Europe (was) growing at such a rate that that was quite hard to deal with but that’s levelled out a lot more.”
Bega Cheese boss Pete Findlay said fewer price increases would be passed on to customers but the company was looking to innovate its processes to keep costs lower.
Bega CFO Gunther Burghardt added though inflation was not growing as quickly, “some areas like energy and gas are going to be higher and labour is going to have inflation that continues for a number of years”.