Up up, Coles is catching up: Bartholomeusz

The renaissance of Coles is continuing, indeed gathering pace. As has become the new norm, after Woolworths disclosed renewed momentum in its food and liquor sales earlier this week, Coles has again out-paced it.

For both of the big supermarket groups the pleasing aspect of their third quarter sales performance will be that, despite the tough and competitive conditions for all retailers, there was an acceleration of both volume and sales growth in the third quarter. Both are reporting higher foot traffic and bigger basket sizes.

Coles’ third quarter food and liquor sales growth of 7.1%-7.2% on a comparable stores basis – was well above the 6% run-rate established in the first half and significantly out-stripped the still very respectable 4.6% growth experienced by its much larger competitor. Had it adjusted the numbers for the timing of Easter, the level of sales growth would have been materially higher.

The compounding improvement in Coles’ performance validates the “Down, Down” campaign but also reflects a myriad of improvements to the business’ operations since Wesfarmers acquired it. The potential further upside is underscored by the fact that by the end of this financial year only about 20% of Coles’ 738 supermarkets will have been upgraded to its new format.

Against a backdrop of price deflation, cautious and value-conscious consumers, rising petrol and utility costs and this year’s floods, the performances of both major food retailers has been impressive in the circumstances but Coles’ performance appears to have the greater momentum.

Significantly, given the modern history of the two groups, it is Coles that is now determining the new points of competition in the sector and forcing Woolworths to respond, a role reversal that would have been unthinkable only a couple of years ago.

The other highlight within Wesfarmers’ retail portfolio was the performance of Bunnings, which lifted sales 8.1% in the quarter and now has sales growth of 5.5% for the year to date, although on a comparable stores basis the year-to-date growth was a more modest 2.9%.

Bunnings has been accelerating its store opening program in anticipation of Woolworths’ entry to the big box format end of the sector dominated by Bunnings.

As was the case with Woolworths, Wesfarmers’ discount department stores, Target and Kmart, are doing it tough. Target did manage to essentially hold third quarter sales at the same level as the same quarter last year, with comparable stores sales growth of 0.5%, although year-to-date sales are down 2.4%. Price deflation and heavy promotional activity have impacted the entire sector.

Kmart experienced something worse, with third quarter sales down 2.5% and comparable stores sales down 3.3%, reducing the year-to-date growth to 0.7%. Kmart is still experimenting with its disruptive model, which is built on deep discounting of a narrower range to drive volume. It would appear that some of those experiments were less than successful in the third quarter.

Overall, however, Wesfarmers’ Richard Goyder would be well-pleased with the continuing improvement in his core retail brands and their increasing competitiveness against a once-dominant competitor while conscious that the changing of the guard at Woolworths when Grant O’Brien succeeds the retiring Michael Luscombe could also bring with it shifts in Woolworths’ strategies.

This article first appeared on Business Spectator.