Supermarket shoppers are coming back around to Coles while rival chain Woolworths’ recent resurgence is showing signs of peaking as promotional fatigue ushers in less price-oriented behaviour, according to UBS analysts.
Days after reports surfaced that Coles and Woolworths had increased the price of roast chickens by $1 to test the market response, UBS analyst Ben Gilbert has released the results of a recent survey of grocery shoppers, finding that they are placing less emphasis on price and more on other factors such as loyalty, service and in-store experience.
The survey of 1,102 Australian grocery shoppers over February also suggests that Coles – which only a month ago was said by suppliers to have ‘lost its way’ – has bottomed out, gaining in key measures such as share of wallet and shopper visits, UBS said.
“Coles has bottomed, and price is becoming a less important driver of spend, a positive for industry growth and profit,” Gilbert said.
While price still represents three of the top five determinants of where consumers will shop it decreased in importance compared to UBS’ June 2017 survey as price fatigue sets in and consumers begin to consider good prices as an accepted fact rather than a differentiator.
The findings come after Coles outlined a shift in its marketing strategy last month, adopting a new campaign that included no reference to price, leading some commentators to declare an end to years of intense price competition in the sector.
At the time outgoing Coles chief John Durkan said the soon to be spun off chain needed to “go beyond price” to connect with customers.
In response to the survey UBS has forecasted an acceleration in grocery sector market growth post FY19 to more than 3.5 per cent annually, up from the 3 per cent year-on-year forecast for FY18.
“Results support a more positive sector view given promotional fatigue setting in, with consumers now placing less emphasis on price and more on the broader value offer,” Gilbert said.
“This creates an opportunity for retailers to focus more on non-price initiatives.”
While UBS believes the implications of improved industry profitability will benefit all ASX-listed players, it concluded that there are signs that Woolworths resurgence – which kick started when the chain invested more than $1 billion in price and service more than 18 months ago – is showing signs of peaking.
“Share of visits and main shoppers at Woolworths stabilized, this followed 3 consecutive positive quarters,” Gilbert said.
Woolworths did, however, record improvements in its fresh scores and in customer perceptions on store conditions and service, prompting UBS to maintain its preference for the market leader.
Aldi’s march slows, IGA share continues to erode
Compared to UBS’ June 17 survey international entrant Aldi, which has snapped up more than 10 per cent of the Australian grocery market in the last decade, has fallen on share of grocery and fresh visits.
“Aldi is losing momentum, with share of visits down vs. Jun-17 and up modestly year-on-year. This is consistent with industry feedback suggesting Aldi (particularly down the east-coast) has slowed,” Gilbert.
This is good news for Coles and Woolies, particularly as the German giant thrives in that price sensitive environment that shoppers appear to be moving away from.
Independent network IGA has also lost ground, losing on share of visits in both grocery and fresh, while penetration also fell year-on-year.
UBS said that customers are of the view that IGA needs to invest more heavily in price, range, product quality and store conditions – although its share loss has not accelerated since the last survey.
“Overall the data suggested WW share gains are moderating, Coles is improving, Aldi’s share gains are moderating and IGA (MTS) continues to lose share,” Gilbert said.