Supermarket Crisis - Check out the price when reputation drops

It’s no secret that reputation is fragile and can be destroyed very rapidly . . . and very publicly. That’s the heavy price which has been paid by?two of Australia’s once-admired retail giants.

Woolworths and Coles – which between them dominate about 65% of the national supermarket and grocery sector – have also learned the terrible cumulative effect of successive reputational crises and a shocking loss of public trust.

Their reputational tribulations stretch over years, for example with Coles fined $2.5 million for marketing bread which had been par-cooked and frozen offsite as “Baked Today, Sold Today” or “Freshly Baked In-Store”.

Or Woolworths under attack for deciding to no longer stock Australia Day merchandise in the run-up to the national holiday.

Or Woolworths CEO walking out on a train wreck TV interview about grocery pricing, then announcing his retirement just a few days later.

These were relatively manageable issues?compared with the exponential reputational impact of repeated inquiries and allegations.

Then the competition watchdog (ACCC) announced it was taking both companies to court for raising grocery prices , before?partly reducing them and promoting illusory?special savings.?Closely followed by Choice announcing Woolworths and Coles were both more expensive than German rival Aldi. And the government directing the ACCC to investigate both companies for land banking undeveloped sites to shut out competitors.

Little wonder the?Roy Morgan Brand Survey shows Woolworths fell 194 places from the most trusted brand to fifth most distrusted,?and Coles fell from ninth to 226th, though?sales and profits?remain high, likely a factor of necessity rather than loyalty.

Trust is?important to reputation, which in turn has a very real financial influence, with the?latest American data recording corporate reputation now represents on average 28% of market capitalisation, up 4.3% on 2023.?And investment analysts in Australia continue to recommend Coles and Woolworths as secure defensive stocks.

Yet, at a time of rising cost of living, the price of food is a predictable target, with the supermarkets as plausible and ubiquitous villains, and politicians keen to find someone else to blame for inflation.

As former competition regulator Graeme Samuel told the Australian Financial Review,?it’s populist politics really at work here, and the supermarkets may be totally innocent of allegations against them.?

However, that ignores the reality that reputation is not driven by facts but by perception, with negative sentiments and damning headlines piling up against Woolworths and Coles.

Plus statements from the Prime Minister such as: "Customers don't deserve to be treated as fools by the supermarkets. They deserve much, much better than that."?He cautioned, of course, that it would be inappropriate to comment further on a matter before the courts. If it was a criminal case, the more thoughtful commentators would already be asking: “How can the accused possibly get a fair trial.”

But the ongoing supermarket?reputational crisis has nothing to do with fairness. As they used to say in prizefighting, “the fix is in”. Moreover, the corporate pile-on is well?under way and there is little Woolworths and Coles can do right now to protect their reputation and?public trust.

While core business remains strong, their best option is to hold firm on their legal position;?continue existing community outreach; resist the lure of any overt “reputation campaigns”; and try to avoid issue contagion to other parts of their operations, such as the recent report about supposedly unsafe worker efficiency measures in Woolworths warehouses.

With numerous?investigations and prosecutions pending,?this reputational crisis will certainly get worse before it gets better. So it seems the two supermarket giants have little choice but to wait out the storm.