Rising energy prices to hit household spending: Coles

Coles boss Steven Cain says Treasury warnings that energy prices could spike 56pc in the next two years will cause already concerned shoppers to rein in spending even more.

Coles chief executive Steven Cain says Treasury warnings that energy prices could spike 56 per cent in the next two years will cause already concerned shoppers to rein in their spending even more.

Unveiling the supermarket group’s trading results for the three months to September 30, Mr Cain said many customers in lower-income households were changing their shopping habits to make budgets stretch further, cooking in batches and buying more frozen meals. They were also clamping down on waste or buying less fresh food.

“Probably the biggest concern (of the budget) was the remarks about energy price increases over the next 18 months and that will obviously worry consumers,” Mr Cain said.

The Coles chief executive said additional industrial relations reforms were needed, adding there were early signs of progress.

“Clearly we want the economy to grow and Australia is still not at its full potential in terms of productivity or growth, and we’d still like to see more initiatives that will drive those two things,” he said.

“It looks like the better off overall test is heading in the right direction, but to pay higher wages that is best funded from higher productivity and that’s what we are working on at Coles.”

Steven Cain is witnessing accelerating food and grocery inflation at his stores, but is still optimistic about Christmas trading. Picture: Hanna Lassen/Getty Images

Coles reported on Wednesday first quarter revenue of $9.9bn, up 1.3 per cent. JP Morgan analysts had estimated Coles would record total sales growth of 2.7 per cent year-on-year in the first quarter of 2023. Shares in Coles fell 2.7 per cent to close at $16.16.

Inflation was particularly strong in fresh food for the quarter with prices up 8.8 per cent, driven by key food items across wheat, bakery and fruit and particularly in berries and bananas. Total supermarket price inflation of 7.1 per cent was recorded for the first quarter at Coles, compared to 4.3 per cent in the fourth quarter.

Mr Cain said the elevated inflation was already having an impact on consumer spending, with some households on lower incomes clamping down on food waste, making their meals go further by freezing them and spending less on fresh food such as meat. He said some 20 per cent of surveyed households reported they were under “extreme pressure” when it came to cost of living expenses.

Higher income households were still happy to spend.

“It’s a tale of two cities, this growing divide,” Mr Cain said.

“If you look at the lower demographics, what we are seeing is that they are buying less and that both in sales and volume terms are obviously the ones that are most impacted. And we did a bit of research last week, we asked 8000 customers just to see how they’re reacting to all of the changes, and it was interesting that 75 per cent of them said they were now more actively managing waste in the household – so there’s a war on waste taking place.

“So whereas last year, everyone was locked down and didn’t have much to spend their money on other than groceries and probably panic buying a little bit … what we are seeing now is people are shopping more frequently.

“They are very careful about what they are buying and managing their waste. And what that means is making meals go further. In some cases, they are freezing or cooking in batches, all of those types of things. So it’s quite a significant change.”

A report from UBS found that food inflation for the first quarter of the 2023 financial year accelerated to 8.3 per cent at Woolworths and 8 per cent at Coles.

Coles said on Wednesday that its supermarket sales for the 13 weeks to September 25 of $8.771bn were up 1.6 per cent, liquor sales were down 4.3 per cent to $836m and convenience store sales were up 8.4 per cent to $284m.

Same store sales growth for its supermarkets was 2.1 per cent for the quarter.

Online supermarket sales declined 11.5 per cent as sales normalised post Covid-19 lockdowns in the prior corresponding period, with some customers returning to shopping in store.