Madeleine Heffernan and Eli Greenblat
May 31, 2012
The Age
WESFARMERS remains confident about the momentum of its key Coles, Kmart and Officeworks businesses and has defended the retailer’s promotion of private label foods, arguing the cheaper groceries are good for customers.
In a strategy briefing yesterday, managing director Richard Goyder labelled the Coles supermarket chain as a ”bold turnaround” story. The division has boosted food and liquor sales from $21 billion to an estimated $26.5 billion this year.
Coles also plans to increase its floor space by two per cent each year as it continues its battle with Woolworths. Coles expects to open 19 new stores, close eleven, and extend 10 stores in the 2011/12 financial year. Up to 400 stores are set to be refurbished.
The investor briefing came as April retail sales fell 0.2 per cent, below market expectations, adding to the weak retail sales outlook particularly on the eastern seaboard.
Several economists said the weak data strengthened the case for further interest rate cuts, following the ANZ forecast of another 0.75 percentage points in cuts by the end of the year.
Coles’s managing director, Ian McLeod, argued that the cheaper, unbranded groceries were good for customers.
“With many Australian families facing higher household bills, finding ways to save money is more important than ever.
”Offering a choice of quality private label products alongside their favourite brands is one way Coles can help,” he said.
”Australian consumers were paying too much for most consumer staples in the decade until 2009 until Coles started to cut food prices and provide better quality but lower priced private label products.”
He said a majority of in-house brands were sourced from local businesses and farmers.
Coles is ”supporting the creation of 10,000 new jobs by suppliers through volume growth” – with $1.6 billion in extra fresh food sales per year and a doubling in the value of produce sourced directly from Australian growers.
Mr McLeod said Coles brands were almost 90 per cent Australian-made and added that all of its meat and 97 per cent of its fresh produce were Australian grown.
It is believed private label penetration at Coles and Woolworths is around 10 per cent to 15 per cent of all grocery sales with both retailers keen to quickly lift that level. Overseas retailers such as Tesco in Britain have a private label penetration of closer to 45 per cent.
The revival of Target remains a key focus. The division’s four-year turnaround plan seeks to combat new competitors from overseas, such as Zara and Top Shop as well as online retailers.
The strategy focused on improving the quality of Target’s products and in-store services.
Target managing director Dene Rogers said new customer offerings included use of 3D technology to ensure the correct fit for women customers uncertain about their clothes size.
Mr Rogers said Target intended to increase sales of its children’s clothing range, particularly among those age five to 16s.
In order to combat the children and youth market’s poor perception of the Target brand, the store was planning to pitch its message directly at them.
”We need to communicate and build a relationship with kids and we can’t do so using the catalogue, not many kids read our catalogue,” Mr Rogers said.
”So we’re looking to develop marketing tools that enable us to build a relationships with kids.”
Shares in Wesfarmers were six cents weaker at $28.95
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