BAE Business Report Woolworths Limited

Student Name: Tony

Student Number:

Student Class: BAE6

Submission Date: 22, January, 2014

Teachers: Deborah Gray

Peter Griziotis

Word count: 1280

Table of contents

Executive Summary 1

1 Introduction 2

2 Evaluation of ethical performance 3

2.1 Definition of price gouging 3

2.2 Price gouging problem 4

2.3 Actions in relation to price gouging 4

3 Evaluation of share price 5

4 Recommendation 6

References 7

Executive Summary

This report which involves an evaluation of Woolworths Limited in terms of ethical investment and share price history was provided for one ethical investor. All data and information in the report are adapted from authoritative website, academic articles and text books. The results of data analysed show that initially the performance of share price was positive and there was an upward trend in price between 20## and 2013; Woolworths, secondly, has disrespected for the rights of customers due to price gouging. The report finds Woolworths Limited has not acted morally despite the fact that its share price history seems good. It is suggested that investors who prefer ethical investing are prudent when they decide to invest money in Woolworths. The limitations in the report comprise a limited length, only one kind of financial data- share price history and not enough information about ethical issue of the company.

1 Introduction

This report aims to evaluate the company of Woolworths regarding ethical investment and share price history in order to recommend to one client who is interested in ethical investment.

Ethical investing has been defined as the “a set of approaches which include social or ethical goals or constraints as well as more conventional financial criteria in decisions over whether to acquire, hold or dispose of a particular investment” (Cowton 1999, p. 60). Most people think that ethical investment is non-profit even costly. However, the evidence that companies engaging in ethical investment will suffer profit loss is not clear. Some studies indicate that ethical companies do better than other companies ignoring the ethical investment (Bowden 2012, p. 140). Bowden(2012, p.141) stresses that “doing business with people that you trust reduces the actual cost of transaction such as simpler contracts, less checking up and lower legal costs”. Therefore, it is doubtless that ethical investment is beneficial to business operation.

Woolworths Limited, founded in 1924 in Sydney, is one of the largest Australian retail companies which consists of 1,063 supermarkets, 178 BIG W stores and 613 petrol canopies and serves over 26 million customers per week (Woolworth Limited Annual Report 2013, pp. 6-9). According to Woolworth Limited Annual Report 2013(2013, pp. 38-39), the main products of Woolworths comprise food and grocery, liquor, petrol, general merchandise and consumer electronics which are also the principal revenue of this company.

This report involves three main parts. The first part is an evaluation of ethical performance which contains a definition of price gouging, price gouging problem and actions in relation to price gouging. The next portion is to analyze the company’s share price history. Finally, client will receive a recommendation concerning if Woolworths is worth investing in.

2 Evaluation of ethical performance

As one of the largest Australian retail companies, Woolworths has liabilities to protect and respect consumers’ rights because customers are essential elements to build a good reputation and earn profits. However, this company had an unethical behavior in terms of respect for consumers’ rights because of price gouging which has made Woolworths be discreditable and unreliable.

2.1 Definition of price gouging

Price gouging is defined as “occurs when, in the wake of an emergency, sellers of a certain necessary goods sharply raise their prices beyond the level needed to cover increased costs” (Zwolinski 2008, p. 347). Zwolinski(2008, p. 353) emphasize that when price gouging happens, needy individuals are most likely to suffer the detriment of price gouging because it is not guaranteed that they can afford expensive the products they need in comparison with customers who are well-off.

2.2 Price gouging problem

Woolworths Limited often has been viewed as a reputable firm with cheap products, fair price and honesty; nevertheless it was accused of price gouging in some supermarkets by a Sydney small business group in 2008. Preston (2010, p. 1) states that “the Southern Sydney Retailers Association (SSRA) found an average 134% price differential when it purchased a standard basket of 28 grocery items from Fairfield and Greystanes”. According to Kelly (2010, p. 5), such price gouging should not be allowed to occur and Australian consumers would continue to be main victims if the kind of price gouging was still outlawed.

