Media

Coles discounts big baskets to avoid being trumped by Woolworths

Sue Mitchell
Dec 5 2016
AFR

Coles is offering loyalty card holders discounts of up to 15 per cent on big basket shops to reinvigorate sales and avoid being trumped for the first time in years by a resurgent Woolworths.
Morgan Stanley analyst Tom Kierath says Coles is pulling forward promotions and offering deeper discounts to FlyBuys members in an attempt to spur foot traffic after posting its weakest same-store sales growth for more than six years in the September quarter.
Coles’ same-store food and liquor sales rose 1.8 per cent in the three months ending September, well down on growth of 3.3 per cent (Easter adjusted) in the June quarter and 3.6 per cent in the year-ago period.
In comparison, Woolworths’ same-store supermarket sales rose a better-than-expected 0.7 per cent in the September quarter – the first growth since the December quarter 2014-15 and the gap with Coles narrowed to a two-year low.
Mr Kierath estimates that Coles’ same-store sales in September were flat, whereas Woolworths’ same-store sales growth was running at 1.2 per cent.
If this trend continued into the December quarter, same-store sales growth at Coles would fall behind that at Woolworths for the first time since 2010.
“It appears that there has been a change in leadership in terms of like-for-like sales growth in the supermarkets industry, with Woolworths now looking set to hold the mantle for the important Christmas quarter,” Mr Kierath said.
“Clearly though, much relies on the most important month of the year, December, where any missteps are magnified,” he said, citing Woolworths’ problems in December last year.
Coles will be battling hard to cycle strong December-quarter same-store food and liquor growth of 4.9 per cent, while Woolworths will be cycling negative 0.6 per cent same-store food sales and negative 1.2 per cent food and liquor sales.
In October, Coles managing director John Durkan dismissed calls for more aggressive promotional price cuts, saying Coles would not change its long-term strategy of investing efficiency gains into lower everyday prices in response to “short-term” behaviour of Woolworths, Aldi and independent retailers.
Renewed pressure on margins
Analysts believe Coles and Woolworths are reducing prices faster than they can cut costs, adding to pressure on margins.
“While Coles has a considerable cost out opportunity from reducing range, we think it is unlikely to offset operating de-leverage and higher promotional activity,” Mr Kierath said.
Coles cut promotional prices in the September quarter by as much as 55 per cent, reduced private label prices and added more products to its Every Day Value program, taking the number of products on EDLP (Everyday low price) to 4000.
Woolworths has invested about $1 billion into prices and in-store service in the past 18 months and now believes its prices are on par with Coles.
However, a Coles spokesman said that on a basket of 35 Christmas and holiday “essentials”, including panettone, mince pies, cranberry sauce, BBQ wipes and extra tough garbage bags, its prices were 9.5 to 12.2 per cent cheaper than a similar basket at Woolworths.
“We know our customers have long shopping lists this month, so it’s more important than ever that we deliver great value across our stores,” Mr Durkan said.
The aggressive discounting is occurring in-store and online. In October, for example, Woolworths was selling $25 online grocery vouchers for $3 when customers spent at least $110 – an effective discount of 20 per cent.
Read more:

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

What Our Members Say

Vestibulum blandit faucibus urna in hendrerit. Vivamus leo dui, bibendum vitae hendrerit ac, volutpat quis dolor. Maecenas id lacinia odio, et malesuada lectus. Nulla et ante non metus consectetur vestibulum sed quis dolor. Fusce non tempus est.

Pellentesque pretium, diam sed venenatis sagittis, libero augue imperdiet odio.

Member NameCompany Name

Pellentesque pretium, diam sed venenatis sagittis, libero augue imperdiet odio.

Vestibulum blandit faucibus urna in hendrerit. Vivamus leo dui, bibendum vitae hendrerit ac, volutpat quis dolor. Maecenas id lacinia odio, et malesuada lectus. Nulla et ante non metus consectetur vestibulum sed quis dolor. Fusce non tempus est.

Member NameCompany Name

Pellentesque pretium, diam sed venenatis sagittis, libero augue imperdiet odio.Vestibulum blandit faucibus urna in hendrerit. Maecenas id lacinia odio, et malesuada lectus. Nulla et ante non metus consectetur vestibulum sed quis dolor. Fusce non tempus est.

Vivamus leo dui, bibendum vitae hendrerit ac, volutpat quis dolor.

Member NameCompany Name
X