Our top 6 learnings as Coles cycles COVID-19 trading

Date : 28 April 2021

Nick Miles

Head of Insight - Asia Pacific

As retailers in Australia start to cycle tough comparative trading periods from last year, Coles has reported Q3 sales down 5.1% to AU$8,758m. We pull out our top learnings from the results release and what to expect in Q4.

1. Sales negative, but up 7.2% vs. 2019 and life getting back to normal

The impact of COVID-19 was felt differently across the retailers supermarket, liquor and Express arms in 2020. Sales in supermarkets in 2020 started peaking in late February, while the impact on liqour and Express was not felt until national lockdowns kicked in at the end of March. The negative growth in Q3 was therefore driven entirely by the supermarkets business. On a two year basis, total sales were up 7.2%, showing an overall positive position for the retailer. It also noted life returning more to normal, with confectionery and entertaining categories performing well over Easter, a recovery in impulse, convenience and food-to-go, footfall at shopping centres and CBD locations up, improved transation growth across its stores, and Sunday returning at be the busiest trading day of the week.

2. Supermarket sales down 6.1% to AU$7,724m (focus on range, value, private label and renewals)

As supermarkets cycled the tough comparatives from Q3 2020, LFL sales were down 6.4%. However, on a two year comparative top line and LFL basis sales were both up 6.8% and 6.7%, respectively. The retailer continued with its customer-led range change activity (>130 SKU's changed in Q3), as well as investing in value (>400 SKU's placed on EDLP). Private label continued to be a focus with sales of AU$2.5bn, penetration at 31.6% and over 260 new SKU's launched. This included the introduction of new brands Coles Perform (sports nutrition) and Urban Colour (cosmetics). Property activity focused more on renewals, with 18 completed including 3 Format A and 14 Format C stores. While only one new store was opened, but three were closed.

Source: IGD Research

3. Online food growth remains strong (albeit against softer 2020 comparative)

Online food sales grew 49% with penetration hitting 5.5% of sales. However, Coles did have to pause its online service in the prior year in late March and early April and therefore the operation has less stretching YOY comparatives. B2C sales grew 57%, with B2B returning to growth, as more businesses reopen. From an operational viewpoint, availability reached a new record high, Coles launched Click & Collect Rapid (90-minute order to collection) and a new sub service, Coles Plus.

4. Liquor sales up 2.6% to AU$759m (focus on value, range, service and new formats)

Liquor will have started to cycle tough comparatives at the end of March, despite this sales remained positive and LFL sales continued to grow 2.1%. On a two year basis top line sales were up 8.9%. Online and Liquorland were highlighted as the growth drivers. Coles continued to invest in price across its Liquorland and First Choice Liquor Market stores, with prices staying lower for longer. Range reviews took place across craft beer, cider and RTDs.and investment in team capabilities also continued. New formats continued to be rolled out with the Liquorland trail expanded, continued conversions of First Choice stores to the new Market format and one additional trial of the new Vintage Cellars format. Coles open three new stores and closed four.

5. Online liquor sales up 72%

With increased investment in capacity and capability, online liquor continued to grow well. Three new dark stores that opened in Q2 have helped boost capacity, while enhancements to service, such as a new SMS order confirmation system and order tracking functionality have helped improve customer service standards. 

6. Express sales up 7.4% to AU$275m

Growth in food-to-go, drinks and confectionery, as well as investment in an improved coffee offer saw LFL sales grow 6.3% in Q3. On a two year comparative top line basis, Express sales were up an impressive 13.2%. Fuel volume and tobacco sales did slow compared to last year with traffic to sites influenced by seasonal factors and localised short term lockdowns. One new site opened and three were closed in Q3.

What do we expect in Q4?

The impact of sales volatility in 2020 will continue to be felt across the Coles business as it moves through Q4. Although a more normal pattern to life appears to be resuming for consumers, Coles' supermarkets and liquor businesses, in particular, will continue to cycle some strong comparative periods from the prior year. We can also expect more spend to switch back to out of home channels over the next quarter, particularly in liquor, where YOY growth will turn negative. The postive news is that Coles continues to invest and make progress against its strategy and on a two-year basis sales growth remains strong.