Industry News,

Australian Retail: Coles’ Half Year Results, Feb ’24

In February 2024, the reporting season is underway for Australia’s leading grocery retailers, Coles and Woolworths. Coles’ February 2024 half year results provide valuable insights into the growth opportunity for UK-based food and beverage businesses. The update provides knowledge and insights for export and go-to-market retail success in Australia.  

Woolworths’ interim update released to the market in mid-February. And in February 2024’s final week, we gain an important performance update of Coles.  

Through our in-country team, we have pulled out the highlights, and, in our experience, the opportunities for UK-based businesses looking at growth into the Australian market remain on strategic interest.  

We understand the latest Australian customer shopping habits, the impact of the current economic pressure and how it continues to influence the way consumers shop and eat, and brands, categories or products that are winning in Australia.   

Combined, Coles and Woolworths both represent around two-thirds of the Australian grocery retail market, so their insights are significant indicators on the sensitivity or outlook of the retail sector in Australia.  

Top line Performance: Coles, February 2024

Indoor entrance to a Coles supermarket. 

As Australia’s second largest retailer, with annual sales exceeding $41.4 Bn AUD, the half year update provides a valuable indicator on consumer sentiment, opportunity and challenges ahead. 

With a trading history of over 125 years, Coles operates nationally across Australia under its main supermarket banner, Coles, as well as its new-format stores, Coles Local. It also has a portfolio of alcohol stores under Liquorland, First Choice or their premium offer, Vintage Cellars.

Coles have a 10-year partnership with Ocado to drive supply chain efficiencies and accelerate home deliveries which represents a significant strategic move in the grocery retail sector. 

Key Trading Highlights: Coles Half Year Results 2024

  • Sales revenue from continued operations rose by 6.8% to $22.2 Bn AUD, compared to the same period last year. This also represented a 3.7% increase over the final 6 months of 2022, with the increase driven by improved supply chain performance and product flow. This results in better in-store availability and promotions or product discounts. 
  • An 8.4% fall in net profit to $589m in the second half of 2023. Down from $643m over the same period a year earlier. 
  • Supermarket sales were up to $19.8 billion. While liquor sales grew 1.8% to $2 billion. 
  • Liquor margins increased due to the strength and focus on exclusive brands. Gross margins increasing by 27 bps, as liquor sales increased by 1.8% with exclusive brands increasing by 3.6%. The addition of 199 new products under their exclusive labels were partially credited for the growth. 
  • Profit from continuing operations fell 3.6% to $616 million, as Coles’ cost of financing rose 13.9% to $213 million.
Notable remarks:
  • Customers continue to shop cautiously with a focus on value lines and promotional stocks. 
  • Growth in cheaper alternatives such as meat cuts, bulk purchases and frozen products. 
  • Price growth had moderated, driven by meat and fresh produce, whilst dairy and packaged drove price inflation.  
  • Promotional activity and discounts will be a key part of the second half as consumers continue to seek out value. 
  • A reduction in loss (theft), achieved through training, in-store security and investment in technology across the stores. 

 

Two tins of Coles own brand chopped tomatoes.

Sustainability continues to be a key focus within Private Label. There’s been some significant milestones delivered this half through reducing plastic or aiding the ability to recycle materials.  

In our view, whilst we are not yet seeing price deflation outside of fresh produce, good weather has helped the supply of fresh produce and meat prices are dropping. This is expected to have a beneficial effect across convenience meals or value-added lines if the trend continues to improve. 

Australian households and businesses have seen 13 interest rate rises since May 2022. With the warmer weather, the pressure on heating costs and energy will be less obvious. Despite this, the underlying pressures remain.   

Both Coles and Woolworths are undergoing rebrands of their value lines to increase engagement with consumers trusting Private Label and seeking value. The new designs are starting to reach the store on high volume commodity lines with a significant presence expected this half. 

What Is the Opportunity for UK Food and Drink Businesses Targeting Growth in Australia?

The Australian grocery retail market has endless growth opportunities. With two main go-to-market strategies—Private Label and Branded—you can successfully target growth within Australian food and drink retail.  

Private Label

The Private Label market is experiencing significant growth, presenting food manufacturers with opportunities to expand their business.  Competing on high-volume lines where you can offer efficiencies through procurement, automation or volume remains a key opportunity as retailers continue to source internationally to access better commercial performance and invest in price.   

Additionally, understanding the growth channels, trends and innovation requirements of the market enable UK manufacturers to offer access to turnkey innovation under the retailer’s Private Label offer. Products developed and proven in other international markets can easily be adapted to the Australian palate or consumer.  

Branded Label

The Branded Label opportunity is also experiencing growth as new brands rapidly enter the market to fill the innovation gap as consumer needs change. Having the flexibility of a start-up and ability to innovate with agility gives new brands an advantage versus the major local brands driven on cost control and operational efficiency.   

Recognising the innovation within the UK food and drink sector, this translates to an exciting opportunity for established UK businesses that operate a portfolio of brands and are innovating to gain market share in other highly competitive markets.  

The high level of appreciation or trust between consumers in both countries increases the opportunity to win. Understanding the competitive landscape is critical to unlock these opportunities through the identification of product or range gaps and marketing messages that resonate with consumers. 

Benefit from Australian Market Consumers

The Kitchen inside a Coles store. 

Informed after Coles’ Half Year Results 2024, we see Australian consumers are continuing to shop for value. This is resulting in higher growth in premium products such as meat, coffee, health & beauty, confectionary, wine and condiments as more consumers have that special occasion at home, reducing the value of out-of-home eating.  

This creates an opportunity for UK food and drink businesses that bring something different and have a clear USP away from the value play. Additionally, health and wellness or sustainability continues to be high growth areas, so products that have enhanced nutritional benefits or functionality—such as high protein, added collagen, or repurposed vegetables—are resonating well with consumers and retail buyers alike.  

Being prepared in an increasingly competitive market is essential before approaching one of the major retailers. Understanding the competitive landscape, regulatory compliance, supply chain requirements, marketing strategy and how to support the new business effectively are some of the key strategic aspects to consider for best results. 

Prof. Consulting Group

Prof. Consulting Group will help lead your business to success in the Australian food industry with its team of industry-leading experts and extensive range of services. For more information or to discuss how Prof. Consulting Group can support your business, please visit contact us.