Battle for milk spills to servos

Jane Harper
January 10, 2013
Herald Sun

SUPERMARKET titan Coles has taken the price war to convenience stores – with independent supplier Metcash expected to feel the biggest blow.

The retail giant has rolled out milk at $1 a litre and discount bread in more than 620 Coles Express stores around the country, and has not ruled out lowering prices on other staples.

Analysts say the move directly targets the same convenience customers prized by Metcash, which supplies about 3100 independent stores including supermarkets trading under the Independent Grocers of Australia brand.

“Metcash is the biggest loser in the Coles-Woolworths price war, and this is only going to increase competition,” City Index chief market analyst Peter Esho said.

“Coles is digging in with a price campaign and Metcash has no real way of fighting it.”

Metcash’s profit margins in the supermarket division have been in decline since Coles and Woolworths launched aggressive pricing campaigns three years ago.

The company’s net profit for the six months to October was $82 million, off 13 per cent from a year earlier.

Wesfarmers-owned Coles said it had reduced the prices on own-brand bread and milk in the Express stores to bring them in line with prices in larger stores after customers queried the higher cost. The promotion will continue indefinitely.

Coles entered a joint venture with petrol giant Shell in 2003, with most of the oil group’s petrol stations in Australia rebranded as Coles Express outlets.

The latest Coles push comes as the broader retail sector was dealt another blow with Australian Bureau of Statistics figures revealing spending fell 0.1 per cent in November to $21.53 billion.

Economists had broadly expected a rise of 0.3 per cent, following a flat October and rise of 0.5 per cent in September.
A slump in spending on household goods caused the biggest drag, with the category down 0.9 per cent.

Clothing, footwear and personal accessories were off 0.6 per cent, while department store spending fell 0.4 per cent. Cafe, restaurant and takeaway food spending rose 0.3 per cent.

Retailers in Victoria had a little to smile about, with spending up 0.3 per cent.

Deutsche Bank analyst Michael Simotas said December’s figures would be more critical in terms of full-year profitability.

Metcash shares closed down 0.9 per cent at $3.40. Wesfarmers shares were 0.2 per cent higher at $36.90.