Coles boss says suppliers’ requests for price increases are cooling

Coles boss Leah Weckert says the pace of food and grocery suppliers wanting price rises to counter inflation has started to slow.

Coles boss Leah Weckert has confirmed fewer food and grocery suppliers are requesting cost hikes to counter roaring inflation, suggesting the retailer could cut prices amid consumer and political pressure over its market power.

The Australian revealed earlier in February that Coles had asked some of its suppliers to cut their prices to reflect cooling inflation, with those savings likely to fund a discounting blitz.

“I won’t comment about individual negotiations but I can say is the number of price increase requests that we have seen from suppliers has really come off,” Ms Weckert told The Australian.

The supermarket giant on Tuesday reported that revenue for the first half of fiscal 2024 rose 3 per cent to $22.27bn as net profit fell 8.4 per cent to $589m.

“We have seen a drop off in the number of cost price increases that are coming through from suppliers … we are working hard to keep groceries affordable and we are always looking for ways to bring down the price of groceries.”

Sources said it is now becoming common for the supermarket chain to contact its suppliers to request price reductions, to mirror the recent slide in key input costs like shipping and raw materials.

Some suppliers revealed they had been asked to prepare for price reduction requests of as much as 14 per cent – especially in the non-food area – on some products.

“It’s great that fresh produce and meat are in deflation, we are seeing moderation in packaged (groceries) but of course we want to get even better outcomes for the consumer and as inflation moderates and input prices go down I think customers would expect us to be looking for everyway that we can to pass that on to them.”

Coles boss Leah Weckert said the pace of suppliers asking the supermarket for price rises has fallen significantly. Picture: Martin Keep

The latest Coles results showed indeed supermarket price growth was slowing after massive upticks in prices over the last year, as food and grocery inflation moderated slightly to 3 per cent from 3.1 per cent. The fresh category – which includes fresh produce, meat, deli and seafood, and bakery – was in deflation across the half.

Ms Weckert also mounted a spirited defence of the supermarket sector, amid multiple inquiries and allegations of price gouging, arguing there is “fierce” competition between the major supermarket chains and that despite the growing political storm around allegations of Coles and Woolworths engaging in price gouging and misusing their market power, shoppers had a huge variety of local stores, online players and others to shop at.

She defended the right of a publicly listed company such as Coles to return a profit, arguing it was an “essential” pillar to its ability to invest in stores and staff, pay its suppliers, pay taxes to governments and provide a return on investment to its 440,000 shareholders.

At Coles supermarkets sales rose 4.9 per cent to $19.78bn for the December half as earnings rose 3.2 per cent to $1.73bn. At its liquor arm, sales rose 1.8 per cent to $1.99bn and earnings rose 5 per cent to $148m.

The net profit result, although down, was around $30m better than expected by the market, accompanied also by a slightly higher dividend than pencilled in by many analysts. It also came with a strong trading update for its performance since January. There was also an improvement in combating theft from its stores - which hurt its full-year results last year.

Coles declared a flat interim dividend of 36c a share, payable on March 27, which was ahead of some analysts tipping a 33c per share dividend.

It sent shares in Coles racing 8 per cent higher before it closed up 87c at $16.75.

“Coles have done a good job through the first half, getting theft under control, maintaining top line momentum in food via both in-store and online while at the same time focusing on costs,” said Jarden analyst Ben Gilbert. “This is a particularly strong result in the context of less historical investment in digital, online and loyalty versus Woolworths.”

Barrenjoey analyst Tom Kierath said the first-half results “likely restores some trust lost by the market at the full-year results”.

“This is a very strong result when compared to Woolworths Australian food,” said Citi analyst Adrian Lemme. “Pleasingly, loss (theft) technology is now delivering positive results with progressive improvement expected in the second half. This has been a key driver behind our ‘buy’ thesis,” Mr Lemme said in a note to clients.

Coles said interim revenue fell 3 per cent to $22.27bn. Picture: Daniel Pockett

Coles, the nation’s second-largest supermarket chain, said profitability at its supermarket arm was weaker as earnings margins fell 17 basis points to 5.1 per cent, which was a contrast to Woolworths last week which reported that its supermarket margins had improved slightly to 6.1 per cent. Cost of doing business at Coles supermarkets as a percentage of sales lifted by 27 basis points to 21.5 per cent.

Ms Weckert said Coles had invested heavily in reducing prices at its supermarkets to attract shoppers, which had shaved some of its store profitability.

In terms of outlook, Coles said in the first eight weeks of the third quarter, supermarkets sales revenue grew by 4.9 per cent underpinned by volume growth from value campaigns and improvements in availability compared to this time last year.

In the first eight weeks of the third quarter, liquor sales revenue declined by 2.2 per cent, due to customers’ reduced discretionary spending. At its results last week Woolworths said its supermarket sales for the first seven weeks of the second half had risen by 1.5 per cent.

The Australian previously reported some suppliers have been contacted about a new Down, Down campaign that will see a fresh round of price cuts.

These are currently designed as 13-week campaigns for autumn, winter and spring, and will see prices squeezed across a range of food and grocery categories.Suppliers have been asked to help fund the reductions by taking price cuts themselves.

The supermarket giants face an uncertain year with a raft of high-profile political probes and inquiries piling pressure on the retail ­behemoths to explain elevated ­prices and earnings amid accusations of profit gouging. The political heat around Woolworths and Coles ratcheted up late last year.

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