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Sean Aylmer: Welcome  to the  Fear &  Greed  Business  Interview.  I'm  Sean  Aylmer.  Supermarket 

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Sean Aylmer: giants  are  again  in  the  headlines  after  an  interim  report 

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Sean Aylmer: into  competition  policy  recommended  massive  fines  or  the  potential  for 

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Sean Aylmer: massive  fines  for  chains  that  abuse  market  power.  The  review 

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Sean Aylmer: of  the  Food  and  Grocery  Code  by  economist  and  former 

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Sean Aylmer: labor  minister  Craig  Emerson,  rejected  calls  from  the  Greens  and 

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Sean Aylmer: Liberals  to  break  up  companies  doing  the  wrong  thing.  Instead, 

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Sean Aylmer: it  proposes  a  mandated  system  to  replace  the  current  voluntary 

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Sean Aylmer: code  of  conduct  with  penalties  of  up  to  10%  of 

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Sean Aylmer: annual  turnover.  For  giants,  Coles  and  Woolies,  this  could  mean 

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Sean Aylmer: some  of  the  largest  corporate  fines  in  Australian  history.  All 

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Sean Aylmer: theory  at  this  point,  mind  you.  I  wanted  to  take 

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Sean Aylmer: a  look  at  these  big  players  with  the  help  of 

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Sean Aylmer: someone  who  spends  a  lot  of  time  analyzing  the  retail 

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Sean Aylmer: space.  Remember,  this  is  general  information  only  and  you  should 

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Sean Aylmer: seek  professional  advice  before  making  investment  decisions.  Ben  Gilbert  is 

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Sean Aylmer: the  Head  of  Australian  research  at  Jarden  leading  their  research 

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Sean Aylmer: team  and  consumer  sector  coverage.  Ben,  you're  almost  a  regular 

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Sean Aylmer: at  Fear &  Greed  now,  I  reckon.

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Ben Gilbert: Thanks,  Sean.  It's  always  good  fun  being  on  here.

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Sean Aylmer: Good,  good.  So  just  at  a  very  high  level,  tell 

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Sean Aylmer: us  why  Craig  Emerson  did  the  report  and  then  just 

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Sean Aylmer: at  this  very  early  stage,  what  you  make of  the  recommendations.

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Ben Gilbert: Yeah,  so I think it's  important  to  start  off  saying  that  this  was 

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Ben Gilbert: a  scheduled  review.  The  Grocery  Code  of  Conduct  was  introduced 

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Ben Gilbert: to  Australia  a  number  of  years ago, and it was  due  to  be  reviewed 

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Ben Gilbert: at  this  period  in  terms  of  effectiveness  and  potential  changes 

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Ben Gilbert: to  move  forward.  And  that's  what  we've  seen  in  terms 

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Ben Gilbert: of  the  draft  report  that's  come  out  today.
 The  other 

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Ben Gilbert: thing  I  think is  important  to  note  too  is  that  there's 

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Ben Gilbert: a  number  of  other  inquiries  that  are  happening  at  the 

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Ben Gilbert: moment,  around  10  at  our  last  count  that  are  separate 

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Ben Gilbert: to  this.  So  these  are  the  Senate  inquiries,  these  are 

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Ben Gilbert: the  ACCC  inquiries,  etc.  So  there's  a  lot  happening  in 

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Ben Gilbert: this  space.
 In  terms  of  this  review  specifically  that  we've 

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Ben Gilbert: seen  today,  look,  this  goes  through  a  number  of  recommendations 

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Ben Gilbert: and  the  key  one  is  that  the  code  be  made 

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Ben Gilbert: mandatory  for  retailers that  are  turning  over $ 5  billion  a  year. 

