Wesfarmers grocery sales slow

Wesfarmers’ Coles has posted one of its slowest rates of sales growth in a decade, amid a price war with Woolworths and Aldi.

A new Coles store opens in Sydney. Pic: AAP

Coles, the long-time engine of Perth-based conglomerate Wesfarmers, has reported one of its slowest rates of sales growth since it was bought 10 years ago, as it wages a pitched battle with Woolworths and Aldi to remain competitive and win shoppers to its stores.

The almost-flat same store sales growth at Coles in the first quarter was dragged lower by a fall in the price of fresh food and came as Wesfarmers’ other retail stores — Bunnings, Kmart and Officeworks — were leant on to provide sales momentum.

Shares in Wesfarmers were down 96 cents, or 2.3 per cent, to $41.77, in morning trade.

Wesfarmers (WES) chief executive Richard Goyder, who is stepping down after the company’s AGM in November, said the sales performance of the group’s retail businesses was generally pleasing, in particular the continued strong performances of Bunnings Australia and New Zealand, Kmart and Officeworks.

“Coles’ headline food and liquor sales increased by 1.5 per cent for the quarter as the business continued to invest proactively across all elements of the customer offer,” Mr Goyder said.

“Sales growth was achieved despite significant fresh produce deflation during the period, and the business continued to see improvements in key metrics such as transaction growth, unit growth, fresh participation and customer satisfaction.”

Wesfarmers flagship retailer Coles posted comparable food and liquor sales growth of 0.4 per cent while comparable food sales — excluding liquor — rose 0.3 per cent.

It was in line with the 0.4 per cent growth in sales for the third quarter of 2017, but is one of the lowest growth rates for Coles since it was bought by Wesfarmers in 2007.

When adjusting for Easter, Coles third quarter sales were up only 0.7 per cent, making this quarter its lowest since the takeover 10 years ago.

The Coles sales performance for the quarter was heavily impacted by price deflation, especially among the fresh food, fruit and vegetables category, as very good growing conditions and a lack of any disruptions from cyclones produced bumper crops that pushed down market prices.

Supply-driven deflation in fresh produce was a significant factor in the supermarket sales result, with deflation of 2.3 per cent the biggest such number since the fourth quarter of 2016, when it was 2.4 per cent.

Adjusting for deflation, comparable sales were up 2.7 per cent, the highest they have been since the first quarter of 2017.

“There are still many opportunities for growth in the business,” said Coles managing director John Durkan. “We continue to focus on increasing our penetration in ‘fresh,’ improving our store network, investing in new routes to market, and simplifying our business in terms of range and our cost of doing business.”

The slowing sales growth at Coles comes amid a price war with archrival Woolworths, with both supermarket chains pouring billions of dollars into lowering prices to maintain their competitive edge.

Bunnings Australia and New Zealand achieved total sales growth of 11.5 per cent during the quarter, while Bunnings in the UK encountered tough trading conditions as its pilot stores were tested and the Homebase portfolio of hardware stores posted sinking sales as its model was also revamped.

“Bunnings United Kingdom and Ireland total sales decreased 17.5 per cent (13.8 per cent in local currency terms) as difficult trading conditions persisted for Homebase,’’ Mr Goyder said.

“The roll out of the Bunnings Warehouse pilot stores continued, with eight pilot stores trading during the quarter, delivering early encouraging results.

In its resources business, Wesfarmers said first-quarter production of steaming coal at its Curragh mine fell 12.6 per cent compared with the previous quarter, while metallurgical coal production rose 3.9 per cent. At the Bengalla mine, Wesfarmers’ share of steaming coal production fell 6.6 per cent quarter-on-quarter.

With Dow Jones