Coles delivers 10.5% growth in Q1

Nick Miles
Head of Insight - Asia Pacific
@RetailAnalysis

Date : 28 October 2020

The retailer’s sales hit AU$9,607m in the first quarter of FY21, with significant online growth and changes to its digital marketing capability a highlight.

Supermarket sales up 9.8% to AU$8,464m

Supermarket LFL sales grew 9.7% with the results skewed by the varying degrees of COVID-19 restrictions across the country. Growth was highest in Victoria, and to a lesser extent in New South Wales. LFL growth excluding Victoria still ran at 7.7%, with growth tapering off towards the end of the period. Some of the major impacts of COVID-19 in Q1 included:

  • Larger baskets offsetting fewer transactions across the network
  • Growth categories included baking mixes, herbs and spices and flour, cleaning goods and dishwashing, all growing by around 30%
  • On the flip side some categories experience double-digit declines, including infant formula, facial tissues and beauty
  • Store performance disparity continued; the top 20 supermarkets averaged 48% growth whilst the 20 most impacted declined by an average of 29%
  • Online sales grew by more than 100% in Victoria, rapid strategic investments in capacity was made through extended operating hours, more stores offering home delivery, additional drivers and delivery vans, plus expansion of contactless click & collect to over 450 stores
  • B2B sales continued to negatively impact total online growth, driven by business closures in Victoria, but B2B sales in other states started to recover

Supermarket progress against strategic priorities…

Despite the obvious challenges, Coles continued to invest against its strategic priorities, as well as to support Australian consumers through COVID-19:

  • Coles converted its printed catalogues to a new digital service in September called coles&co, with a strong take up of subscribers to the new digital service. The service brings together special offers and recipe inspiration, is much more sustainable (32m less paper catalogues since implementation) and will allow the retailer to offer more personalised marketing in the future
  • Coles Online sales grew 57.1%, with penetration hitting 6%. Excluding the drag of B2B online sales, B2C online sales were up 72.8%. This was driven by increased capacity, improvements to order availability and on-time delivery standards, as well as greater personalisation of the platform
  • Construction on the Ocado online customer fulfilment centre in Melbourne progressed and development approvals in place for Sydney, with construction commencing in Q2
  • More than 800 products were added onto Coles’ everyday low prices campaign and 200 range changes were completed
  • Private label sales grew 12.6% with 680 new products launched
  • Eight stores were renewed under the ABC format strategy, with six net new stores opening

Liquor sales up 17.4% to AU$852m

LFL sales were up 17.8%, with the strong growth across all store, online and categories. Despite the reopening of more on-premise locations, sales remained elevated, with customers purchasing larger packs of beer, as well as spirits. Sales at the retailer’s large format First Choice Liquor Market were a particular highlight, with customers favouring the more spacious store environment. Online liquor sales jumped 79.7%, driven by previous investment in capacity and platforms. Progress was also made against the refreshed liquor strategy “to become a locally relevant drinks specialist with a differentiated offer”:

  • New customer-focused organisation structure was initiated in Q1
  • The operating model was simplified and investment in service, helping support availability
  • Investment in online systems to further support fulfillment and customer experience
  • Focus on exclusive and local ranges continued, with the national launch of a further 89 products, taking the total of new state local products to over 400
  • Liquorland (Oakleigh) and Vintage Cellars (Ashburton) trial concept stores continued to receive positive feedback, with more trial stores to be rolled out in Q2
  • The new First Choice Liquor Market format is now across 67% of stores, with five more renewals in Q1
  • 11 net new stores opened during Q1, taking the network to 921 stores

Convenience sales up 10.3% to AU$291m

Despite lower fuel volumes and footfall, LFL sales were reported at 10.2%, as shoppers used the network for impulse and top up needs. Sales were driven by the drinks category, tobacco and coffee. New self-service coffee machines helped boost volumes, with 70% of the proposed roll out now complete and the remaining 30% to be introduced in Q2. Nine net new Express stores opened in Q1.

Outlook remains uncertain…

There are signs at the start of Q2 that things are calming down a little, with supermarket and liquor LFL sales up 6.4% and 16.9% respectively, and online sales up 45%. However, the future outlook remains uncertain and the retailer will come up against some tough comparable trading periods in the later half of FY21.

Coles will focus on hygiene standards, increased levels of at-home activity and entertaining, growing online, providing digital recipe inspiration, as well as the upcoming summer and holiday periods. Coles Group CEO, Steven Cain, commented, “After a year like no other, and as we head into summer and Christmas, Coles is ready to play an inspiring part in lowering the cost of the many smaller celebrations that will take place as Australians reunite with their friends and family. As we enter a new COVID normal, Coles will continue to prioritise the health and safety of our customers and team members throughout our store network and supply chain.”