Lower prices a ‘headwind’ for Coles: John Durkan

Wesfarmers has warned of intensifying price deflation at its Coles supermarkets, led by weaker fresh food prices.

Coles chief John Durkan says “elevated deflation” is proving a “headwind”. Pic: Chris Eastman

Wesfarmers has warned of intensifying price deflation at its Coles supermarkets, led by weaker fresh food prices amid strong competition in the grocery sector.

Speaking at an investor day in Sydney, Coles managing director John Durkan said the 2 per cent deflation recorded in the third quarter would be the precursor to a sharper fall in the final quarter of the financial year.

“Deflation in produce has increased through (the second half) due to increased supply, leading to higher food deflation in the fourth quarter,” he said.

“Elevated deflation in produce presents a headwind in the short term.”

Mr Durkan bristled at a question suggesting it had hiked prices for certain suppliers’ goods earlier this month, saying its fourth quarter result will confirm elevated pressure on prices.

“Our strategy on pricing hasn’t changed,” he said.

“I can guarantee in the last quarters that we have been investing in prices and our strategy hasn’t changed in any way, shape or form.”

To date, the group (WES) has managed to handle the headwind through robust sales growth, with same-store sales up 4.9 per cent in the third quarter despite the 2 per cent deflation in produce.

The outperformance against rival Woolworths last quarter was the greatest since Wesfarmers bought Coles in 2007, as Woolworths’ sales slid 0.9 per cent while it recorded deflation of 2.4 per cent.