Another example of price gouging is online price gouging. Singer (2010, p. 1) provides information that “Woolworths has been cheating clients of its online store by displaying inaccurate unit prices for common grocery items”. Singer (2010, p. 1) also points out that although supermarket online stores were required to display fair price on each goods, there were many discrepancies in some items and chocolate was in one case :“the actual price for a block of chocolate was 122 percent higher than the unit price shown”.

2.3 Actions in relation to price gouging

In order to solve the negative influence of price gouging, Woolworths Limited has been taking some actions. For example, Woolworths has made an announcement about online price gouging that it attributed the problem to a software glitch (Singer, 2010, p. 1). In addition, parts of the stores has reduced the unfair price like bananas which have decreased from a $1.97 to $0.30 (Hossain 2013, p. 1). Although such solutions might dealt with the price gouging to some extent, the dishonest behavior has aroused a negative influence on consumers who believed that Woolworths was taking advantage of trusting and cheating themselves (Kelly, 2010, p. 5).

To conclude based on all above evidence, it can be ensured that Woolworths Limited has not acted morally regarding respect for the rights of clients.

3. Evaluation of share price

As shown in the figure 1 below, the share price of Woolworths Limited from 20## to 20## is represented. On the graph, the vertical axis indicates share price, and the horizontal axis shows the years. The graph reflects an overall positive trend. From the data, it is obvious that the price of this company experienced stable growth between 20## and 20## increasing from $16 to $33. However, the next year witnessed a sharp drop falling to about $26 because of the global financial crisis that had aggravated the Australian economic situation. After a fluctuation between $24 and $28 from 20## to 2011, the share price, overall, went up steadily between 20## and 2013. It is worth noting that the price surged from about $30 to over $36 in the first half of 20## due to a large net profit in 20## (Woolworths Limited Annual Report 2012, p.10). While there was a slight decrease in the second half of 2013, the recent share price has reached a high point in comparison with the data from 20## to 2012, which means the value of Woolworths Limited has increased and it has a positive investment prospect.

Figure 1: Share price of Woolworths Limited from 20## to 2013

Source: Share Price, Invest In Us, Woolworths Limited

4. Recommendation

It is recommended that clients taking an interest in ethical investing avoid investing their money in Woolworths Limited because of the immoral behavior of Woolworths Limited. While the share price, so far, has seemed profitable and promising, there is not sufficient information showing Woolworths has been performing well regarding respect for the rights of consumers. Moreover, as the problem of price gouging has made an uncertainty of ethical investment in the company, it can not be guaranteed that Woolworths Limited will not make a similar unethical crisis in the long term. In conclusion, it is suggested that the investors do specific research about other retail firms and make a choice by comparison among other retain companies.

Because of the limited length, this report may only scratch the surface of unethical problems of Woolworths. It is tough for clients to analyse a company accurately merely depending on the data of share price and one issue of ethical investment. Therefore, the evaluation might be not entirely correct and the recommendation may mislead investors.

References

Bowden P, 2012,Applied Ethics: strengthening ethical practices, Tilde University Press, Australia.

Cowton C, 2002,Playing by the rules: ethical criteria at an ethical investment fund, Blackwell Publishers, Oxford.

Hossain M MD, 2013,Unethical practices of Woolworths $ role of ACCC,viewed 3 January 2014, .

Kelly C 2010,Who stole the cheese?, viewed 5 January 2014,

accc.gov.au>.

Preston M 2010,Woolworths accused of price gouging, viewed 5 January 2014, .

Singer M 2010,Woolworths accused of online prices gouge, viewed 29 May 2010, .

Woolworths Limited 2013,Annual report 2013, ABN88000014675, Woolworths Limited, viewed 6 January 2014, .

Zwolinski M 2008,Business Ethics Quarterly, Society for Business Ethics, Chicago.