“Unprecedented” competitive pressures: Durkan

Coles-john-durkanColes managing director John Durkan believes Coles has delivered a better than expected sales result given an “unprecedented” year of price and services investment from competitors.

The Wesfarmers supermarket chain took a decline in comparable sales to the market on Thursday morning, with earnings declining 13.5 per cent to $1.61 billion.

Durkan told investors on Thursday that he doesn’t expect a recovery in comparable sales until the second half of FY18, indicating that the levels of price investment required through FY17 will continue in the first half of the new financial year.

“It’s been an unprecedented year of investment by others and actually I would have expected probably a worse set of sales numbers,” Durkan said.

“In the second half, we expect an improving position, just because we’re facing into weaker comps year-on-year and we’ll have momentum from the cost savings we’ve been driving.

“The first half will be a continuation of the second half of last year in terms of the investment, it doesn’t mean adding more investment, it means a continuation with some upside in terms of simplicity savings,” he added.

Group CEO Richard Goyder said Coles performance needs to be considered within the context of the broader market, specifically singling out circa $1 billion in price investment from Woolworths during FY17 and Aldi’s expansion into Western and Southern Australia as factors impacting on Coles.

Wesfarmers remains confident that the earnings slide was the right strategical decision for its supermarket business and will position Coles to make the most of more favourable market conditions in the long term.

“It would be so easy for us to revert to a short-term strategy pulling labour out of stores, putting up background pricing and doing the sort of things that would damage the business,” Goyder said.

“It will be challenging, but that’s the competitive market we’re in…in the long term we are very positive.”

Analysts have been tipping a slip in Coles’ market position for some time, with Woolworths’ turnaround occurring at a faster-pace than was originally anticipated.

Durkan invested heavily in price throughout the second half of 2017 in an effort to keep up with Woolies, effectively tripling its investment from the prior year by putting around $190 million to funding price reductions.

Coles experienced deflation of 0.8 per cent during FY17.

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Comments

2 comments

  1. Philip Bryant-Smith posted on August 18, 2017

    Woolworths second year of investing 1 Billion Dollars to ensure they returned from cloning Aldi, but that 1 Billion each year dries up 31st December, 2017 and they will have to contend with micro investment to prop up prices being lower, to keep pace, but I hope the dwindling Name Brands in Coles is not a Cloning of Aldi, I don't shop in Aldi for this very reason, When WW tried to become Aldi 3 years ago, I moved all my shopping to Coles as they had all the name brands, If coles goes the same way it will either be IGA's or Amazon who will end up with my dollars. reply

  2. Peter posted on August 18, 2017

    Philip I totally agree with you, I don't and wont shop at Aldi, I want to keep as much of my money here in Australia not going to Germany, I support Coles and IGA. I too will abandon Coles if they continue along the path of reducing the name brands and variety. If they are all trying to complete with Aldi on price and limiting the variety then there will be no point of difference for the customer. I have been shopping more and more at IGA especially in their awesome new stores as they carry a true point of difference over ALL the majors. I just hope many other people support IGA as well. reply

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