Coles profit drops but online and own brand strong

Coles has reported a 9.1 cent drop in full-year profit to $1.43 billion, with chief executive Steven Cain saying the supermarket is entering the most competitive period in its history.

Despite a 2.7 per cent increase in comparable supermarket sales to $30.9 billion, investments in supply chain improvements and the company restructure impacted profits.

In the supermarket’s first full-year report since demerging from Wesfarmers last year, Coles reported total revenue was down 1.7 per cent to $38.4 billion, but showed positive results in online and private label.

Online experienced 30 per cent sales growth, generating $1.1 billion in sales revenue, making the channel profitable for the first time in 20 years. Click and collect was more profitable than home delivery and has nearly completed roll out across the country.

With online sales growth more than double national average, retail expert Professor Gary Mortimer told Inside FMCG that he expects stronger growth and profit in this channel as Ocado comes on board with two new fulfilment centres by 2023.

“Their strategic alliance with E-bay is a start move,” he said.

Private label powers ahead

The supermarket introduced 1,200 new private label products in the last financial year alone, and reported that sales of its own brand range are growing at twice the rate of any other products.

“This appears to align with Coles strategy to grow private label range toward 40 per cent in order to deliver more margin and defend against Aldi,” Mortimer said.

Total Coles Group sales, which includes, supermarkets, fuel and convenience, hotel and liquor, were up 3.1 per cent to $35 billion, and EBIT was down 8 per cent at $1.335 billion, which Coles indicates is more reflective of the underlying business performance.

Cain reported “convenience” as being the fastest growing category within supermarkets.

Collectables not a part of long-term plan

While Little Shop 2 was reported to be “driving high engagement”, Cain said it will be “challenging to repeat last years success due to competitor activity in the market”, pointing to Woolworths Ooshies collectables which is running concurrently.

Cain said the supermarket did not intend to focus on collectable schemes for the long term and will shift attention to loyalty schemes.

Poor performance from Coles Express

Coles Express performed poorly over the full year, with comparable sales increasing by just 0.1 per cent and EBIT dropping almost 70 per cent on last year to just $50 million. Mortimer called the Coles Express performance a “disaster”.

“This is despite Coles Supermarkets eliminating a $30 million annual fee to Coles Express for using the Coles Brand,” he said.

Weekly fuel volumes fell 13 per cent to just 60mL per week, as consumers chose to fill up elsewhere.

In liquor comparable sales grew by 1.2 per cent to $3 billion, with the category launching 64 new exclusive lines.

The supermarket is under continued pressure from the drought across the fresh food category impacting prices in fresh produce, bakery and meat.

Cain said he was “pleased with what we achieved in 2019 from a sales perspective” but expects earnings growth “to remain subdued during FY20”.

“I will be disappointed if we are not in group profit growth by 2021,” he said.

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