And another thing...

Welcome to Best of the Week, written in Evandale, Tasmania, on Saturday morning, as my adrenaline levels come down after three weeks of running the Mumbrella newsdesk. I don’t know how Hal always seems so calm.

Today: The chickens come home to roost for the supermarkets; and what the Ooh Media bid means.

Happy International Scurvy Awareness Day. When life gives you lemons…

The trolley dash

Back when I worked on a daily newspaper, one of the distinct newsdesk roles was the copy taster.

It was a bigger thing pre-Internet. These days, copy tasting has mostly been absorbed into other roles. The copy taster’s job was to keep a sense of the fast-flowing river of information, and yank out the promising fish. That meant watching news wires, staying on top of stories from staff reporters as they were filed, checking the fax machine for press releases and monitoring local radio news. The point was that if a decent story presented itself, it didn’t languish somewhere in the system.

That’s still part of the newsdesk role, even if the river runs faster and more gets missed. A lot of emails, many of them irrelevant press releases, arrive. My Unmade address, about five years old, currently has 156,104 unopened emails. My Mumbrella address, reactivated little more than a year ago, currently has 4,832 left unopened.

For the email inbox, the copy tasting often doesn’t go beyond reading the subject line. Particularly with Mumbrella, where we try to avoid covering the same things as our rivals, the best stories still come from our journos, pitched at our daily 8am news call, rather than from press releases.

When I’m copy tasting, the key thing to look for is, how does this affect the working life of somebody in marketing or media? In other words, my processing mode is with an industry lens, not a consumer one. It’s done so fast that it’s basically subconscious.

Which brings me on to a press release from Woolworths that dropped into my inbox on Thursday morning. The headline was “Woolworths freezes shelf prices on 300 household staples”.

I got no further than that, before moving on. But looking back later at my subconscious process, I realise I responded as a consumer. I moved straight past not because it was necessarily a bad story, but because I just didn’t believe it.

The separate prosecutions of both Coles and Woolworths by the Australian Competition and Consumer Commission over their pricing tactics has fundamentally removed trust in their pricing stories.

A great example is that of Fab laundry powder cited in ABC coverage of the Woolworths prosecution this week. For most of 2021 and into 2022, Woolworths’s price fluctuated between $6 and $7. Suddenly, they jacked up the price to $14 for a week. Then dropped it back to $6. Then back up to $14. Then down to $7. Then up again to $14. Then back down to $7. Then reset the new normal price at $8.

Effectively, Woolworths sneaked in a 14% price increase, while telling consumers they were saving 50% on the unrealistically high $14 price. The ACCC made the case that this was common practice across both supermarkets, with multiple products. Infuriating, and it makes customers feel stupid for falling for it.

Neither of the Federal Court prosecutions have yet seen a ruling. But much of the reputational damage has already been done, at the worst possible time for the big two supermarkets.

I still shop at Woolworths; I was in my local branch at 7pm last night. That’s about the time of the evening when a customer’s presence transitions from tolerable to an inconvenience for the shelf stackers and home delivery pickers.

I found myself thinking about how I now look at price labels, and I realised that it’s changed. I am far less influenced by a percentage discount than I am by the actual price, and asking myself whether it constitutes value.

It’s the sort of change that may not be fully picked up in the regular Roy Morgan Research trust ratings, even if Woolworths remained the most distrusted brand anyway (Coles is fourth most distrusted, after Optus and Meta).

As a consumer, I still trust that Woolworths isn’t going to sell me poisoned milk, or steal my credit card details. So on one level, there’s still trust. But that eye blink decision over the emailed press release tells me that the trust is gone when it comes to discounting. At the unconscious level, I simply don’t believe them.

That matters because of what is coming down the track.

The inflationary oil shock is rapidly coming down the pricing pipeline. Everything is going to become more expensive in the coming weeks, and consumers are already beginning to react. Given that this week’s BotW is heavily anecdotal, here’s one more:

I’m moving back to Sydney in the coming weeks (I always buy at the top of the market). Before my flight back to Tasmania on Thursday morning, I dashed into a mid-market furniture store with a sofa, dining table, chairs, bed and mattress on the shopping list.

They were in the process of putting up “25% off” flash sale signs. The saleswoman confided they had got into work that morning to receive the unexpected instruction to launch the sale. Over the last three or four weeks, nobody has been buying, she told me.

I wasn't entirely surprised to hear that. We started the week with a piece of analysis from Mutinex co-founder Henry Innis, who made a compelling case for why he believes Australian household wealth is about to significantly decline.

That’s not just based on publicly available signals, but also the information he sees on the sales performance of his own clients. As he put it: “I’m looking at data that tells a frightening story.”

That’s not, by the way, a case of shouting fire in a crowded theatre. It’s a case of pressing the fire alarm when the building is already on fire.

Which brings me back to Coles and Woolworths. Last time round, in the inflationary days of the Covid recovery, they were able to hang on to their profit margins, and even improve them, while suppliers increased their costs. In large part, that was thanks to their price reduction shenanigans.

Four or five years on, the consumers know better this time round. Regardless of the outcome of the Federal Court deliberations, the supermarkets have lost one of their key weapons.

Just as pricing credibility becomes crucial, they have none.

Going private

Another adrenaline-inducing moment came on Wednesday morning when Ooh Media informed the ASX that it had received a takeover bid from Pacific Equity Partners, and we rushed to be first to send you a breaking news alert.

The current poor valuation of Ooh Media meant the bid was not entirely surprising. Surely Ooh Media had to be worth more than the $459m low it closed at, the night before?

Private equity companies know a bargain when they see one. Particularly one that will struggle to fend them off. With James Taylor just months in as CEO, and Phillippa Kennedy not due to start as chair for another 12 days, it was the perfect time to make a move.

I suspect the bid will also set off a chain reaction. Several media companies on the ASX are undervalued. Despite the Kyle and Jackie O factor, the fact that ARN Media is trading at $86m, less than two times last year’s EBITDA, is crazy cheap. Somebody with an appetite for risk (or maybe the Grant family, who remain shareholders after selling in Grant Broadcasters for $307m back in 2021) could pick up a steal.

In many cases, staying on the ASX just doesn’t make much sense given how much sentiment has turned against advertising-led media. Yesterday saw the start of Tapt Media, the former Nine Radio, in the private ownership of the Laundy family. 

Still, there is a possible explanation for the low valuation of outdoor advertising businesses in Australia.

On Wednesday morning we threw together an emergency Mumbrellacast (more adrenaline; it was one of three podcasts I recorded that day) where we were joined by Spinach’s Ben Willee. Ben made a point I’d never previously considered. I’d always seen the digitisation of outdoor as a positive for the valuation of the medium. Rather than a poster site being static for 28 days, digital billboards can carry a new message every 28 seconds. But Ben argued that this has created much more outdoor inventory - possibly too much. The lesson of the introduction of programmatic display advertising to the web is that this drove down prices.

All it would take would be one of the big three - JCDecaux, QMS (newly owned by Nine) or Ooh to start discounting - and the outdoor sector’s profitability would go through the floor. What happens if one of the three loses their nerve during the downturn and does exactly that?

In case you missed it...