This was published 6 months ago
Australians are willing to shop around – and Coles is taking note
By Jessica Yun
Coles chief executive Leah Weckert says the supermarket giant must be “sharper” in trying to win over budget-conscious consumers amid an emerging trend of more customers shopping around to get a better deal on their groceries.
While Australians are continuing to shop to a budget and trading down by buying cheaper cuts of meat, switching to private label or bulk-buying, the grocery boss said she was surprised by the increasing number of shoppers who are happy to drive further to pay less for groceries.
Coles boss Leah Weckert says big stores can’t rely on brand loyalty in a highly competitive market.Credit: Arsineh Houspian
“Convenience is perhaps not as important as it was previously,” Weckert told reporters on Tuesday after the company reported its half-year results.
“A number of [customers] were willing to hop in the car to go to places where they knew they could get good value on certain items. I do think that is becoming more prevalent in terms of the implications ... for our business.”
Consumers are visiting different retailers to get the best price on certain items, she added, and the supermarket is responding through campaigns including weekly specials, bolstering its Flybuys offering and app features, and publishing recipes at various budgets.
“It just means that we need to be sharper and sharper, intensify the value proposition that we’re providing, and that’s something we are very focused on.”
Coles’ revenue for the first half of the 2024 financial year improved by 6.8 per cent to $22.2 billion thanks to successful sales for seasonal events such as Christmas, Halloween and Father’s Day, but profits fell 8.4 per cent to $589 million, attributed to one-off costs of divesting Coles Express.
The company’s gross margins stayed largely steady at 26.6 per cent while operating earnings rose slightly by 0.6 per cent to $1.06 million as stock loss – or theft – offset strong sales growth.
The result comes amid heightened scrutiny of supermarkets over grocery price inflation, with the government last month ordering the consumer watchdog to conduct a probe into the sector.
When asked to respond to accusations of price gouging and a lack of competition in Australia’s supermarket sector, Weckert said less than $3 of every $100 Coles makes is profit, with the rest going to cost of goods, wages, taxes, dividends, and more.
“Profits are an essential thing for any business,” she said. “They enable us to continue to operate and for us, that means we get to employ 120,000 people. We get to support thousands of suppliers, we pay a very large tax bill … we’ve paid out dividends to about 440,000 direct shareholders … There are millions of Australians that are also indirectly benefiting from those dividends.”
Coles revealed overall price inflation at its supermarkets moderated slightly from 3.1 per cent to 3 per cent in the six months to December 31, with price growth in fresh food moderating from 5.7 per cent in the first quarter to 4 per cent in the second quarter. However, deflation in fresh produce was offset by higher prices for baked goods.
Cost-of-living pressures have led to an uptick in customers for German-based discount chain Aldi as consumers seek better value for money.
Earnings margins declined slightly to 5.1 per cent. Online sales rose 29.2 per cent to $1.8 billion.
Weckert said theft levels have been improving since October, when Coles began implementing skip scan technology, which detects when a customer doesn’t scan an item, across 300 stores.
The company has declared a fully franked interim dividend of 36 cents, unchanged from last year, to be paid on March 27.
The results bear analyst expectations, and Coles shares jumped 5.5 per cent to $16.75.
Jarden analysts noted Coles had probably won market share from Woolworths so far this year.
“Coles have done a good job through [the first half], getting theft under control, maintaining top-line momentum in food via both in-store and online while at the same time focusing on costs,” they stated in a note.
“This is a particularly strong result in the context of less historical investment in digital, online and loyalty [compared to] Woolworths.”
Weckert and Woolworths’ outgoing chief executive, Brad Banducci, have both committed to fronting a Senate inquiry into supermarket prices due to begin in March. Former Labor minister Dr Craig Emerson will lead a review of the food and grocery code of conduct.
The Australian Competition and Consumer Commission (ACCC) has been ordered to investigate supermarkets in a year-long inquiry, which will examine the difference between the prices received by producers at the farm gate and paid by consumers at the checkout.
Inaugural ACCC chair Allan Fels has expressed support for the competition watchdog to be given powers to call for a company to divest their assets if the Federal Court has found they have breached the law. Weckert batted away the proposal as unnecessary.
“Measures like that would only be required if we didn’t have adequate competition, and we see very strong competition in the grocery space in Australia,” she told this masthead.
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