Coles believes non-grocery retailers are draining $500m in sales from its health and home categories

Internal Coles analysis reveals the supermarket sector has lost as much as $500m in sales in the health and home categories to non-grocery retailers such as Amazon, Chemist Warehouse and Temu.

Coles and Woolworths are losing hundreds of millions of dollars in sales from non-grocery rivals in the health and home categories. Picture: Eugene Hyland

Australia’s supermarket sector lost as much as $500m in sales from the health, beauty and home products categories to a gaggle of retailers such as Chemist Warehouse, Amazon, Bunnings and Temu in recent years.

Internal Coles analysis, obtained by The Australian, shows the supermarket giant’s lost market share is estimated to be $100m annually over the past four years – totalling at least $400m – as pharmacies such as powerhouse chain Chemist Warehouse stack their shelves with toilet paper, skin creams and dishwasher tablets, and online marketplaces also take sales.

The research has pinpointed the health and home categories for the $120bn supermarket industry as being steadily drained by pharmacy, hardware and pure-play online retailers to see $500m in sales in recent years flow from Coles, Woolworths, Aldi and the independents to non-grocery rivals.

Coles has conducted extensive research into the health and home category, including focus groups with shoppers, to see why they are not shopping as much with the supermarket for category products such as cosmetics, skin creams, dishwashing tablets, nappies and cleaning sprays.

What it has discovered is that there is some responsibility too on Coles to do better in these areas, and it is not just about the growth of rivals Chemist Warehouse, Amazon and Temu or new players into the segment such as Bunnings.

There is an admission among senior executive ranks at Coles that it has used too much of a “supermarket lens” when shaping and positioning its health and home offer, and that it has taken its eyes off what the purpose of the category is.

Executives at the supermarket’s Melbourne headquarters have said openly that Coles has “stood still”. There is now a push to engineer a “step change” in its health and home offer.

Meanwhile, Coles believes the entire supermarket industry has lost 2 per cent of market share to competitors in the past four years.

Some of the biggest threats to the traditional sales earned by supermarkets and now being siphoned off by other players are around health, beauty and home groceries such as nappies, toilet paper, dishwashing tablets and vitamins. Supercharging this market share grab are also retailers such as Amazon offering large-size bulk packs and lightning-fast delivery times, or even free delivery through subscription programs such as Amazon Prime.

Coles believes it has lost around $400m in sales in the health and home categories to non-grocery retailers. Picture: Peter Rae

Now Coles is planning a fightback, led by chief executive Leah Weckert, as it invests more heavily in the “health and home” category to take the fight up to more nimble players such as Temu and Amazon, as well as non-traditional supermarket competitors such as Chemist Warehouse and Bunnings.

Coles, the nation’s second-largest supermarket chain, believes it can rake in an extra $1bn in incremental sales within the health and home category if it can work up and execute the right strategy, although it hasn’t set a timeline for that ambitious goal.

This strategy for clawing back market share from Chemist Warehouse, Amazon, Temu and others includes reviewing its approach to pricing and the benefits of everyday low prices versus promotions and discounts.

Coles is also looking at offering more opportunities through the year when it promotes large bulk-sized groceries, such as extra-large packs of dishwashing tablets, to better compete with retailers such as Costco, Amazon and Bunnings, which have aggressively moved into this area.

The competitive heat from non-grocery chain Bunnings is particularly stinging given Coles was once owned by Wesfarmers, the conglomerate that also owns Bunnings. In 2023 Bunnings boss Mike Schneider launched into the $5bn home cleaning market, saying he believed the hardware chain could capture a significant slice of the category, which covers laundry detergent to dishwashing tablets. The recently listed Chemist Warehouse has also proved a rapacious competitor, matched by similar competitive muscle from online retailers such as Amazon, Temu and eBay.

Chemist Warehouse is encroaching on traditional categories sold by the supermarket chains and grabbing market share, according to Coles. Picture: Ian Currie

Woolworths chief executive Amanda Bardwell told The Australian after its interim results release that non-food categories in Woolworths – such as health, personal care and household care – are where it was not seeing the strong growth it had witnessed in previous years.

“And we do think that comes down to increased levels of competition outside of the supermarket sector,” she said.

“So that is everything from Bunnings to Chemist Warehouse to Amazon, and to international online players that have come into the market. The way in which customers are shopping is increasingly to cross-shop across all of these different competitors – and so that is absolutely something that’s playing out in the market overall.”

Coles highlighted the growing threat from non-supermarket retailers in its submission to the Australian Competition & Consumer Commission inquiry into the supermarket sector, arguing competition in the grocery retailing sector continues to intensify.

This intensification was coming from a diverse range of sources.

“Coles considers that online retailing presents a significant and growing threat to the traditional grocery sector – particularly given the ability of customers to split their baskets across retailers with convenient online purchases,” its ACCC submission said.

Pharmacies are one of many non-grocery players taking market share from the supermarket chains. Picture: Paul Miller

In another response to the ACCC inquiry, Coles noted the growing strength and competitiveness of Amazon. “Since entering the market in 2017, Amazon has gained a strong foothold in Australia through its marketplace, which offers a broad range of packaged pantry items at highly competitive prices. Amazon has reported that Australian retail store revenue has increased by 21 per cent in calendar year 2023. More than four million Australian households have ‘Prime’ subscriptions, a membership service that provides free shipping on most orders (which is often next-day or same-day).”

It also pointed to the recent move of Bunnings into the home cleaning category.

Originally published as Coles believes non-grocery retailers are draining $500m in sales from its health and home categories