Coles lacks some bottle in Woolies war

Adele Ferguson
July 26, 2012
The Age

Supermarket giant Coles continued to close the gap in the battle with its bigger rival Woolworths – getting some help from the government’s $2.8 billion assistance package – but its liquor business once again was a drag on overall revenue.

The booze division is an issue that hasn’t been lost on management, which confirmed that the unit – which includes Liquorland and Vintage Cellars – is slicing at least 0.9 per cent off the group’s food and liquor revenue.

In sharp contrast, Woolworths is going from strength to strength in its equivalent business, which boasts the successful Dan Murphy’s discount outlets.

The relative mismatch puts pressure on Coles to lift its game given Woolworths turned over more than $6.6 billion in revenue in the past year. Coles is estimated to have made less than half of that.

A decade ago, Coles dominated the alcohol sector and Woolworths was the laggard. The trajectory is quite the reverse of the overall supermarket division, in which Coles continues to erode Woolworths’ dwindling lead.

Coles’s overall food and liquor business managed to expand sales 4.6 per cent for the year to $26.1 billion, while the much-touted comparable-store sales figures rose 3.7 per cent. The latter rate is more than triple Woolworths’s 1.1 per cent rise in same-store sales.

The result is a far cry from the dark days of 2007 when comparable store sales growth at Coles was less than 1 per cent a year, and the business was listed as a separate entity with chief executive John Fletcher at the helm.

12 in a row
Five years into a turnaround, the latest sales figures are the 12th consecutive quarter where Coles has outperformed Woolworths on comparable sales, and the division’s 16th quarter of comparable sales growth. Even so, there is still a long way to go to catch up to Woolworths.

To put the relative size of the supermarket giants into perspective, and the amount of catch-up Coles still ahead, Woolworths’ full-year sales figure was $37.5 billion in food and liquor, about 44 per cent larger than the turnover at Coles.

But on a comparable store sales test, it confirms that the Coles “Down Down” marketing campaign continues to gain traction. If liquor is stripped from the mix, it is estimated that Coles is doing even better than Woolworths.

While this is a remarkable result, some market watchers are concerned Coles is achieving the great like-for-like sales growth at the expense of rolling out more supermarkets and liquor stores.

This trend will become clearer when both chains release their full-year profits and margins, along with a breakdown of capital expenditure in the various divisions.

Opening stores is expensive and takes time, but it is the lifeblood of long-term sustainable sales growth. In the past year, Coles has opened 19 supermarkets and closed eight, compared with 38 store openings for Woolworths.

In other businesses, Wesfarmers’ hardware juggernaut Bunnings continued to perform well, while Target and Kmart continued to struggle.

Target’s revenue fell 2 per cent for the year, while Kmart was flat, while Bunnings was up 5.7 per cent.

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