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Ben Gilbert: And  then  there's  then  a  number  of  recommendations  effectively  trying 

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Ben Gilbert: to  make  it  easier  for  suppliers  to  come  through  and 

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Ben Gilbert: talk  to  potential  issues  or  claims  that  they  might  have 

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Ben Gilbert: without  fear  of  retribution.  And  I  think  ultimately  that  feels 

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Ben Gilbert: to  me  to  be  the  goal  of  what  the  recommendations 

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Ben Gilbert: are  being  put  forward.  As  you  said, there are  some  pretty  significant 

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Ben Gilbert: numbers  talked to in terms of  scope  for  fines.  It's  important  to  remember  these are all 

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Ben Gilbert: recommendations  at  this  stage,  but  you  have  tried  to  recommend 

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Ben Gilbert: putting  some  increased  powers  in for  the  likes  of  the  ACCC, 

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Ben Gilbert: etc  as  well.  So  this  is  the  report  that's  come 

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Ben Gilbert: out  today,  and  then  obviously  we see where these  recommendations  move  towards  after 

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Ben Gilbert: a  consultation  period  over  the  next  month  or  so.

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Sean Aylmer: Do  voluntary  codes  of  conduct  work  with  big  business?  It 

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Sean Aylmer: seems  like  the  government  has  come  out  and  said,  well 

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Sean Aylmer: said  broadly,  it  thinks  it  will  adopt  these  interim  recommendations. 

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Sean Aylmer: The  Prime  Minister  said  that.  However,  it's  this  voluntary  verse 

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Sean Aylmer: mandated  thing  that  goes  on  in  all  sorts  of  sectors. 

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Sean Aylmer: Do  voluntary  codes  just  not  work?

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Ben Gilbert: Well,  it  depends  how  the  volunteers  engage  with  them.  And I think 

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Ben Gilbert: the  important  thing  to  understand  with  the  code  before  this 

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Ben Gilbert: is that  the  major  retailers  were  signatories  to  it,  so  they'd 

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Ben Gilbert: committed  to  it.  So  while  it's  voluntary,  they'd  come  out 

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Ben Gilbert: and  they'd  committed  to  the  code.  So  as  a  consequence 

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Ben Gilbert: is  that  they're  abiding  by  the  code  and  you  have 

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Ben Gilbert: seen  changes  in  behaviors,  there's  been  things  around  how  you 

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Ben Gilbert: can  or  you  can't,  that  reclaim  things  like  shrink,  shrink 

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Ben Gilbert: being  sort  of  wastage,  theft  or  damage.  So  there  has 

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Ben Gilbert: been  a  number  of  changes.  I  think  really  the  concern 

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Ben Gilbert: or  the  questions  come  out  of  it  is  have  people 

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Ben Gilbert: who  have  had  issues  that  might  be  a  contravention  of 

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Ben Gilbert: the  code,  been  comfortable  or  confident  in  their  ability  to 

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Ben Gilbert: come  forward  and  raise  these? And if they did,  was there  a  fear  of  retribution? 

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Ben Gilbert: And  I  think  that's  ultimately  what  it's  come  down  to.


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Ben Gilbert: And  the  report  and  the  recommendations  that  have  been  put 

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Ben Gilbert: forward  are  really  trying  to  make  it  easier  or  make 

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Ben Gilbert: the  penalties  larger  or  more  incentive  to  come  forward  if 

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Ben Gilbert: there  is,  and  reduce  that  fear  of  retribution.  And  you'll 

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Ben Gilbert: see  within  there  too,  it's  talking  to  giving  the  ACCC 

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Ben Gilbert: some  more  involvement  and  power  in  this  as  well.  Now 

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Ben Gilbert: the  ACCC  has  also  got  another  inquiry  going  on  with 

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Ben Gilbert: the  grocery  side  of  things  at  the  moment  as  well. 

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Ben Gilbert: So there's  a  lot  that's  happening  in  the  space.  There's  a 

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Ben Gilbert: lot  of  discussion  around  what  can  and  will  come  with 

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Ben Gilbert: respect  to  regulation  and  it  just,  I  think,  so  happens 

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Ben Gilbert: that  the  review  of  this  coincided  with  a  number  of 

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Ben Gilbert: Senate  inquiries  and  a  government  inquiry  with  respect  to  the ACCC.

