Woolworths’ growth outpaces Coles but liquor division worries emerge

Woolworths’ growth is outpacing arch rival Coles but worries are emerging in its liquor business.

Woolworths enjoyed a significant sales growth lead over archrival Coles during its fiscal third quarter. Picture: AAP

Woolworths has outgrown arch rival Coles in comparable supermarket sales as its momentum from the beginning of the year continued through to Easter.

But a retreat in the drinking habits of Australians has dented the performance of its leading liquor chains such as Dan Murphy’s, with the retailer warning earnings for the liquor division would be below last year.

On Thursday Woolworths posted total Australian food sales growth of 4.1 per cent to $10.01 billion for the third quarter, with like-for-like growth up 3.6 per cent. Easter-adjusted like-for-like sales growth at its flagship Australian supermarkets was up 4.2 per cent.

It beat Coles, which on Monday reported like-for-like sales growth at its supermarkets of 2.4 per cent for the March quarter.

“We are pleased with the improvement in sales momentum across the Group in Q3 with Australian Food comparable sales growth of 4.2% (Easter-adjusted) a particular highlight,” Woolworths chief executive Brad Banducci said in a statement. After a challenging first half, while we had positive transaction and item growth, sales also benefited from lower deflation than recent periods and settled weather.

“Customer scores remained high but were marginally lower than the prior year with plans in place to address areas of underperformance. Our ‘Simpler for Stores’ productivity program continues to build momentum and there are a number of initiatives underway to address higher than forecast stock loss.”

Liquor powerhouse Dan Murphy’s weighed on Q3 earnings.

However, despite the stronger growth across its flagship supermarkets business, Woolworths’ one-time earnings powerhouse — the liquor arm led by heavyweight retail outlet Dan Murphy’s — was dragged down by a slump in beer and wine sales. Woolworths warned pre-tax earnings for its Endeavour Drinks business will be lower than last year.

“Despite the strong sales growth, category mix remains a challenge, particularly for Dan Murphy’s,” the company said in a statement on Thursday.

“The overall wine category in Australia contracted marginally in the quarter with beer and spirits category growth of approximately 2 per cent and 4 per cent respectively.

“Beer sales were boosted by the introduction of the Container Deposit Scheme in Queensland in November.”

Easter-adjusted sales for Endeavour Drinks, led by Dan Murphy’s and including its convenience offer BWS, increased by 6.4 per cent with comparable sales increasing by 5.9 per cent. Sales momentum improved materially on the second quarter assisted by the timing of New Year’s Eve and more settled weather. Excluding the benefit of New Year’s Eve in the third quarter, Easter-adjusted comparable sales would have increased by 4.3 per cent.

But the poor weather and falls across key beverage categories would lower the division’s full year earnings, Woolworths warmed.

“After slower sales growth in the first half, Endeavour Drinks’ sales momentum improved in the third quarter … at the first half we noted that the unsettled weather had negatively impacted sales across all of our businesses which was most pronounced in Endeavour Drinks,” said Mr Banducci.

“More settled weather across key trading states and the timing of New Year’s Eve supported sales in the third quarter. We still expect Endeavour Drinks’ EBIT for fiscal 2019 to be below the prior year as we invest in improving our range, service and convenience for our customers.”

Online sales remained strong with growth of 10.5 per cent. For BWS, delivery sales continue to grow strongly with 559 BWS stores offering On Demand delivery with an average delivery time of just under an hour. Dan Murphy’s On Demand sales also continue to perform strongly following the rollout across 79 stores by the end of the third quarter, Woolworths said.