Price falls at Coles deepened in the first quarter of fiscal 2012, giving new impetus to the supermarket giant’s “Down Down” campaign.
Coles recorded a 1.8 per cent fall in food and liquor prices during the September quarter, following a 1.4 per cent fall in the previous quarter.
Its parent company Wesfarmers says the discounting is attributable to high volumes of produce as well as its ongoing marketing strategy.
Wesfarmers chief executive Richard Goyder said fresh food prices, excluding tobacco, fell 2.7 per cent in the quarter as crops began to recover from flood and cyclone damage.
“Pricing came down because volumes came up in produce, but a significant amount of it is coming from the investment in price (discounting) in the business as well,” Mr Goyder told analysts in a telephone briefing on Thursday.
“That’s resonated because we’re getting significantly increased customer numbers, transactions and an increased basket size.”
The areas of fresh produce and dairy had experienced significant price declines over the period.
Since Wesfarmers took it over three and a half years ago, margin growth at Coles has remained strong, but Mr Goyder warned it might not last.
“Don’t assume margins will keep going up,” Mr Goyder said.
“That pricing investment will have an impact.”
Wesfarmers finance director Terry Bowen believes price falls will continue into the second quarter of fiscal 2012, particularly as a large supply of banana crops and other fresh produce hit the market.
Despite facing “challenging trading conditions” in the lead-up to Christmas, Coles increased its first quarter sales by eight per cent to $8.09 billion for the three months to September, from $7.49 billion a year earlier.
DJC Corporate analyst Paul Dekkers said Coles had the edge over its rival Woolworths as its comparable store growth was above expectations.
“Momentum is still with Coles,” Mr Dekkers said.
“It will be difficult for Woolworths to match this performance in percentage terms with their sales base substantially higher.”
Woolworths will report its quarterly sales results next Thursday.
Shares in Wesfarmers fell 64 cents, or two per cent, to $31.54, while the broader market declined 1.6 cent lower.
The diversified conglomerate says it’s well positioned to deal with the higher cost of living and Australians increased propensity to save.
“Within this environment the group continued to be very well placed given the staples of value-based positioning of our various retail brands,” Mr Goyder said.
Coles recorded its thirteenth straight month of comparable store growth, but Mr Goyder refused to provide profit guidance for the year ahead.
He also predicts an interest rate cut could help turn around weak consumer sentiment in the retail sector.
Coles convenience stores recorded the biggest jump in sales among the group of 17.7 per cent, while Coles food and liquor sales increased 5.5 per cent from a year earlier.
Sales at Wesfarmers home improvement business, Bunnings rose 8.5 per cent.
But Target continued to experience difficult trading conditions, recording a 1.4 per cent decline in sales.
August was the only month when Target recorded positive sales.
