g the economics of food retail. Speaking to investors on Tuesday’s earnings call, Coles Group CEO Leah Weckert said the company made good progress in each of its areas of focus during the year, including quality availability and overall customer experience.  “Importantly, not only has this been reflected in our financial performance, but we have seen it through the increase in our customer satisfaction scores, particularly in terms that stores can feel range and online,” she stated.  She also reported that the ACCC’s final report from its supermarket inquiry, released in February this year, found “no evidence of price gouging or land banking.” She noted the retailer is working constructively with government and industry stakeholders on the report’s recommendations. Weckert added that regulatory shifts are also weighing on specific categories. “The new packaging laws came into effect on the 1st of July, and this, along with the growth in the illicit market, is continuing to result in a decline in tobacco sales for us,” she said. “Coles Finest” finds its moment One of the brightest points in Coles’ results was the growth of its premium private label range, Coles Finest, which continued to be the strongest-performing tier with sales revenue growth of 13.6 per cent.  Professor Gary Mortimer, a retail marketing and consumer behaviour expert at Queensland University of Technology, said this is emblematic of a larger shift.  “Last year, they added another 970 exclusive brands to Coles’ private label products,” he said, noting that the company has generated about $13.7 billion in sales, or about 34 per cent of its annual revenue, from this category.  “That tends to suggest that more than one in three items purchased in a supermarket is a supermarket-owned brand,” Mortimer told Inside Retail.  Private labels, once shorthand for generic, no-frills products, have been transformed. Mortimer noted that supermarkets have invested heavily in quality, and shoppers have noticed.  “It demonstrates the amount of money that supermarkets have invested in improving the quality of supermarket-branded products,” he said. Coles has leaned into a three-tiered strategy with the classic “good, better, best” approach that comprises everyday essentials at entry level, core mid-tier products, and Coles Finest at the top.  This strategy allows the retailer to appeal to households under financial stress while still capturing customers who want small luxuries at home. Tobacco in terminal decline If Coles Finest is a story of ascent, tobacco is the opposite. Sales fell 30 per cent in FY25, continuing a steep and inevitable long-term decline. Mortimer was blunt about the fact that “supermarkets don’t particularly want to sell” tobacco.  “I think what it does indicate is the growth of illegal tobacco sales and vapes now penetrating the market as the cost of a packet of cigarettes continues to skyrocket,” he said.  For Coles, the decline of tobacco is a double-edged sword. It drags topline sales so much that the company now regularly reports figures “excluding tobacco” to present a clearer view of growth.  However, it represents a structurally depleting category that Coles, like its competitors, may eventually exit.  Automation and e-commerce One of the most strategically important developments in Coles’ FY25 was the maturing of its automated distribution centres (ADCs) and customer fulfilment centres (CFCs). After years of investment, these facilities are now operational and reducing costs. Chief financial officer Charlie Elias said the company incurred $103 million in implementation and transition costs this year. However, these will fall away in FY26, enabling Coles to take advantage of efficiency gains without the heavy one-off expenses. Mortimer believes the ADCs and CFCs will be vital as online food and grocery shopping continues to grow post-Covid.  “Before the pandemic, the penetration rate [of e-commerce] was about 2.5-3 per cent. Coles looks like it’s pressing towards nearly 12 per cent penetration in [its] annual results. That’s a 24 per cent growth on last year, about $4 billion in actual sales,” he said. The economics of automation matter. As Mortimer explained: “If you do it at store level, you’re literally paying a team member to fill stock onto a shelf, only to pay another team member to take it back off that shelf and put it into a box and send it out. Having it done, either in a dark store or an automated fulfilment centre, expedites and reduces those costs.” Weckert reinforced this point on the call: “With our CFC volumes continuing to increase, we are also on track to deliver improved earnings from these facilities across the course of the year.” As more Australians shop for groceries online and expect that digital experience to be seamless, Coles’ capacity to fulfil those orders efficiently will be central to profitability. The takeaway Coles’ FY25 results are a study in contrast, but the supermarket division is powering ahead, supported by premium private-label growth and strong online momentum.  Tobacco is in terminal decline, dragging down reported sales but arguably freeing Coles to focus on more strategic categories.  Automation and fulfilment centres, while expensive to set up, are beginning to deliver the efficiencies needed to sustain profit growth in a low-margin business. A key message is that Coles is reshaping its mix around where consumers are actually headed. “I think it shows that consumers are now sold on the value proposition of a supermarket private-label product,” Mortimer said.  With more shoppers comfortable ordering groceries online, investments in automation are not optional, but essential. Coles shares jumped 8.4 per cent following its results announcement on Tuesday, a sign that investors share that confidence. The retailer is not without challenges, but as FY26 begins, the levers of growth are set on premium brands, digital and efficiency.