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Sean Aylmer: Okay.  So  let's  talk  about  some  of  those  inquiries.  The 

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Sean Aylmer: ACCC  one,  it's  looking  at  allegations  of  price  gouging  by 

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Sean Aylmer: the  supermarkets.  Is  that  something  that  you  think  the  supermarkets 

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Sean Aylmer: need  to  worry  about?

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Ben Gilbert: Look,  I  think  it's  important  to  remember  that  we're  a 

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Ben Gilbert: consolidated  grocery  market in  the  traditional  sense  of  the  word.  So 

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Ben Gilbert: if  you  walk  into  your  local  shopping  center,  you  might 

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Ben Gilbert: look  around  and  see  a  Coles  or  Woolies  and  an 

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Ben Gilbert: Aldi.  Maybe  you  see  a  Coles,  an IGA and an  Aldi, or  maybe  you 

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Ben Gilbert: see  a  Woolies  and  a  greengrocer.  But  the  other  thing 

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Ben Gilbert: that  we're  seeing  now  is  that  yes,  we  do  seem 

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Ben Gilbert: to  be  consolidated,  but  when  you  walk  into  a  shopping 

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Ben Gilbert: center  now,  you  might  also  then  turn  left  and  go 

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Ben Gilbert: into  your  local  Chemist  Warehouse,  you  might  turn  and  walk 

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Ben Gilbert: outside  and  go  into  a  Petbarn.  You  might  sit  in 

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Ben Gilbert: the  store  and  say, " Okay,  well  my  nappies  that  I 

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Ben Gilbert: was  going  to  buy,  I  could  buy  these  on  Amazon 

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Ben Gilbert: for $ 5  cheaper  today.  Bang,  I'm  going  to  hit  that and it's going to 

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Ben Gilbert: be  delivered  on  Prime  in  two  hours  time."  Maybe  not 

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Ben Gilbert: quite  two  hours,  but  it  could  be  as.  So  the 

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Ben Gilbert: backdrop  is  much  more  competitive  as  we  see  it  today.


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Ben Gilbert: Now,  sorry  to  go  to  your  question  around  specifically  is 

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Ben Gilbert: there  price  gouging?  Well,  look,  profitability  in  Australia  is  a 

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Ben Gilbert: touch  higher,  but  at  the  same  time,  the  Australian  retailers 

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Ben Gilbert: are  putting  an  enormous  amount  of  money  with  respect  to 

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Ben Gilbert: CapEx  back  into  the  industry.  And  when  I  say  CapEx, 

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Ben Gilbert: I  mean  that  when  you  walk  in  and  see  a 

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Ben Gilbert: shiny  new  supermarket  with  a  nice  fresh  aisle,  or  you see 

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Ben Gilbert: all  the  lights  in  your  health  and  beauty,  when  you 

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Ben Gilbert: go  in  and  you  want  to  do  store  to  boot, 

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Ben Gilbert: that  all  costs  money  and  you've  got  to  put  infrastructure 

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Ben Gilbert: in  around  that.  So  as  a  consequence  that  while  margins 

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Ben Gilbert: in  Australia  might  be  a  touch  higher,  the  returns  that 

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Ben Gilbert: the  retailers  are  earning  on  the  capital  that they're  putting  in,  I.

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Ben Gilbert: E,  the  dollar  of  profit  for  every  dollar  they  invest 

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Ben Gilbert: is  actually  not  necessarily  as  good.  So  there are  a  number 

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Ben Gilbert: of  dynamics  and  it's  pretty  complicated  in  discussion,  but  I 

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Ben Gilbert: don't  think  that  their  price  gouging  per  se.  I  think 

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Ben Gilbert: the  market  is  competitive  and  I  think  the  market  is 

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Ben Gilbert: becoming  more  competitive  by  the  day.

