Coles chief executive Stephen Cain was remarkably upbeat releasing his latest results on Wednesday given that NSW has just recorded a record 633 cases of Covid with the country’s largest state looking like being locked down for months.
Cain delivered a slightly better than expected increase in net profit of 7.5 per cent to just over $1bn on the back of a 3.1 per cent increase in sales to $38.6bn.
Supermarkets have been the mainstay of shopping during Covid with both major chains having coped remarkably well with the challenges of Covid, although Coles stores are more sensitive to lockdowns given that it has relatively more in shopping centres than rival Woolworths, which has undertaken an aggressive strategy of expanding its higher margin Metro “corner” stores in recent years.
But Cain argues that with the massive acceleration in vaccinations now taking place across Australia, things will be looking a lot better by Christmas and certainly into 2022.
In comments to analysts on Wednesday he repeated his view that “there is finally light at the end of a two-year tunnel. I am looking forward to 2022.
“It’s slightly disappointing for the people of NSW,” he conceded.
“I suspect that it is like Victoria where the vast majority of people are doing the right thing, but unfortunately it seems to have got to a level it will take some time to sort out.
“All we can do encourage people to stay as safe as possible and encourage people to use the QR codes and that we continue to get as many vaccines to our team members as possible.
“When you look at Covid overall, I believe we are nearer to returning to normality than we are to the start.”
Cain said Coles had responded to Covid by investing more in Coles Local (there are now nine) and in suburbs with the new black and white format for its Liquorland stores as well as expanding its online sales capacity.
But as he points out, once lockdowns end, Australians are only too happy to flock back to supermarkets – a factor behind the recovery in Coles’ market share to pre-Covid levels from a low of 26.4 per cent in the three months to December last year, back up to 27.1 per cent in the June quarter this year.
But things have changed again in the past few months with Coles’ supermarket sales growth slowing from 2.6 per cent over the year to June 30, to only 1 per cent in the seven weeks from July 1 as a result of the lockdowns in NSW and Victoria.
He agrees that the four months to Christmas will be “volatile and difficult,” but he believes that 2022 will see a very “different atmosphere” in Australia with most people vaccinated and more people able to come in and out of the country.
Given that supermarkets were given a once in a lifetime boost in sales with the emergence of Covid last year, Cain prefers to argue that we should look at a two-year period – comparing performance today with 2019.
Over that period, he points out, Coles’ supermarkets sales have grown by 9.6 per cent, its liquor business is up by 15.1 per cent and its Coles Express petrol business, which now has 717 outlets around the country, is up by 13.8 per cent.
One of the issues retailers is how much of the change in shopping habits is permanent and how much is purely Covid related which will go back to “normal” once lockdowns end.
The good news is that the shopper madness where people were fighting in the aisles over toilet paper have ended with consumers now more aware of availability during Covid.
Cain reported that the “spikes” in shopping which occurred in responses to lockdowns last year are now subsiding, making it easer for supermarkets to cope.
But while shoppers still have access to supermarkets during Covid, the company has new issues to cope with including the increasing number of staff in Sydney hot spots who have to self isolate because a Covid positive customer has come into the store.
Coles has seen a 52 per cent growth in online sales at its supermarkets over the year to $2bn.
Its e-commerce penetration rate in supermarkets has jumped from 3.8 per cent of sales in the three months to June last year to 6 per cent in the same period this year, with the percentage of sales in NSW now in double digits thanks to the weeks of lockdown.
While the big growth in online shopping sounds good, the fact is that it still involves higher costs than when people come into stores to shop.
The goal, as Cain says, is to continue to strive to reduce the cost differential between instore and online.
Cain points out that Coles has undertaken major changes as its adjust to cope with the new world of contactless shopping.
The company now has some 500 stores around the country (out of a total of 834) which offer click and collect services (cheaper to service than home delivery) and some 300 stores now offering same day home deliveries.
Some 400 stores offer “click and collect rapid” which means that you can make an order and drive up to collect it 90 minutes later.
If there was a chink in Cain’s glass half full view of the world it was that the company had not been able to get earlier access to two major robotic fulfilment centres being built in Sydney and Melbourne as part of a deal with British online supermarket company Ocado.
Coles signed a deal with the company in March 2019 but it has had to take its place in the queue before they could become live.
The Melbourne centre is not due to come into operation until the 2023 financial year and the Sydney centre in 2024.
But when they do they have the potential to significantly transform Coles online shopping business.
Cain said both the Ocado stores would be able to deliver online shopping of $750m each a year. The stores will also have a range of more than 40,000 items compared to 20,000 in a traditional supermarket.
He said the firm also had a strong reputation for on time delivery, another key factor in online shopping.
Cain is continuing with the growth of its own brand goods which provide greater margins, with its “Exclusive to Coles” products now turning over some $10.9bn in sales, up 5 per cent over the year. It rolled out some 2100 new own brand products over the year.
Meanwhile, Coles still has to cope with the continuing impact of Covid, including extra costs, continued uncertainty and changes in the lockdown rules from state to state.
Cain is pushing ahead with getting as many of his staff vaccinated as possible.
He says the sector has reconvened a task force to work with the government to work out “what the right policies are” when it comes to vaccines.
The first priority is to vaccinate staff working at food distribution centres, then it is the front line team in stores.
Cain says he has no plans to make vaccinations mandatory.
“At the moment demand for vaccines (among Coles staff) is exceeding supply. What the future holds we will have to wait and see but I would prefer it to be a personal choice.”
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