Fruit and vegetable prices at Coles have rebounded after plunging in the third quarter due to a boost in supply and heavy discounting against the supermarket chain’s arch rival, Woolworths.
Wesfarmers managing director Richard Goyder said its Coles supermarket chain recorded price falls of 25 per cent in the first quarter, but deflation was now confined to about 10 per cent.
“We’ve had this year an absolute abundant supply and so that’s created a deflationary impact and that supply is coming off in terms of volume a bit now,” Mr Goyder told reporters on Tuesday.
“It’s a bit more normalised.”
Coles on Tuesday reported $7.8 billion in third quarter sales, up 4.9 per cent from $7.5 billion in the previous corresponding period.
But the supermarket giant cut its fresh produce prices by more than Woolworths, which posted 20 per cent price falls, in the third quarter as grocers around the country suffered a similar fate.
Official inflation data also released on Tuesday shows a 30 per cent drop in fruit prices in the March quarter.
It comes a year after flooding and storms caused big price rises in bananas, soft vegetables, pears, zucchinis and capsicums.
Mr Goyder said fruit and vegetables would now have a positive effect on the supermarket bottom line, with less price deflation in produce.
“Even for the June quarter, produce will help a lower (consumer price index) inflation number,” Mr Goyder said.
He also revealed the Reserve Bank of Australia (RBA) contacted Wesfarmers at least once every quarter for an update on retail trading conditions.
“We certainly get contacted regularly,” he said.
But he declined to say whether RBA board members had enough contact with the retail sector.
“I expect they’re getting reasonable input,” Mr Goyder said.
The consumer price index rose 0.1 per cent in Australia in the March quarter, leading economists to predict the central bank will deliver two interest rate cuts in the next few months.
Meanwhile, Coles food and liquor sales rose 4.1 per cent in the third quarter.
Mr Goyder added that he was “not happy” with the performance of Wesfarmers liquor business which makes up around 10 to 15 per cent of the food and liquor category.
Wesfarmers is looking for better sites for the large format stores and trying to improve its Liquorland and Vintage Cellars stores.
Merrill Lynch analyst David Errington said the liquor result was “deeply negative” and questioned the group’s strategy and performance over the past five years.
“It looks like all you’re trying to do is just hurt Woolworths and not very successfully,” he said.
Wesfarmers shares closed 1.8 per cent higher at $29.88 while the broader market finished 0.2 per cent higher.