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Coles sees marginal sales growth in Q1 as Little Shop 2 fails to make an impact

Supermarket giant Coles has managed to beat expectations for the first quarter of FY20, despite reporting a marginal 0.1 per cent increase in supermarket sales.

In the 13 weeks to September 29, comparable supermarket sales growth dragged, failing to come close to the 5.1 per cent increase seen over the same period last year. Little Shop 2 struggled to replicate the success of the original campaign and Woolies’ Lion King Ooshies also put a dampener on Coles’ promotion.

Overall, supermarket revenue increased by 1.6 per cent to $7.71 billion, with total group sales growth of 1.8 per cent.

Online sales revenue grew by 23.5 per cent with Click & Collect the fastest growing channel. While Coles Express saw comparable sales growth of 0.4 per cent, largely driven by the expansion of Little Shop 2 to the convenience arm.

Liquor sales revenue for the first quarter was up 3.5 per cent on the prior corresponding period to $726 million, but with just 0.7 per cent comparable sales growth.

On a call with analysts on Tuesday morning, Cain said the new convenience layout is driving sales with 40 stores now featuring the extended range; that number is expected to reach 100 by the year end.

He also said that the recently launched “What’s for Dinner” campaign is making Coles “more relevant every night of the week”. The retailer is experimenting with recipe bundles online, which allow consumers to purchase all the ingredients they need for a particular dish in one click.

Own Brand sales revenue grew by 4.7 per cent in the first quarter, now comprising 30 per cent of products on the retailer’s shelves. Coles Group CEO Steven Cain told analysts that he doesn’t see a strong own brand strategy as “being in conflict” with other brands.

“Good consumer FMCG brands just keep getting better particularly those that invest in NPD.”

Reacting to the results on Tuesday morning retail expert professor Gary Mortimer highlighted the downfall of the collectables campaign.

“Cycling the highly popular Little Shop 1 campaign was always going to be a challenge and I don’t think Little Shop 2 had the same impact. Woolworths running Lion King and then Discovery Garden, cannibalised Little Shop 2,” Mortimer told Inside Retail.

But fortunately for the retailer, Coles Express had much better results after what Mortimer called a “disastrous FY19”.

“Coles Express also positively impacted by Little Shop 2, which was strategically expanded into their fuel divisions,” Mortimer said.

The ongoing drought continues to impact prices with inflation for the quarter of 1.4 per cent, in-line with the fourth quarter of FY19.

Excluding tobacco and fresh, price inflation for the quarter was 0.2 per cent, mostly impacting dairy and grocery.

Mortimer said the drought will continue to put pressure on prices.

“Drought conditions are starting to bite into fresh [fresh produce, meat] margins,” he said.

“Costs will be challenging to maintain while keeping prices low.”

Christmas outlook

Looking ahead to the Christmas period, Cain said weather conditions could once again prove costly to the supermarket giant. Last year was a “disruptive Christmas” hindered by drought and he said there’s “no reason to believe it won’t happen again”. However he said he was encouraged by current trading and Coles’ Christmas range which it launched in recent weeks.

Coles’ 2019 Christmas campaign includes another type of collectables campaign this time in collaboration with its liquor offering for the first time. Customers can earn ‘glassware credits’ on every $20 spent which can be redeemed for Spiegelau glasses at Coles supermarkets and Liquorland.

Cain said only about 1 in 20 Coles customer buy liquor from Liquorland at the same time as they do their shopping and he sees an opportunity to encourage more liquor sales here.

This story originally appeared on Inside FMCG.

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