Coles is expanding its range of private label groceries

Coles says it is expanding its range of private label groceries, especially more premium home brand foods like ready made meals as shoppers look for value.

MELBOURNE, AUSTRALIA – NewsWire Photos AUGUST 22ND, 2023: New Coles CEO Leah Weckert at Coles Tooronga store. Picture: NCA NewsWire / Nicki Connolly

Coles is bulking up its range of “home brand” groceries to benefit from the pivot by shoppers to value purchases amid cost of living pressures, with the supermarket also finding success in more expensive or premium private label offers such as ready made meals and special cuts of meat such as lamb as consumers cook more at home to save money.

Unveiling the supermarket’s third-quarter sales on Tuesday, which showed a strong growth in food and grocery sales but the gloss taken off that by a drop in liquor, chief executive Leah Weckert said its growing selection of private label groceries continued to outpace sale of branded goods.

“We definitely are seeing private label grow and accelerate during this period of cost of living challenges, so over the last 18 months we have seen consistent strength in own brands outgrowing the rest of the supermarket,” Ms Weckert told The Australian after the retailer said sales of private label groceries increased by 8.8 per cent to $3.1bn in the third quarter, almost double the pace of main line groceries.

“The (private label) portfolio continues to outgrow proprietary products on a volume and sales basis as customers seek value.”

Coles reported its latest quarter sales to show total sales lifted 3.4 per cent to $10.03bn, driven by a strong 5.1 per cent gain in sales at its supermarkets arm to $9.07bn. Supermarket comparable sales were better by 4.2 per cent and slightly ahead of market expectations.

However, for Coles’ liquor arm, which includes Liquorland, First Choice and Vintage Cellars, there was a 1.9 per cent fall in liquor sales to $786m. The liquor sales result was seen as weak by the market and was itself impacted by cost of living pressures, Ms Weckert explained in an investor call, as consumers looked to stretch their discretionary spending dollar by opting for cheaper alcohol, swapping Champagne for Prosecco or ditching expensive bottles of spirits for pre-mixed RTDs.

Coles was now broadening its portfolio of private label and exclusive groceries to cater to this growing hunger for top quality but still value purchases at the checkout, and especially was seeing opportunities in more premium own brand foods under its “Coles Finest range.

“We have been expanding our Coles Finest range and during the quarter we grew that range to just over 240 products, and if you went back 12 months ago it was a much smaller number than we had it that range.

“And that has been across a variety of different categories including meat but also convenience meals, freezer and in the bakery area – a big part of those are in places where there is a meal solution component to help you to build out a really high quality meal at home.”

She said the Coles Finest and exclusive offer had been especially strong in meat, led by innovations such as a special sensor placed at a processor’s plant to select the 5 per cent of lambs that are the most tender that it can use for its home brand lamb offer.

“Those are the lambs that are then going into the Coles Finest product so it is a really consistently high quality product, and meat has been very successful for us.”

Coles CEO Leah Weckert says its cheaper home brand groceries are selling strongly amid cost of living pressures. Picture: Martin Keep/Coles

In liquor Ms Weckert said a survey of shoppers showed one third planned to reduce expenditure when visiting a bottle shop, while other customers were swapping from more expensive categories such as Champagne into more affordable sparkling beverages like Prosecco or switching to cheaper beer.

Price increases in some spirits brands had also pushed shoppers into cheaper pre-mixed drinks, known as RTDs.

“The flow on effect from that is what we are seeing is that RTDs are now continuing to grow because customers are trading out of those full bottle of spirits into more affordable options, like RTDs,” she said.

This impacted liquor’s performance in the third quarter, with comparable sales for its chains Liquorland, Vintage Cellars and First Choice down 3.1 per cent as customers reduced their discretionary spend on liquor in response to economic pressures and the business continued to transition away from less profitable bulk sales and adjusted its promotional mix across e-commerce channels.

This pressure on liquor spending was expected to push into the fourth quarter.

“In liquor, discretionary spending is expected to remain subdued and in the early part of the fourth quarter sales performance has been broadly in line with the third quarter.”

She said Coles’ liquor arm was “doing a pretty good job” keeping its market share and that it remained competitive amid a difficult trading environment and that she was “comfortable it was performing well” ad that the sales retreat was part of a wider picture of a pullback in discretionary spending.

Shares in Coles edged down 0.3 per cent, or 5c to $16.22, despite the overall sales results ahead of market expectations.

“We have delivered another solid sales result across our supermarkets this quarter reflecting strong execution of our trade plans and our continued focus on delivering great value and great quality alongside improved availability,” Ms Weckert said.

Rising sales at its flagship supermarkets arm was fuelled by spending around Australia Day, Valentine’s Day as well as a strong lead up to Easter.

Coles said total supermarkets price inflation reduced to 2.2 per cent in the third quarter, against 3 per cent in the second quarter, as a result of moderating inflation in packaged coupled with deflation within the fresh category. Fresh produce deflation was driven by fruit, particularly apples and avocados, while deflation in meat was driven by red meat, particularly lamb. Bakery inflation remained elevated due to wheat commodity prices, Coles said.

Coles CEO Leah Weckert at the Senate Select Committee on Supermarket Prices at Parliament House in Canberra. Picture: NCA NewsWire / Martin Ollman.

Earlier this month Coles boss Ms Weckert, along with Woolworths chief executive Brad Banducci, appeared before the Senate inquiry into the supermarkets where they faced both a barrage of questions over the profitability and operations of Coles, and in particular if it was price gouging both its suppliers and customers.

She appeared before the Senate after a grilling given to Mr Banducci that saw Senator McKim threaten him with being held in contempt of the Senate and facing up to six months jail if he refused to answer a question on what was the return on equity in 2023 for Woolworths.

In her address to the Senate inquiry Ms Weckert explained the importance of Coles remaining profitable and making a decent and sustainable return on its investment so it could continue to invest in its stores, staff, infrastructure, pay suppliers and generate a return for shareholders.

“For all these reasons – 120,000 team members, 8000 supplier relationships, 17 million customer transactions per week – it is important that Coles is a sustainable, profitable enterprise. For every $100 spent in our stores Coles makes $2.60 in profit, or less than 3c for every dollar,” she said.

Ms Weckert told The Australian on Tuesday after the release of its sales results that she was pleased with the reception she was given when appearing before the Senate inquiry and for the opportunity to explain the Coles’ business.

“We were pleased to get the opportunity to attend because it was important to us to be able to put our perspective forward.

“And we think that there were a number of really important issues that were covered off during the Senate inquiry. I definitely felt like my perspective was heard.”

She declined to comment on how Mr Banducci was treated and threats by the Senate inquiry chairman Senator McKim to put him in jail for up to six months.

“I won’t comment on the Brad (Banducci) appearance. As I said, we were pleased to have the opportunity to go, we were pleased to put forward our perspective and we think issues like transparency of pricing for consumers, transparency on pricing for fresh produce growers, as well as some of the conversations that happened around the divestiture laws and exploring some of those, those were important conversations to have in that forum.”

Woolworths will report its own third quarter sales on Thursday.

Originally published as Coles is expanding its range of private label groceries