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Sean Aylmer: Stay  with  me,  Ben,  we'll  be  back  in  a  minute.


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Sean Aylmer: I'm  speaking  to  Ben  Gilbert,  Head  of  Australian  Research  at Jarden. 

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Sean Aylmer: Okay.  So  if  you  bring  this  back  to  an  investment 

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Sean Aylmer: thesis,  what  does  the  outlook  for  Coles  and  Woolies  and 

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Sean Aylmer: Metcash,  the  big  supplier  to  IGA,  what  is  the  outlook 

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Sean Aylmer: for  those  guys?

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Ben Gilbert: Well,  look,  I  think  if  we  take  a  step  back 

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Ben Gilbert: and  think  about  if  you're  an  investor  sitting  there  looking 

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Ben Gilbert: at  anything  you're  going  to  put  money  into,  be  it 

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Ben Gilbert: a  house  or  a  share  or  whatever  it  is,  you're 

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Ben Gilbert: going  to  want  some  sort  level  of  certainty.  And  uncertainty, 

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Ben Gilbert: well,  it  can  be  some  investors'  friends.  Uncertainty  is  always 

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Ben Gilbert: a  challenge.  And  I  think  that's  why  you  look  at 

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Ben Gilbert: the  supermarkets  at  the  moment  in  Australia  and  from  a 

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Ben Gilbert: relative  basis  in  terms  of  valuation,  they're  looking  quite  cheap. 

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Ben Gilbert: Now  the  question  is,  well,  what's  to  come?  Are  we 

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Ben Gilbert: looking  into  risk  of  further  regulation  that  could  impact  profitability? 

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Ben Gilbert: There's  obviously  a  lot  of  chatter  which  is  being  dismissed 

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Ben Gilbert: largely  around  potential  laws  with  respect  to  breaking  up.  We 

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Ben Gilbert: see  the  news  around  the  scope or  recommendations  around  the  size 

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Ben Gilbert: of  potential  fines  today.  All  this  creates  uncertainty.
 Fundamentally,  we 

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Ben Gilbert: still  like  the  grocery  space  on  a  longer  term  lens. 

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Ben Gilbert: We  think  it's  attractive.  We  think  that  they're  good  businesses, 

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Ben Gilbert: they're  run  well  and  that  they've  been  investing  in  a 

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Ben Gilbert: lot  of  areas  that  will  drive  scoped  for  alternative  levels 

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Ben Gilbert: of  profitability.  The  question  is  just  navigating  this  near  term 

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Ben Gilbert: uncertainty.  And  what  that  means  is  that  we've  got  to 

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Ben Gilbert: really  see how  the  next  quarter  or  so  unfolds  to  see 

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Ben Gilbert: where  the  recommendations  come  with  respect  to  the  ACCC  inquiry, 

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Ben Gilbert: see  what  comes  with  the  Senate  inquiries,  which will mean that  there's  probably 

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Ben Gilbert: still  some  risk  around  near  term  volatility  in  the  space. 

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Ben Gilbert: But  fundamentally,  we  do  think  that  they're  good  businesses  that 

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Ben Gilbert: will  sort  of  (inaudible)   the  test  of  time  and 

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Ben Gilbert: come  out  in  a  strong  position.  But  as  I  said 

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Ben Gilbert: before,  there  is  more  competition.  Look  at  things  like  Wesfarmers, 

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Ben Gilbert: as  we've  spoken  about  it  on  here  before.  They're  doing 

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Ben Gilbert: some  great  things  across  their  businesses,  but  walk  into  a 

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Ben Gilbert: Bunnings  now,  you  can  buy  your  pet  food,  you  can 

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Ben Gilbert: buy  your  cleaning  products,  and  they've  got  a  lot  of 

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Ben Gilbert: space.  The  more  space  that's  allocated,  the  more  turnover  they're 

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Ben Gilbert: generating  generally.

