Coles tells suppliers customers are ‘feeling the pain’ of inflation and higher interest rates

Coles has conceded to its suppliers that rising rates and prices are hitting consumers hard, with customers rushing to take advantage of sales and promotions at the checkout.

Coles has conceded to its suppliers at a recent forum that its customers are “feeling the pain” of rising interest rates and cost-of-living expenses, and are rushing to take advantage of sales and promotions to help stretch their household budgets further.

At a forum held by the nation’s second-largest supermarket chain late last month, Coles executives revealed to its food and grocery supplier base the attraction of value offers, with a sales promotion launched in January triggering a 22 per cent spike in sales for those marked-down groceries.

The suppliers were told that the second iteration of Coles’s ‘Dropped & Locked’ campaign – which put more than 300 essential grocery items on discount – resulted in a 22 per cent lift in a mix of sales and volumes for those basket of sales goods.

Coles executives also said the impact of inflation was reflected in a shift by consumers to cheaper foods, such as trading down to cheaper cuts of meat or more affordable protein, such as chicken.

Coles told the suppliers that customer trust on the issue of value was becoming more crucial, and involved keeping prices down and building customer trust via its “Dropped & Locked” campaign, while private label groceries also played a role.

The reporting season shed a light on the growing fickleness of the consumer in the wake of nine months of interest rate rises – with expectations of further increases to follow – and other cost-of-living pressures.

Last month when presenting the supermarket’s latest financial results, Coles CEO Steven Cain said there had been a large uplift in the sale of cheaper, private label groceries in his stores for the six months before Christmas.

He described this gain in home-brand groceries as a “big number” and one of the biggest on record for Coles. Mr Cain said he expected more customers would be value-conscious as cost-of-living pressures increased.

This was backed up by Woolworths CEO Brad Banducci when the nation’s largest supermarket chain issued its first-half results and Mr Banducci revealed the supermarket’s private label groceries had “exploded” and seen “extraordinary” growth over the December half.

Mr Banducci said some grocery categories were up more than 20 per cent, led by popular and value-focused grocery lines such as canned tuna, tinned tomatoes and pasta. These are grocery lines, mostly staples, that typically have a high penetration of private label or supermarket-owned brands.

“When you get to some other categories, the growth (in private label) has been extraordinary. Whether it’s our canned tuna … whether it’s canned tomatoes, or whatever the case may be,” Mr Bandcucci said last month.

A Coles spokeswoman said the recent packaged supplier forum was an important way for it to meet with suppliers face-to-face and explore ways they could continue to benefit from the supermarket’s strategy.

“We are committed to helping customers find great value when they shop,” she said. “While value promotions like Dropped & Locked have seen an incredible response from our customers, we know this would not be possible without the integral support of our suppliers.”

A recent report on the $100bn supermarkets sector from investment bank UBS said food inflation at leading supermarkets Woolworths and Coles was tracking at 9 per cent in January, which was below the 9.2 per cent in the second quarter of fiscal 2023 and 9.4 per cent at its peak in December.

But UBS analyst Shaun Cousins said he believed food and grocery inflation in supermarkets might have peaked in December and, while remaining elevated this year, could moderate.

“Across fresh and dry grocery, there have been steady increases in the rate of inflation whereas fresh is more volatile given supply variances. Food inflation is now expected to have peaked in December 2022 at 9.4 per cent and is expected to moderate further over calendar 2023.”

Mr Cousins said food and grocery suppliers expected food inflation of 6.4 per cent over the next 12 months to December, down from 8.7 per cent in June 2022.

Mr Cousins said supermarket volumes would be supported by a return of population growth led by immigration, the return of overseas students and backpackers, and the rising cost of living that was expected to drive a shift from restaurants and cafes to at-home consumption.