The Big Duopoly

Hey Superheroes,

Both the ASX and Wall Street are finally set to end this week in the green after multiple weeks of market volatility fuelled by Trump’s tariffs. 

The U.S. Federal Reserve announced its decision to hold rates steady, flagging challenges in assessing inflation impacts from recent tariff policies. 

Despite the Fed’s cautious outlook, the ASX 200 yesterday jumped up following the news. The central bank continues to forecast two rate cuts within the year despite President Trump’s tariffs increasing market volatility and economic uncertainty.

Here are your biggest stories for this week.

Coles & Woolworths: Most profitable supermarket chain

Last year, the ACCC launched an inquiry into Woolies and Coles’ pricing and competition behaviour amid concerns that limited competition has allowed them to sustain high margins – even as Australians battle cost-of-living pressures.

Food prices have surged 24% since 2020 but unlike international markets where inflation is cooling, Aussie shoppers haven’t seen much relief.

And based on their latest findings, it looks like Australia’s grocery giants have notched a new title.

📈 Most profitable in the world

Woolworths and Coles are among the most profitable supermarket chains in the world, according to new data revealed by the ACCC this week. 

With EBIT margins above 5%, they’ve increased margins since the pandemic and are much more profitable than international peers – including U.S. giant Kroger and UK’s Tesco – despite operating in a much smaller market.

🧾 The big duopoly

Woolies and Coles together command approximately 67% of Australia’s grocery market. This number completely blows away the market share of competitors including Aldi (9%) and IGA and Foodland (7% combined). 

In the first half of FY24, Woolies reported an A$929 million profit while Coles posted A$1.06 billion – numbers that prompted the ACCC to begin its investigation.

The two supermarket giants have used their scale and vertically integrated supply chains to maintain pricing power. 

🔎 Verdict… not guilty?

Despite these findings, the ACCC’s report this week concluded there was no evidence of “price gouging” from the two supermarket giants. Similarly, there was nothing much that could be done around their market dominance.

As next steps however, the ACCC has recommended the government require the  supermarkets to submit data on what they pay their suppliers for each type of produce – which will then be published for public eyes.

Whether or not that happens, we’ll have to wait.

Virgin’s IPO is back on the runway

Virgin Australia is gearing up for a second attempt at going public.

Bain Capital, which took Virgin private in 2020 during its COVID-induced collapse, is now preparing the airline for a potential IPO. This week, Bain kicked off a non-deal roadshow to gauge institutional investor interest.

📊 Timing the skies

The IPO was originally slated for 2023 but was shelved due to choppy market conditions. 

With travel rebounding, Qantas enjoying a 76% one-year share price gain and Virgin posting strong domestic results, Bain is now testing the waters again.

Virgin’s former CEO also boasted an increase in the airline’s EBIT margin – which has gone up to 14.4% – and its international expansion, which is expected to boost earnings over the next few years.

🛫 Strategic Partnerships and Leadership Changes

The Australian government recently approved Qatar Airways’ acquisition of a 25% stake in Virgin Australia, a move expected to enhance the airline’s international reach and competitiveness. 

Additionally, Virgin Australia appointed Dave Emerson last month as the new CEO succeeding Jayne Hrdlicka. Emerson’s extensive experience in aviation positions him to lead the airline through this transitional phase.

🛫 Lessons from the past

Virgin’s original listing ran for 17 years before it collapsed into administration. This time around the company is leaner and more focused, having shed many of its legacy international routes and simplified operations.

🔦  Some other things we’re shining the Spotlight on:

ROADBLOCK FOR MINRES: A serious truck accident in WA’s Pilbara region has forced the closure of a critical freight route used by Mineral Resources (ASX:MIN). The company has suspended some operations, raising concerns over Q4 earnings. The stock dipped as much as 12% on Wednesday following the news.

QUANTUM MEETS BLOCKCHAIN: Canadian quantum computing company D-Wave (NYSE:QBTS) unveiled a new blockchain architecture designed to run on quantum hardware. The company says its system could be a game-changer for cybersecurity and decentralised apps. 

GOOGLE GOES CYBER: Google has confirmed its acquisition of Israeli cybersecurity startup Wiz for US$23 billion, its largest acquisition so far. The deal bolsters Google Cloud’s threat detection capabilities and positions it as a stronger competitor to Microsoft Azure and Amazon AWS in the enterprise space.

Keep up to date on the markets by following us on Instagram @superheroau.