Coles reports 6.9% sales growth for FY20

Nick Miles
Head of Insight - Asia Pacific
@RetailAnalysis

Date : 18 August 2020

Coles has reported FY20 results with sales up 6.9% to AU$37,408m and EBIT up 4.7% to AU$1,387m.

Supermarkets sales up 6.8% to AU$32,993m

Strong supermarket sales and EBIT growth of 10.7% were a result of Coles’ refreshed strategy and an increase in demand created by COVID-19. LFL sales growth for the year was 5.9%, with sales growth of 7.6% and 7.1% on a total and LFL basis in Q4, respectively. The second half was heavily impacted by COVID-19. This started in late February, with trade peaking in late March. Shopping behaviours have evolved with fewer trips, offset by larger average basket spend. Throughout the period categories have been impacted differently and sales mix has evolved, while neighbourhood-based stores have traded better than city centre and shopping centre locations. Coles’ supply chain has performed well despite big strains particularly on the demand for ambient and pantry items. Three pop-up distribution centres in NSW, Victoria and Queensland, alongside its integrated stock replenishment and data analytics have helped maintain availability.

Strong progress against strategy

Prior to COVID-19, Coles’ said that its sales trajectory was improving with the retailer focusing on is revised strategy of; Inspire Customers, Smarter Selling and Win Together. Highlights for the year include:

  • Trusted value investment - Coles put over 1,500 new products into its Every Day low price campaign and continued to invest in collectible campaigns (e.g. Little Shop 2 and Spiegelau glassware), which continued to have a positive impact on sales
  • Extensive range reviews providing a more tailored range - using data the retailer has worked hard to ensure the right products are offered in the right store, with range changes across most categories and on a more regular basis. This helped Coles also introduce more product innovation into categories such as; ready meals, health foods, coffee and pet food. In total 1,600 new SKU’s were introduced
  • Private label sales up 9.7% - contributing over AU$10bn of sales and achieving penetration of 31.2%. More than 1,850 new products were launched, with enhancements to its convenience ranges and products focusing on ‘generational sustainability’ initiatives
  • Biggest renewal programme since 2012 - executing its tailored ABC store format strategy, 70 stores were renewed, including 10 Format A and 31 Format C stores. Coles now has 29 Format A, 33 Format C and four Coles Local stores trading. Format A stores are delivering sales uplifts, while format C stores are delivering both sales and efficiency benefits. Coles opened three net new stores during the year, finishing with 824 supermarkets
  • Online sales growth of 18.1% - despite initial disruption created by COVID-19, Coles invested to almost double its online capacity through expanding home delivery, contactless Click & Collect to over 400 stores, as well as introducing unattended delivery. Despite the temporary suspension of the service, Coles Online still recorded a small profit, with sales growth in May and June back above 30%. Coles has also now signed leases for two Ocado sites in Sydney and Melbourne, with construction to continue through FY21

Liquor sales up 8.0% to AU$3,308m

Both topline and LFL liquor sales (+7.3%) were strong, while EBIT was flat. Sales were driven significantly by a 20.3% jump in sales in Q4, as sales switched from out-of-home to in-home consumption. Although growth was seen across all three banners, trade in neighbourhood and its larger format First Choice Liquor Market did well. Customers preferred to shop in the larger format and switched their purchasing behaviour more towards larger value packs, thus impacting margins.

Coles has reset its liquor strategy, focusing on creating a simpler, more relevant and accessible offer. It has worked to clear out slow moving and delisted stock, implement range reviews to focus more on local and exclusive ranges, plus is investing in its online operations. Liquor online sales grew 40.3% for the year and by more than 70% in Q4. The network stayed at 910 stores, despite opening and closing 20 stores, respectively. The roll out of its new look First Choice Liquor Market concept continued, is performing well and now available at 61% of stores, while Coles is testing a new Liquorland concept in Oakleigh and a new Vintage Cellars format in Ashburton.

Express sales up 5.6% to AU$1,107m

Strong sales growth at forecourts in Q4 (+8.4%) due to COVID-19 purchasing habits, was offset by lower footfall during pandemic enforced lockdown periods. Convenience store LFL sales were up 4.6% for the year, with EBIT heavily impacted by lower fuel volumes, costs to increase safety measures in-store and margin erosion due to shifting sales mix towards tobacco, top-up and non-food categories, away from impulse and food-to-go. Coles continued to invest in the offer with new self-service coffee machines and fast-lane drinks fridges being installed across the network in Q4. There was a decline in one net new site during the year, with 713 locations trading.

Outlook: FY21 will continue to be impacted by COVID-19

Coles expects the impact from COVID-19 to have a significant ongoing impact into FY21, with this likely to vary by state. Supermarket LFL sales growth at the start of the new financial year are broadly in line with those seen in the previous half, while online sales are up 60%, mainly driven by the government enforced lockdown in Victoria. Liquor sales have remained elevated, while Express continues to be impacted by lower fuel traffic. Moving forward, Coles will replace its print catalogues with its new coles&co digital channel, it retains its target to remove AU$1bn of costs between FY20 and FY23, plus it will aim to renew 65 stores and open between 15-20 new stores in FY21. In the latter part of FY21, Coles will be cycling the impacts of COVID-19.

Greatest test is accelerating the pace of change

Coles Group CEO, Steven Cain, Commented, “In June 2019, Coles set out a refreshed strategy to transform our business and lay the foundations to succeed in our second century. Since that time, we have been presented with a number of unforeseen challenges including drought, devastating bushfires, and of course the ongoing COVID-19 global pandemic. This has provided the greatest test of our lifetime and we are experiencing things we never thought we would see in a supermarket, or for that matter Australia. We are determined to emerge as a better, stronger business and team. Our purpose of sustainably feeding all Australians to help them lead healthier, happier lives is now more relevant than ever. The pace of change in the business is accelerating, particularly with our digital assets and capabilities, and we are demonstrating true agility on a week to week basis."