Coles in rude health despite panic-buying

Supermarket giant Coles is running at full capacity in the wake of a run on perceived essential items and extra security.

Coles CEO Steven Cain. Picture: Aaron Francis

Supermarket giant Coles is running at full capacity in the wake of a run on perceived essential items and extra security to cope with potential customer disputes.

Coles chief Steven Cain is toying with boosting staff hours, knowing that the coronavirus-induced panic may be short-lived, which would then require staff cuts when it abated.

More labour market flexibility — like an extension to the offshore student visa rules to allow extra working hours — would obviously help.

“The federal government is doing the right thing to prepare for the worst case,” he says.

Internally the company is working through a number of steps including minimising all large congregations, which meant the cancellation of a couple of events and travel restrictions.

A store in Geelong has had to be sanitised after a staff member reported coming down with the virus.

Coles operated the store in line with guidance from the government.

“Staff are just focused on getting supplies to stores,” Cain says.

In 28 years in the supermarket game Cain says he hasn’t seen anything quite like the present situation.

“The good news is with this and the bushfires we have seen a reignition of community spirit as people come to help neighbours in difficulty,” he says.

Coles has made arrangements to handle deliveries to people in home quarantine by leaving the order on the doorstep to minimise contact.

It has warned the boom in delivery demand has meant delays and where possible it has urged “click and collect”.

Online sales now account for about 4 per cent of Coles sales, around half the offshore run rate.

Cain is entering the turmoil in fine shape, having boosted sales growth to outrun rival Woolworths at last count.

In the second quarter of this financial year Coles closed the gap sharply, with same-store sales up 3.6 per cent against 3.8 per cent at Woolworths, but in the first eight weeks of the third quarter sales were up 3.6 per cent against 2 per cent at his rival.

In the words of BAML analyst David Errington, Coles is outmarketing Woolworths. He is now tipping 10 per cent sales growth this half and has reinstated a “buy” on the stock.

Cain says supply chain difficulties are under control with a cited delay in refrigeration parts from China now solved as Chinese factories resume operations.

“It looks like China is getting better and we have found where there are difficulties alternate suppliers can be found,” he added.

The virus has caused a delay in the planned opening of a new trade office in Shanghai to help market meat exports to China.

Coles has expanded its export operations from an original base selling offcuts not used in Australia to prime beef and lamb exports, which now run into annual sales of $500m.

Coles is working with Japanese trading house Mitsui in the Chinese export business.

This is small against annual revenues of $38bn but a step along a new path. The improvement in supermarket performance is yet to be matched by its $3.4bn liquor business, which is undergoing a product overhaul to capture new sales.

Coles is concentrating on two hit segments — gin, which is growing at 30 per cent a year, and rose-style wine, which is booming.

“We are doing a range reset but in liquor it’s harder to get rid of the tail compared to groceries, he said.

The good news is in recent years the fastest growth in the liquor market is coming from smaller convenience stores rather than the big boxes, which gives Coles a chance to combat Woolworth’s Dan Murphy.

Cain attributes the recent bounce in sales against Woolworths to a few factors: a wider range of products in health and convenience, more service in stores, and keeping tight control over costs.