Sales at supermarket chains Coles, Woolworths rocket as panic buying takes hold

Sales at supermarket chains Woolworths and Coles have skyrocketed as panic buying strips shelves of essential foods.

Coles, for example, is looking to employ 5000 casuals to help with in-store customer service. Picture: AAP

The panic buying at supermarkets in the wake of the coronavirus pandemic which has seen toilet paper, pasta, rice, meat and other staples stripped from the shelves could have sent sales at chains such as Woolworths and Coles skyrocketing more than 25 per cent.

It could also lead to a long-lasting change to consumer behaviour, once the pandemic has passed, with the crisis potentially driving a greater take up of online shopping and a return to cooking at home rather than dining out.

A new report from UBS analyst Ben Gilbert says sales in supermarkets have spiked materially, with his channel checks suggesting sales up more than 25 per cent year-on-year across stores in recent weeks.

“This is consistent with global trends where the UK has seen categories such as tissues and pasta up over 50 per cent for the week commencing March 1,” Mr Gilbert said in a report to UBS clients.

There is growing evidence emerging that the panic buying exhibited across Australia has delivered unprecedented levels of same store sales growth.

The Reject Shop has confirmed that its comparable sales growth in the last few weeks has strengthened more than sixfold, from 2 per cent to 25 per cent. Meanwhile Pental, which makes a range of household cleaners such as White King bleach, has testified to sales spikes greater than during Christmas and special promotions.

But the supermarket chains look to be the biggest winners. Woolworths on Monday said it had sold seven weeks’ worth of toilet paper in seven days, with the demand so great from shoppers rushing the stores and stripping the shelves that Woolworths, Aldi and Coles have brought in a raft of buying restrictions on certain food categories and other grocery items such as hand sanitisers and toilet paper.

That said, increased sales have come with increased costs through the supply chain, which limits the level of operating leverage UBS might normally expect.

Coles, for example, is looking to employ 5000 casuals to help with in-store customer service.

UBS now forecasts first quarter supermarket sales to be up 9.5 per cent year-on-year and up 6.1 per cent for the second quarter, before moderating to growth of around 5 per cent in the third and fourth quarters of 2020.

UBS is lifting earnings per share estimates across Coles, Metcash and Woolworths for fiscal 2020 to reflect this.

Mr Gilbert’s rating on Coles moves to “neutral” (from sell), Metcash to “buy” (from neutral) and Woolworths to “buy” (from neutral).

UBS also believes the COVID-19 pandemic will embed new behaviours in consumers, potentially leading to an acceleration in the rate of online penetration (both grocery and fast food) and is likely to see a return to cooking at home, at least in the near term.

Jefferies analyst Michael Simotas has a bullish outlook for Woolworths and Coles, as food pricing turns rational, and also sees a shift to more dining at home.

“Food inflation is building and the industry has become increasingly rational. This dynamic should not change in a post COVID-19 world and panic buying is currently boosting sales and earnings.

Acute economic weakness could lead to some downtrading but we expect this will be offset by a shift towards in-home consumption,’’ Mr Simotas said.

The analyst believes grocery wholesaler Metcash is a structurally challenged business, with independents continuing to lose share to major chains and risk of further customers losses.

“However, the uncertainty around COVID-19 reduces the risk of another customer changing suppliers for the foreseeable future and Metcash is benefiting from panic buying.”