Dana McCauley
JUNE 7, 2017
news.com.au
FRESH bread, better fruit and veg and a tighter product range are part of Coles’ new strategy to win the $90 billion grocery war.
But the supermarket giant needs one more thing to beat the competition from Aldi and Amazon: lower prices.
That’s the message managing director John Durkan had for analysts and investors at Wesfarmers’ strategy briefing day on Wednesday.
“There are products with high starting prices, which seem to be what suppliers want, and invariably these products only sell when on promotion; customers are only willing to buy when it’s half price,” he said.
“It’s already an overpriced grocery market in my view and I’ve been saying that for nine years … I still look at products here that are made overseas and they are crazy prices. We need to bring those prices down.”
He said suppliers would benefit as the supermarket chain would be able to sell their products at a higher volume if it got rid of “unrealistic” prices.
“We’ll smooth out demand through everyone’s supply chains and take the cost down as we do,” he said.
FOCUS ON FRESH
Mr Durkan said more Australians were shopping for fresh food than in years gone by, creating a big opportunity that Coles was yet to fully take advantage of.
“We will continue to invest in a better shopping experience and lower prices for our customers; this is the best approach that will prepare our business for the impact of any new entrants into the market,” Mr Durkan said, addressing speculation over the impending arrival of Amazon Fresh.
This will include rolling out fresh baked bread across all Coles stores, with plans underway to convert an additional 180 stores to include in-house bakeries.
Mr Durkan said he wanted Coles to be famous for its fresh bread, but that the retailer was grappling with “decades of legacy of how people have shopped”.
“We’ve got to accelerate that if we want to win in this market,” he said.
Home brand products will be overhauled to improve consistency, Mr Durkan said, citing the Coles brand chocolate chip cookie as “an example of where we’ve taken what was an already great product and improved the quality”.
A fresh-baked version of the boxed product had become “one of the top sellers in the category” as a result of this process, he said.
THE ALDI EFFECT
Coles will continue to “simplify” its product range and cut the number of products it stocks while boosting home brands, a move aimed at warding off competition from Aldi.
“A complex range drives a confusing shopping experience for shoppers and restricts shelf place,” Mr Durkan said.
Slashing the number of pasta, sauce and garbage bag products on shelves had boosted sales.
“We have moved eight lines out of our garbage bag category, which was 20 per cent of the items in that category, and in response, sales have increased by five per cent,” he said.
There was a similar lift in pasta sauce sales after Coles narrowed its range by about 17 per cent.
Salt could be next on the hit list, with 44 “individually tailored” products in the range, including nine pink Himalayan varieties.
“I would argue that if you want pink, two would be enough choice,” Mr Durkan said. “I could go through loads of categories like that, but we have to do that carefully because customers need to come on that journey with us.”
He said the changes were not about taking choice away from customers, but removing unnecessary duplication.
“A smaller range reduces complexity so we always have what customers want in store, with more efficient in-store replenishment and removal of excessive stock in our stockrooms,” he said.
‘COMPETITION IS NOT NEW’
Outgoing Wesfarmers chief executive Richard Goyder said he remained confident that the conglomerate’s retail businesses could fend off any new players entering the Australian market.
“Every day we are dealing with new competitive threats. New regulatory threats. New competition is not new to the business and never will be new — competition sharpens us up,” Mr Goyder told investors.
“A lot of people are worried about Amazon and the impact of Aldi. Since Aldi came into the Australian market more than 10 years ago it has built a national market share of north of 10 per cent, Coles’ market share has increased over that time.
“Sometimes it is easy to look at new competition and say the world is coming to an end, if you look at a business with good people, good brands and good cashflows that is not a bad starting position to take on new competitors.’’
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