Coles CEO Steven Cain said that there are strong indicators that the trend towards local shopping is beginning to unwind.
“We’re beginning to see customers returning to the CBD, as they return to work. And we’re beginning to see customers not only returning to shopping centres but shopping at supermarkets within shopping centres. That really started to happen post the removal of masks in Victoria, which I think gave people a bit more confidence,” Cain said on a conference call on Wednesday morning.
This is good news for Coles Express which reported 7.4 sales growth in Q3, a major boost after a dismal performance during Australia’s national lockdown last year.
The return to normalcy is also impacting the times at which consumers shop.
“We saw some unusual trading patterns during the peaks of Covid; people shopping throughout the week in different ways, less shopping at night and so on. What we’re seeing now is a return to Sunday being the dominant day of the week as people get ready for work on a Monday and the kids go back to school.”
For the first time in a year, Coles also reported increased transaction growth and increased number of shopping trips. While basket size has reduced slightly, Cain said that has been “more than offset” by transaction growth.
“What we’ve noticed is, as transactions grow, the impulse categories grow and so things like bakery, drinks, confectionery, all of those items increase as the number of shopping trips increase,” Cain said.
First quarterly deflation since FY18
Deflation of 0.2 per cent was recorded for the third quarter, the first quarterly deflation since FY18, largely due to the cycling of pantry stocking, which caused uncertainty of supply, and deflation in fresh produce such as vegetables as a result of droughts and bushfires in Q320.
The return of Coles’ Down Down marketing promotion a few weeks ago is expected to draw in consumers looking for better value.
“It’s a very powerful marketing campaign that people understand,” Cain said.
But it’s the continued growth of Coles Own Brand offer that it wants to differentiate on. Own Brand delivered $2.5 billion in sales in the third quarter
“We’ve hit a new high this quarter of 31.6 per cent [penetration] as we head towards 40,” Cain said.
Over 260 new Own Brand products were launched in the quarter including a new range of sports nutrition meals called Coles Perform and Urban Colour, a cosmetics brand for those “seeking affordable luxuries”.
“The own brand acceptance is gaining momentum both at the entry price point level, and the more affordable luxury end of the spectrum,” Cain said.
Outlook for Coles
Tim Riches, group strategy director at branding agency Principals, said there’s no doubt that consumers are returning to more ‘normal’ shopping habits.
“As people move around more and revert to more typical activities over the course of the week, it’s not surprising to see convenience coming back up and main shopping trips drift back to Sundays. After all, we’re no longer facing queues to get in or feeling as anxious about the crowds inside,” he told Inside Retail.
He expects the successful and “truly resilient brands” will be those that live by their core values but adapt and innovate in customer-relevant ways.
“For brands that are part of everyday life, like Coles, the Covid crisis has reminded people of how important that core actually is. For Coles, the adaptation part is playing out in the strategic initiatives, and this is crucial to addressing the perennial challenge of real differentiation,” he said.
While e-commerce continues to flourish at Coles with sales increasing by 49 per cent in the quarter, Riches said consumers will continue to demand more from the online shopping experience.
“We can see that customer expectations around convenience have been reset by the digitisation of buying over the last 12 months, especially things like click and collect for the supermarkets and other big retailers. There is now a genuinely competitive contest in this field – much like apps have been for banks over the last few years,” he said.
And although Cain is relieved that shoppers are venturing outside of their neighbourhoods for their shopping trips, Riches believes that Coles should be careful not to abandon the ‘local’ trend.
“Local relevance through meaningful differentiation of product mix and personalisation of loyalty and content is another key area where supermarkets should really focus on competitive differentiation because it demonstrates customer understanding and turns it into a tangible benefit. I’d see these two areas plus next-generation convenience as the must-win battles in the Coles v Woollies wars for enduring brand loyalty,” he said.