Coles expands home brands to compete with Aldi

Australians are buying more home-brand products and saving on alcoholic drinks amid ongoing cost-of-living pressures, the country’s second-biggest supermarket chain has revealed.

Coles’ total sales revenue rose 3.4 per cent to $10 billion for the third quarter of the 2024 financial year, driven by 5.1 per cent growth in supermarkets, a 34.9 per cent lift in online sales and an 8.8 per cent rise in private label brands. However, liquor revenue slid by 1.9 per cent.

Coles has been expanding its private label range.Credit: Louie Douvis

“We know one of the key things that customers do when they’re trying to manage their budget is that they will look to trade into more affordable brands,” Coles chief executive Leah Weckert said on Tuesday.

Revenue growth for home brands (which was 8.8 per cent for the quarter) had outpaced overall supermarket growth for a while now, she said, as the company expanded its offerings, which now include Coles Finest products and a value range, Coles Simply.

“We’re really seeing customers go at both ends of the spectrum to look for value,” she said.

Coles-owned brands, which also includes Nature’s Kitchen, Wellness Road, Urban Coffee Culture, Daley St Coffee and more, make up about a third of the supermarket’s total sales.

Weckert said customers were starting to shift from the lower end of its private label brands to more premium own-brand options, which she said was a result of people choosing to replicate a dining-out experience at home.

As customers shop around to get a better deal on their groceries, Coles is looking to compete more closely with German discount supermarket chain Aldi and aims to narrow the price gap in categories such as kitchen and home cleaning as well as pet food, which are being sold by non-supermarket retailers including Bunnings, Amazon and Chemist Warehouse.

“We know at the moment that there are a lot of customers that are trying out Aldi, and being in a strong position on products that they would compare across the retailers is really important,” Weckert told investors and analysts.

Australians are continuing to cut back on liquor purchases by swapping champagne for prosecco or sparkling wine and choosing more affordable brands of red and white wine. At the same time, many appear to be moving back to beer, which had been experiencing a long-term decline, as it tends to cost less per serve, and gravitating towards canned or ready-to-drink products instead of spirits.

Inflation at Coles has eased from 6.2 per cent this time last year to 2.2 per cent, or from 6.4 per cent to 1.9 per cent excluding tobacco. Prices of fresh produce are falling, particularly apples, avocados and lamb, while bakery prices remain elevated amid higher wheat prices.

“We’ll continue to see some moderation in inflation overall, but I don’t think in the short term we’re moving into an overall deflationary position,” Weckert said.

Coles’ share price closed 0.3 per cent lower on Tuesday, with Jarden analysts describing the company’s figures as “a good result” and “a touch ahead of consensus”.

MST Marquee senior analyst Craig Woolford pointed to its decline in liquor sales as “very poor”.

Coles chief executive Leah Weckert facing a Senate committee earlier this month.Credit: Dion Georgopoulos

“We expect Coles has lost market share in the quarter and may have done so because it reduced its level of price discounting and exited non-profitable bulk sales,” he wrote in a note to clients.

Coles and Woolworths face accusations of price gouging and have been under significant pressure to lower prices as Australians struggle with cost-of-living pressures across several fronts.

Weckert and her Woolworths counterpart Brad Banducci fronted a Senate inquiry into supermarket prices on April 16, where the pair were grilled on profits, and their relationship with suppliers.

The Senate committee has said it intends to call multinationals to front the inquiry. Weckert declined to comment on whether companies such as Nestle and Coca-Cola should be called to front the inquiry, but said these global giants owned “must-have products” in several categories.

“We definitely have experienced [multinational suppliers withholding stock] over time,” she said. “There can be quite robust conversations that occur between both parties, but these are really must-have brands for us in store, and we work as hard as we can to have a partnership approach.”

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