Prosecco over champagne, mince over steak: Coles shoppers trade down, down

Shoppers are choosing sparkling wine, prosecco and rosé over champagne, swapping craft beer for mainstream brands, and picking up premixed drinks over spirits as Coles strives to prove it has a range of budget-friendly options ahead of Christmas amid rising cost-of-living pressures.

Group revenue for Australia’s second-largest supermarket chain increased 3.6 per cent to $10.3 billion between June and September, boosted by 9.4 per cent growth in private-label brands.

Coles is preparing for Australians to celebrate Christmas at home.

Chief executive Leah Weckert said the cost-of-living crunch was front of mind for customers and Coles was making it a priority to deliver more affordable products after a customer survey signalled 20 per cent more Australians are looking to cook, eat and celebrate at home this year than last year.

“The big challenge, I think, is how do we make it increasingly easy for customers to find value in our stores,” Weckert said.

“We’re very proactively doing things like reducing the cost of ham versus last year and finding really great value options, so customers can balance their budget. That’s a huge focus area for us at the moment.”

Going into Christmas, shoppers are expected to continue “trading down”, she said, with economic experts flagging the possibility of two more rate rises before the new year that would put further pressure on household budgets.

“Customers are trading out of, for example, steaks into mince, or out of red meat into chickens, to find cheaper and more affordable alternatives for protein. Some of the other things we’re seeing is that they’re buying in bulk and then cooking in bulk and freezing at home,” Weckert said.

Coles’ quarterly figures appear to have undershot expectations, with investors sending the share price into the red for most of the day before recovering to 0.2 per cent at the end of Thursday’s trading session.

UBS analyst Shaun Cousins assessed the supermarket chain’s like-for-like sales growth as “slightly below market,” while E&P Capital retail analyst Phillip Kimber said Coles’ results had missed expectations.

MST Marquee senior research analyst Craig Woolford said Coles’ sales growth “slowed more markedly” than revenue at its larger competitor, Woolworths.

“We expect small downgrades to earnings given the weaker trends are likely to continue,” he wrote in a note.

In-store Liquorland sales revenue growth was reasonably steady at 1.8 per cent, but it was a different story online, where people are increasingly buying food and drinks: e-commerce liquor sales soared 32.2 per cent, accompanied by a 24.6 per cent growth in online grocery shopping.

“There [is] a cohort of customers that use online shopping to manage to a budget. It prevents them from buying things impulsively when they go in store,” Weckert said.

Champagne and spirits will continue to be stocked on shelves. The supermarket expects customers will buy these as gifts for the festive season.

In-store collectible campaigns, such as MasterChef cookware and the current eight-piece Curtis Stone barbeque collection, are part of Coles’ plans to keep customers coming through its doors.

“Those campaigns have been very successful in driving sales. They’re a key part of the trade plan going forward,” Weckert said.

Like Woolworths, Coles’ fresh fruit and vegetable prices softened, declining 14.5 per cent compared with the same period last year, during which colder weather and La Nina flooding severely affected growing conditions.

However, overall food inflation – excluding tobacco and fresh produce – rose to 5.7 per cent as prices for dairy products such as cheese, eggs and oil remain elevated, affected by high farmgate milk prices. The prices of bakery items have been impacted by higher wheat commodity prices.

Coles is also contending with rising theft, and is implementing stock-loss technology at 250 of its most affected stores by the end of the year, such as cameras that can determine if items have skipped the scanner and “smart gates” that lock the wheels of trolleys if someone tries to leave without paying.

Weckert said the supermarket would have more details to share on stock loss in coming months.

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