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Sean Aylmer: Yep.  Do you  think  part  of  this  is,  it's  almost  cyclical? 

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Sean Aylmer: A  few  years  ago  it  was  the  banks,  certainly  last 

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Sean Aylmer: year  was  Qantas.  Now  it  seems  to  be  the  supermarkets 

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Sean Aylmer: and  at  some  point,  the  new  cycle  will  move  on 

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Sean Aylmer: from  the  supermarkets  and  it'll  be  someone  else?

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Ben Gilbert: Yeah,  look,  if  we  take  some  lessons  from  offshore,  you've 

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Ben Gilbert: seen  a  lot  of  debate  around  grocery  pricing  in  a 

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Ben Gilbert: number  of  markets  offshore.  So  you  can  look  to  France, 

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Ben Gilbert: you  can  look  to  Canada,  you  can  look  to  the 

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Ben Gilbert: UK,  you  can  look  to  a  lot  of  markets,  and 

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Ben Gilbert: there  was  a  lot  of  discussion  around, " Look,  do  we 

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Ben Gilbert: create  price  caps?  Do  we  put  restrictions  in  around  pricing 

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Ben Gilbert: and  promotions?"  Ultimately  what  they  found  is  that  putting  those 

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Ben Gilbert: sorts  of  restrictions  in  can  have  impacts  around  competition  and 

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Ben Gilbert: companies  willing  to  invest  in  market.  And  what  we  saw 

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Ben Gilbert: then  as  time  went  by,  is  that  some  of  the 

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Ben Gilbert: pressures  that  were  lifting  prices,  notably  a  lot  of  the 

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Ben Gilbert: flow  on  effects  from  COVID,  and  then  more  recently  some of the geopolitical issues 

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Ben Gilbert: around  supply  of  wheat,  labor,  shipping,  all  these  sorts  of 

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Ben Gilbert: things.  When  those  normalized,  which  look,  there's  obviously  still  some 

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Ben Gilbert: volatility,  but  they  have,  food  prices  came  down,  and  we're 

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Ben Gilbert: seeing  that  in  Australia  at  the  moment.
 You  look  through 

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Ben Gilbert: the  supermarket  at  the  moment,  I  think  you're seeing  more  promotions, 

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Ben Gilbert: you're  starting  to  see  some  more  price  cuts,  and  I 

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Ben Gilbert: think  as  we  continue  to  see  food  pricing  moderate,  I'm 

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Ben Gilbert: talking  dry  here  because  fresh  is  a  little  bit  different. 

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Ben Gilbert: I  think  that  should  take  some  of  the  heat  off 

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Ben Gilbert: the  sector.  But  look,  we  had  an  inquiry  in  Australia 

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Ben Gilbert: and  was  it  2007 and 8?  This  is  sort  of  par for the course,  and 

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Ben Gilbert: I  think  it's  always  important  to  review  these  things  and 

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Ben Gilbert: give  the  consumer  ultimately  confidence  and  all  those  stakeholders  in the 

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Ben Gilbert: industry,  keep  them  accountable.

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Sean Aylmer: Ben,  I'm  going  throw  a  left  field  question.  It's  got 

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Sean Aylmer: nothing  to  do  with  supermarkets  whatsoever.  It's  Treasury  Wine  Estates. 

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Sean Aylmer: Since  we  last  spoke,  we've  had  the  tariffs  reduced  from 

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Sean Aylmer: China  or  cut  totally  in  some  cases,  we've  had  Treasury 

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Sean Aylmer: come  out  and  really  push  its  premium  brand,  then  there's 

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Sean Aylmer: talk  in  the  media  over  the  last  24  hours  about 

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Sean Aylmer: them  splitting  off  some  of  their  lower  priced  brands.  How 

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Sean Aylmer: do  you  think  Treasury's  traveling  at  the  moment?

