Why won’t Woolies’ shareholders defend it against Dutton’s culture war?

Peter Dutton sure doesn’t mind a fight, whether it be getting stuck into Katharine Murphy’s move from her role as Guardian Australia’s political editor to work for Prime Minister Anthony Albanese, or launching a boycott campaign against Woolworths for winding back its Australia Day offerings.

The opposition leader probably keeps doing it given the lack of pushback from within his own partyroom, the mainstream media or the wider community. But on the Woolworths front, it was disappointing that the company’s shareholders and their representatives weren’t more vocal in defending it.

Woolworths is owned by more than 400,000 Australian shareholders who would hate to see their shares fall because some culture warrior opposition politician wants a cheap headline and some anti-woke votes. The Australian Shareholders’ Association should have been all over the issue, as should Australian Super, which is the third largest Woolworths shareholder with a 5% stake worth $2.2 billion.

When you consider that Aussie Super manages nearly $300 billion of retirement savings on behalf of more than 3.2 million Australian members, a firm statement from it backing one of its largest single investments would have been appropriate, no matter which politician was calling for a pointless boycott. Instead, we got crickets.

It is true that the big end of town is no longer considered a major constituency for the Coalition and that may play well when attacking the 340-plus companies on my shockingly lost list of foreign corporates which generate more than $200 million a year in revenue Down Under.  

It may also play well to attack individual billionaires such as Dutton’s mining heiress mate Gina Rinehart or former US president Donald Trump’s former friend Anthony Pratt, the cardboard magnate Trump called a “red-haired weirdo”.

But when you call for a boycott on a household corporate name that is more than 70% Australian-owned by hundreds of thousands of voters and employs almost 200,000 Australian workers, this should not be a strategy that works politically, and Dutton should have been taught a lesson with a bigger backlash.

Alas, Woolworths had few friends joining it in the bunker and it was left to long-serving CEO Brad Banducci to finally defend its position with a round of interviews after taking out full-page newspaper advertisements last week.

Woolworths is arguably less vulnerable to political attack because, unlike the banks, gambling outfits or Telstra, it doesn’t operate with a federal licence and can’t be subjected to special taxes, such as the unusual Big Five bank levy that Scott Morrison rolled out a few years back.

That said, it is vulnerable to attack over potential abuse of market power and margins in a cost-of-living hothouse that brings everyday consumers into the same hostile constituency as farmer-suppliers. Indeed, that is the issue which is driving the ACCC investigation into Australia’s supermarkets, which Albanese twinned with his reworked tax scales announcement last week.

Woolworths is also one of Australia’s biggest advertisers. You’d think it would have subtly pressured the major commercial media outlets to come out swinging in defence of its brand and reputation when subjected to cheap political attacks over a culture war issue. Instead, Banducci got walloped by the likes of Tom Elliott on 3AW and Karl Stefanovic on Nine’s Today program.

Banducci seemed genuinely surprised that he got 3,000 personal emails over the Australia Day issue, but that was probably orchestrated by one of those change.org petitions inspired by Dutton’s boycott call on 2GB. There’s a petition aimed squarely at Australia Day 2025, as apparently “it’s not the time to be complacent”.

Interestingly, Woolworths announced yesterday it would take a $209 million write-down on its residual 9.1% stake in pokies and pubs giant Endeavour Group, a business it demerged three years ago to improve its social credentials. However, the bigger part of the announcement was a decision to take a NZ$1.6 billion write-down of the NZ$2.3 billion in goodwill associated with its New Zealand supermarkets business, which it bought from Foodland for $2.5 billion in 2005. After the ill-fated Masters hardware chain, Kiwi supermarkets are now the biggest Woolworths disaster since it floated in 1993.

However, given that Woolworths is under the pump over its supermarkets’ profit margins in Australia and a coming ACCC inquiry, it’s hard not to be cynical about the timing of a huge New Zealand write-down that will affect the bottom line and associated headlines when the full-year results are dropped on February 21.

Indeed, the AFR’s Chanticleer columnist James Thomson opined yesterday that the company’s Australian supermarkets division is booming when he wrote: “Write-downs of this size are the last thing that Woolworths investors wanted. But Monday’s announcement came with a sneaky bit of good news about the only part of Woolworths’ business that really matters.

“Woolworths said group EBIT for the December half were expected to grow by between 2.8% and 3.8% to about $1.7 billion, which is broadly in line with analyst expectations. But the fact that the retail giant was able to meet expectations despite the ugly performance of the New Zealand business (where earnings are expected to slump a staggering 42%) and “materially” lower profit in its Big W division, suggests its Australian supermarkets business — which accounts for about three-quarters of group revenue — has delivered a very impressive half.”

Woolworths shares dipped only marginally yesterday and as it has a market cap of $44.2 billion, there really should be some scrutiny over these write-downs given that it has audited net assets of only $6.56 billion. How does a $44 billion company say that $6.56 billion of book value is overcooked and this is going to be slashed to close to $5 billion?

The same can be said for many of the entries on my list tracking new CEOs who come in and book excessive write-downs, which just happen to make their predecessor look bad and lift future profits due to lower depreciation and amortisation charges. Banducci is already on my list for the $959 million in restructuring costs booked with his debut Woolworths results in 2016.

After eight years in the job, it is probably time for Banducci and the Woolworths board to implement a CEO succession plan ahead of next year’s Australia Day celebrations. Don’t expect Woolworths to completely bring back the Australia Day plastic merch next year, but it should offer something to avoid another blow-up.

The saga will no doubt trigger even more conservative behaviour by corporates as they attempt to keep their heads below the parapet of the ongoing culture wars which are seemingly getting more hysterical with each passing year.

After the battles of COVID and this latest round of culture wars, if you were Banducci with net assets of at least $20 million after a long corporate career, surely you’d be contemplating smelling the roses.