By Carrie LaFrenz
Coles chief executive Leah Weckert says the nation’s second-largest grocery chain is winning share and well positioned to be the preferred place to shop this Christmas, after it grew sales at more than double the pace of Woolworths in the first three months of the financial year.
The second quarter will be the litmus test, piling pressure on its larger rival’s stuttering strategy to turn around its sliding market share.
Coles’ sales rose 7 per cent – excluding tobacco, with a 57 per cent slump in sales – in the first quarter, underpinned by lower shelf prices, better product availability, and strong growth from the company’s online channels. Including tobacco, sales grew 4.8 per cent to about $10 billion, compared with 2.1 per cent at Woolworths.
Of more concern for Woolworths investors will be Coles’ guidance that supermarket sales were growing at a similar pace early in the second quarter – the crucial three months which cover Christmas. Woolworths said its sales rose 3.2 per cent in the first three weeks of October.
“We have had strong performance for a few quarters now, and have been taking share in market. We feel we’ve got a really strong plan going into Christmas,” Coles chief executive Leah Weckert told media on a call.
Investors and analysts are concerned Woolworths chief executive Amanda Bardwell is running out of time to prove her strategy to claw back market share lost to Coles over the past two years is working.
Woolworths has slashed prices on hundreds of products, but Weckert has previously said Coles would do the same to ensure it remained competitive. Woolworths ramped up loyalty offers in September and October in response to elevated Flybuys activity by Coles in July and August.
Addressing shareholders at an annual meeting on Thursday, Woolworths chairman Scott Perkins blamed a slump in earnings last year on “ongoing cost-of-living pressures from customers, the necessary action taken by the business to lower shelf prices, and the material supply chain disruption from extended industrial action in the first half of the year”.
Woolworths lost more than $100 million in sales after prolonged industrial action at its distribution centres left shelves bare last December.
“I want to make it very clear to all shareholders that neither your board nor Amanda and the management team is satisfied with recent performance and is addressing this with clarity and urgency,” Perkins said. “We have put behind us a period where our teams were distracted by external factors … we have adjusted to the new normal of intensified competition.”
Bardwell succeeded Brad Banducci as Woolworths chief executive last September, having previously run its digital business WooliesX.
Citi analyst Adrian Lemme said it appeared momentum at Coles was continuing into the second quarter, helped by more online sales.
“We think this will allay fears that there has been a recent shift in market share back to Woolworths following its update yesterday,” he said.
But WAM Leaders’ senior investment analyst Hailey Kim said the updates this week showed the gap between the two giants has started to narrow.
“This suggests recent actions taken by Woolworths may be gaining traction. It’s an encouraging sign for both the companies and the broader sector, as it reduces the risk of any irrational competitive behaviour. The next quarter will be the real litmus test of whether the current turnaround plan is gaining sustainable momentum for Woolworths,” she said.
Coles shares fell on Thursday by 2.84 per cent to $22.06 each but have gained 25 per cent in past year. Woolworths shares rose by 2.9 per cent to $28.42, but are down about 8 per cent over the year.
The retailer’s quarterly sales were boosted by the rollout of new distribution centres, which have made it easier and cheaper for the company to get more products onto shelves, and to introduce same-day home delivery in Melbourne.
“We are pleased with our performance over the quarter, with supermarket sales growth reflecting the focus we have had on value, quality and the customer experience,” said Weckert.
“We continue to see positive results from our major transformation projects with availability reaching its highest levels since pre-COVID and [online sales rising].”
Shoppers continued to buy Coles Finest top-tier home brand range which posted a 15 per cent jump in sales in the first quarter, which Weckert said demonstrated customers were looking to recreate restaurant-quality meals at home.
Prices across the supermarket division rose 1.2 per cent in the September quarter, compared with a 1.5 per cent increase in the final quarter of the last financial year. Fresh produce including avocados, tomatoes and capsicum was in abundance, keeping prices down, while meat prices rose.
Beyond the local supermarket divisions Coles has a liquor division that has been rebranded under the Liquorland banner, where stores were a weak spot. Revenue fell 1.1 per cent to $842 million in the first quarter, and comparable sales declined 1.4 per cent.
Woolworths runs discount department store Big W and has a significant grocery business in New Zealand. Perkins faced investor questions at the AGM about the loss-making Big W chain, which has been a drag on Woolworths for years, while rival discounter Kmart and its Anko power brand are shooting the lights out.
Perkins said Big W is moving category by category to get the offer right. Clothing is seeing some “early momentum” and the home category is starting to perform better, he says, but admitted more work needs to be done on every day items such as dishwasher tablets and cleaning. Woolworths is seeking to move Big W onto its own IT platform, separate from supermarkets.
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