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Ben Gilbert: Look,  I  think  Treasury's  got  a  lot  going  on  in 

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Ben Gilbert: its  business.  We  like  the  story.  I  think  that  the 

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Ben Gilbert: opportunity  around  China  and  China  opening  up  is  material  as 

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Ben Gilbert: we've  seen  in  the  past.  And  what  that  means  is 

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Ben Gilbert: it's  also  going  to  create  some  tightness  to  supply  globally 

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Ben Gilbert: with  Penfolds  in  terms  of  the  supply  demand  balance.  Penfolds 

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Ben Gilbert: is  an  absolute  powerhouse.  I  don't  think  you'd  meet  anyone 

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Ben Gilbert: in the  liquor  industry  globally  that  would  deny  that.  So  to 

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Ben Gilbert: open  up  that  market,  create  that  pricing  tension  will  I 

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Ben Gilbert: think  ultimately  improve  the  outlook  from  both  the  top line and  a 

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Ben Gilbert: profit  standpoint  for  that  brand,  give  it  a  longer  outlook 

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Ben Gilbert: in  terms  of  earnings  growth.  And  we've  upgraded  our  numbers 

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Ben Gilbert: quite  materially  at  the  EBITs  line  for  fiscal  '27, '28  onwards 

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Ben Gilbert: for  that  brand.  So  that's  a  big  positive.  And  I 

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Ben Gilbert: would  argue  at  the moment,  the  market  is  undervaluing  Penfolds  within 

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Ben Gilbert: the  group.
 You  then  touched  on  the  premiumization  story.  Look, 

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Ben Gilbert: that's  a  big  story  globally  in  liquor.  You  can  see 

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Ben Gilbert: it  happening  in  tequila,  you  can  see  it  happening  in 

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Ben Gilbert: wine,  you  can  see  it  happening  all over  the  place,  and 

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Ben Gilbert: you  want  to  be  in  that  premium  space  because  there's 

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Ben Gilbert: a  greater  propensity  for  people  to  spend  and there's  a  greater 

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Ben Gilbert: propensity  to  keep  pushing  your  price  up.  If  you're  selling 

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Ben Gilbert: a  commoditized  product,  you've  got  to  be  the  cheapest  and 

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Ben Gilbert: it's hard  to  make  good  money.
 Now,  the  (inaudible)   piece 

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Ben Gilbert: I  think  is  an  interesting  one  that  you  touched  on, 

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Ben Gilbert: and  as  you  said,  there's  some  more  press  around  that 

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Ben Gilbert: today.  Look,  this  is  all  a  bit  about,  I  think 

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Ben Gilbert: maximizing  value  for  shareholders  and  putting  forward  what  is  an 

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Ben Gilbert: optimal  business  structure.  And  as  I  sort  of  said  before, 

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Ben Gilbert: you  want  to  be  in  luxury  and  premium  or  luxury 

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Ben Gilbert: because  that's  where  you  can  typically  command  better  pricing.  And 

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Ben Gilbert: from  a  market  perspective,  you  typically  pay  a  high  multiple 

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Ben Gilbert: for  it.  So  it  can  be  creative  to  share  price. 

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Ben Gilbert: So look,  I  think  it  all  makes  sense  strategically.  The  question 

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Ben Gilbert: is  how  do  these  unfold  and  what  structure  does  it 

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Ben Gilbert: look  like?  And  I  think  we  sort  of  saw  in 

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Ben Gilbert: the  press  today,  so  Tim  alluded  to  we'll  get  a 

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Ben Gilbert: bit  more  color  by  the  end  of  the  year  in 

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Ben Gilbert: terms  of  how  that  unfolds.

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Sean Aylmer: Ben,  thank  you  for  talking  to  Fear &  Greed.

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Ben Gilbert: Thank  you  very  much.

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Sean Aylmer: That  was  Ben  Gilbert,  Head  of  Australian  Research  at  Jarden. 

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