Plastic bag transition has hurt sales, Coles admits

Coles has conceded that the phasing out of single-use plastic bags has hurt supermarket sales.

Coles says the ban on plastic bags has hit sales Picture: AAP Image

The Perth-based owner of Coles supermarkets has conceded for the first time that the phasing out of single-use plastic bags has hurt sales at the supermarket chain.

Wesfarmers chief financial officer Anthony Gianotti yesterday admitted the switch forcing customers to use their own bags, or reusable plastic bags, has impacted sales, although he did not quantify the affect.

He also acknowledges the move — which has caused a backlash among some customers — could have been handled better.

It confirms the fears of analysts that Coles will suffer a dent to its sales momentum just as its owner, Wesfarmers, is preparing to spin-out the chain and list it on the ASX as an independent company.

Mr Gianotti said after the removal of one-use plastic bags at Coles stores from July 1, customers moved more slowly through checkouts and had taken time to adjust to the new way of shopping.

It is the first time either Coles or its rival Woolworths have spoken publicly about the impact of the removal of plastic bags on their bottom line.

Wesfarmers releases its full-year results next week.

Mr Gianotti also dismissed suggestions Coles would eventually make any profit out of selling 15c reusable bags to its shoppers, saying any earnings from the bag sales would be marginal.

Following complaints from some shoppers, Coles has been handing out reusable bags for free, but will start charging for them after August 29.

Rival Woolworths has been charging 15c for its reusable bags since last month.

Woolworths has yet to disclose if it has lost any sales momentum but given Coles’ experience it wouldn’t be surprising.

Coles last week reversed its original plan to begin charging 15c per bag from August 1 to extend the free reusable bag offer to August 29.

“Certainly one of the reasons why we extended the free plastic bags was because customers were taking some time to adjust to that and there was no doubt there was an impact (to sales),’’ Mr Gianotti told The Australian. “That is the facts, that is what we are seeing.”

He said he couldn’t quantify the size of that sales hit.

“It is having an impact on sales, yes, I’m not going to go into the specifics around the quantum but there was certainly an impact as consumers had to change their habits around shopping,’’ he said.

“When we looked at the overall numbers there was definitely an impact and I guess it wasn’t uniform across the board, but there was an impact.’’

Mr Gianotti’s comments confirm early estimates from leading retail analysts of a hit to sales amid confusion and frustration among some shoppers over the phasing out of plastic bags.

“It has taken a while for consumers to change the way they shop,” he said.

Leading US investment
bank JP Morgan said Coles’ about-face on charging for plastic bags was confirmation that phasing out plastic bags was having an impact on the supermarket’s sales and pre-tax earnings.

“We retain our view that the removal of single-use plastic bags is having a negative impact on sales (pressure on basket size from less pantry stocking and reduced traffic),’’ said JP Morgan analyst Shaun Cousins, “and having a negative impact on costs due to slower checkout processing requiring more staff training and more checkouts operating, and increased retailer contribution to promotions to drive sales.”

Mr Gianotti denied Coles would reap large profits from eventually charging 15c per reusable bag.

“If anything it would be marginal at best, absolutely marginal, and we certainly wouldn’t be doing this to make money.

“It is certainly not a driver, it is more about making sure it is about the customer, and making sure we are looking after the customer.’’

However, Mr Cousins did concede that the plastic bags issue could have been handled better, and communicated better to shoppers, especially around the extended timeline and changes of mind about how long to give out free bags and when to start charging for them.

“Coles was obviously trying to do what was right for customers, and I think there probably has been a bit of miscommunication through that,’’ Mr Gianotti said.

“I think there was certainly never any intention to continue providing plastic bags free forever, I think it was more of a transitional arrangement and I think it probably got lost in translation to be honest.’’