Boozy Aussies drive Coles’ profits

Aussies keep stocking up on booze, Coles’ latest earnings report reveals, while they paid more for red meat, avocados, apples and citrus over the festive season.

Shoppers paid more for a variety of food products at Coles over the festive season, including avocados and red meat, when international border closures caused more Australians to stay at home and stock up on booze.

In its half-year results released on Wednesday, the supermarket giant said elevated sales continued as a result of COVID-19, with the prior trends of bigger baskets and fewer shopping trips persisting.

“Neighbourhood stores continued to perform strongly while CBD stores remained subdued,” the company said.

“There was a marginal improvement in shopping centre store performance during the second quarter, and some resort stores also benefited from customers travelling domestically.”

Liquor sales remained strong overall but tapered off in the second quarter, as restrictions around the country eased, although drinkers continued to favour larger pack sizes of beer, ready-to-drink beverages and spirits.

Coles said price inflation at supermarkets over the six months to December 31 was 2.3 per cent and 2 per cent in the second quarter, largely driven by tobacco and a short supply of avocados, citrus and apples due to adverse growing conditions.

Red meat also cost more because cattle prices were at record highs.

But vegetables such as cucumbers, lettuce and broccoli were comparatively cheaper as a result of heatwaves in South Australia and droughts in Queensland in the prior corresponding period, Coles said.

There were more than 340 “customer-led” range changes across categories such as frozen meals, health foods and nutritional snacks, while sales of Own Brand lines surged by almost 10 per cent.

“Over 1200 new products were launched in the half, the most successful of these new products were in the convenience and Christmas ranges, including the Coles Kitchen family ranch salad kit … and Own Brand’s pork loin roast with apple, cranberry and thyme stuffing,” the retailer said.

“The Coles Kitchen ‘balanced for you’ healthy meals range was also launched and has been well received by customers.

“Own Brand won 24 product awards including a record 11 Product of the Year awards across products such as Coles finest chocolate and hazelnut mousse, Urban Coffee Culture dark roasted beans and KOi jasmine and sandalwood handwash.”

Coles completed 30 supermarket renewals during the half, opened 11 new stores and closed two, bringing the total number of supermarkets in the group to 833.

The company booked a 14.5 per cent jump in net profit to $560m and declared a fully franked interim dividend of 33 cents per share, up 10 per cent on the previous interim payout to investors.

But the outlook provided was highly cautious, with Coles saying that depending on the COVID-19 vaccine rollout and efficacy, plus other factors, supermarket sales could moderate significantly or even decline in the second half and into the 2022 financial year.

Trends expected to persist in the second half include pantry stocking, people working and eating from home, and customers shopping online to avoid going to stores.

It was also likely the shopping locally trend – which has reduced Coles’ relative market share as it has a high proportion of CBD stores – would reverse somewhat as customers become more confident visiting large shopping centres, while fuel sales could bounce back as Australians move around more as COVID-19 restrictions ease.

Coles also noted recent improvements in employment numbers and consumer confidence could be partly offset by the reduction in fiscal stimulus measures.

Another trend Macquarie Research noticed was faster delivery rates as a result of less traffic on roads.

The analysts said Coles Express performed surprisingly strongly, particularly given restrictions in Victoria, with the result helped by coffee and tobacco sales.

Macquarie Research also noted liquor sales remained elevated for the first six weeks of the third quarter.

Citi agreed Coles’ convenience division performed better than anticipated, but supermarket and online sales momentum had slowed down.

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