Coles supermarket sales lift but Viva Enegy deal hits home

Coles’ total sales have dipped after a shake-up of its fuel deal with Viva Energy took effect.

A Coles supermarket in Sydney. Picture: AAP

Coles has logged a modest rise in supermarket and liquor sales for the third quarter, although total sales were dented by the shift to a new business arrangement with its retail-fuel supplier that offset steady growth in its core supermarkets and liquor businesses.

Looking beyond the changes to its fuel business, which saw it trade sales for a new economic interest in the venture, Coles total food and liquor sales grew, and were $8 billion, up 3.3 per cent on the previous corresponding period.

Sales totalled $8.88 billion in the 12 weeks through March 24, down 1.8 per cent on sales of $9.05bn a year earlier. That was despite a 3.2 per cent rise in supermarkets sales to $7.27bn, partly driven by the success of its “Fresh Stikeez” promotional campaign, and 4.3 per cent growth in liquor sales to $735m.

Meanwhile online sales grew 27 per cent to more than $1 billion on a rolling 12-month basis.

Liquor sales on a comparable basis and adjusted for the timing of New Year’s Eve timing grew 0.9 per cent, with strong growth in its exclusive wine brands.

Coles chief executive Steven Cain said he hadn’t witnessed any change in consumer behaviour since the starting gun was fired for the federal election campaign, with shoppers not out spending their promised tax cuts yet.

“There is certainly no evidence yet that people are out spending any potential tax cuts in the business, what we did talk about is that it is still a game of two cities or two halves where we have a lot of customers doing it tough,’’ Mr Cain said.

He said if there was an official cut to interest rates by the RBA next week, as some economists have speculated, it would likely be a bigger boost to other segments of the retail sector rather than supermarkets.

“Clearly if there are interest rate cuts that makes people feel a lot better, you’d expect that to generally impact the discretionary retailers a little bit more than us.’’

Coles Express food-to-go lifted but sales revenue including fuel plunged 32.4 per cent to $874m on the prior period, due to changes to the terms of its Alliance Agreement.

Comparable sales growth fell 0.5 per cent for the period.

In February, Coles said earnings would plummet from its convenience business, as a result of the renegotiation of its fuel alliance with oil retailer and refiner Viva Energy.

Coles didn’t include fuel revenue in its results after March 1.

Effective in March, Coles moved to a commission-agent model and fuel supplier Viva Energy Group (VEA) took responsibility for setting the retail price of gasoline sold through the Coles (COL) chain. The retailer will no longer record fuel sales revenue in its quarterly updates.

The March quarter sales performance came in at the high end of analysts’ forecasts which was aiming for a sales gain of closer to 2 per cent.

Excluding the first quarter of 2019, Coles third quarter comparative sales increase of 2.4 per cent was the strongest supermarket comparative sales since the fourth quarter of 2016, or 11 quarters of sales.

The pressure will now be back on Woolworths as it prepares to release its third quarter sales this week. The supermarket duo have been engaged in a bitter and brutal battle for customers and sales for more than a decade following the acquisition of Coles by Wesfarmers and the struggling supermarket group was rejuvenated.

If Woolworths reports in line with expectations for a 2.8 per cent comparative sales growth for the third quarter, it will be the narrowest lead Woolworths has had on Coles since their run of outperformance began in the second quarter of 2017. Although Coles had a burst of sales in the first quarter this year when Coles’ Little Shop promo boosted comparative sales by 5.1 per cent, outstripping Wow’s 1.8 per cent.

Adverse supply conditions across all fresh categories drove 0.9 per cent price inflation for the period.

Drought conditions and the impact of the Queensland cyclone had contributed, resulting in increased cost pressures in fresh produce, while higher underlying commodity prices impacted meat and bakery input prices.

“We were also pleased to provide support for communities impacted by natural disasters such as floods in Far North Queensland, bushfires in Tasmania and Victoria, and Cyclone Veronica in WA,” Mr Cain said.

During the period, Coles completed refurbishments in seven supermarkets in its network, while three new stores were opened and one was closed.

Coles was spun off late last year by Wesfarmers, becoming an independent company as competition in the supermarket industry continues to heat up with a push by the likes of German discount chain Aldi.

Late last month, Coles entered a technology partnership with the UK’s Ocado Group to develop the Australian retailer’s online grocery business. The push is forecast by Coles to roughly double its current Australia-wide home-delivery capacity and boost its online profit margin.

With Dow Jones