Inflation has been tipped to outpace customers’ ability to keep up for some time, and with the Australian Bureau of Statistics’ latest figures noting underlying inflation hit 5.1 per cent in the March quarter – the highest level since 2009 – eyes have fallen on supermarkets to see how they handle the rising cost of stocking their shelves. One of the main causes of inflation was the increased costs of fuel, largely due to the conflict in Ukraine, making it more expensive to distribute goo
goods around the country.
Yesterday, Coles chief executive Steven Cain looked to ease fears of food prices getting out of control: noting that the supermarket has managed to keep its overall price inflation figure to around 3 per cent.
“We’ve consistently been able to keep price increases below the national average,” Cain said.
“Clearly, the job of a retailer is not just to wave through every [price increase] a supplier wants. You do need to work on behalf of your customers, otherwise you’ll find your customers looking elsewhere.”
Cain said Coles is already seeing similar behaviour within the supermarket itself. Following the recent floods, for example, red meat has become more expensive as stock replenishes, pushing more customers to purchase white meat to keep costs down.
With the non-discretionary inflation unlikely to end soon, and many suppliers passing their increased costs onto their retail customers, Cain noted the strength of its private label range.
“I’m convinced that our own-brand range has the widest range, and its everyday pricing model will put us in good stead [moving forward],” Cain said.
“We’re going to continue running our Down, Down promotional events, but inflationary pressures on suppliers are increasing. From our point of view, I’m comfortable that we’ve got the right programs to keep our customers, and I’ll be disappointed if we end up losing them [because of price].”
Stock availability still an issue
The other major problem currently facing supermarkets is an issue of stock availability. While not as dire as the early stages of the pandemic, often supermarkets are still out of stock of many items.
In total, Cain noted that Coles’ overall stock availability is still “well below” where it was before the pandemic hit, but is improving.
“It’s been particularly difficult in Western Australia,” Cain said.
“It’s a bit difficult to dig into the trend, as customers are increasingly buying what’s available rather than what was actually on their shopping list. So there’s a bit of elasticity there.”
Third quarter disrupted
Cain said the third quarter was one of the most disruptive periods of the last few years, due to flooding and the continued impact of Covid-19 on staff.
The floods cost Coles around $30 million, excluding the interruptions to the business’ supply chain, while Covid-19 absenteeism cost it $65 million.
“[Covid-19] costs peaked in January at $30 million, driven by team member isolation requirements, as well as the costs associated with administering rapid antigen testing in our distribution centres,” Cain said.
“Covid-19 costs tapered meaningfully in February and March, and we’ll continue to monitor the ongoing disruptions from Covid-19 and the flood events on our supply chains.”
Coles’ online service saw a meaningful jump through the quarter, with sales up [50 per cent], though University of Queensland professor Gary Mortimer noted successful food delivery will become more difficult with rising fuel costs.
“Coles will either need to consider increasing delivery fees, or find other ways to mitigate these costs,” Mortimer told Inside Retail.
“However, Coles’ continued investment in e-commerce seems to be producing strong results, with online now representing 7.8 per cent of total sales – from up 5.6 per cent during the third quarter of 2021.”