Capping fuel discounts helps cut Woolies shelf prices

BLAIR SPEEDY
FEBRUARY 07, 2014
THE AUSTRALIAN
COMPETITION tsar Rod Sims should be happy with the latest Woolies sales numbers, which seem to show a deal to limit fuel discount offers to supermarket shoppers is already having an effect.
Real sales growth has risen from 5.2pc in the first half of last financial year to 7.1 per cent this year
Woolies and Coles both agreed in early December to cap their “shopper docket” fuel discounts for supermarket customers at just 4c per litre, after two years of escalating campaigns in which discounts topped 40c per litre, raising the ire of competing fuel retailers and regulatory concerns about illegal cross-subsidisation.
While the agreement only came into effect on January 1, the level of publicity the agreement generated may have contributed to a perception among some motorists that the discounts were gone from the moment the deal was announced on December 6, and Woolies’ petrol sales by volume fell by 3.2 per cent, excluding the benefit of new store openings.
Even more happily for Mr Sims, Woolies chose not to spend the final quarter of 2013 offering massive last-minute fuel discounts but instead ploughed the money into cheaper supermarket prices — precisely what he said they should do if they wanted to offer value to customers.
Woolies’ shelf prices fell by 3.8 per cent in the second quarter, as promotional discounts offset the impact of tobacco excise and produce inflation, where a reduction in supply drove higher prices.
When taking inflation into account, real sales growth has risen from 5.2 per cent in the first half of last financial year to 7.1 per cent this year.
But it’s clearly not all Woolies’ doing — December retail sales data released yesterday showed food and liquor sales surged by 5.9 per cent in December which, as Deutsche Bank analyst Michael Simotas notes, is above the 12-month average of 4 per cent and included 6.8 per cent growth from supermarkets and 0.7 per cent for liquor sales.
“This is in line with industry feedback, which suggested food was soft from mid-November but accelerated rapidly before Christmas,” he said. And accelerate it did. Woolies supermarkets boss Tjeerd Jegen noted a 57 per cent increase in strawberry sales over Christmas. Simotas said the retail sales data suggests the Wesfarmers-owned Coles would also report a pick-up in sales growth for the second quarter.
Coles, which kicked the price war into high gear two years ago with such products as $1-per-litre milk and $1 bread, has promised to keep its foot on the discounting pedal, but with hundreds of millions of marketing dollars no longer able to be spent on petrol discounts, they will surely be considering new ways of luring customers other than lowering shelf prices.
With Coles having outpaced Woolies on comparable sales growth for more than four years, Grant O’Brien had better be thinking up some tricks of his own, or at least hoping that, like dollar milk, it’s something he can replicate.