Industry News,

Australian Retail Update Quarterly Results Coles & Woolworths

Last week both of Australia’s leading grocery retailers (Woolworths and Coles) shared their quarterly trading update, providing valuable insights into the latest customer shopping habits, the impact of the current economic pressure and how it continues to influence the way consumers shop, eat and brands or categories that are winning.  Combined these 2 retailers represent around two-thirds of the market so their insights are significant indicators on the sensitivity or outlook of the sector.

Top line Performance – Woolworths

  • Inflation and supply pressure have been driving price increases, during the previous quarter an average increase of 5.2% was reported, thankfully this started to slow with this quarter reporting an average of 2%.
  • Food sales grew strongly with an increase of 6.4% as sales exceeded $13.1 billion. Its noteworthy that in the retailers comments they attributed this growth to lower prices driving demand, meaning consumers are buying more of some products.
  • Value conscious customers unsurprisingly remained a consistent theme, with growth areas across meat, fruit & vegetables as prices ease.
  • Cost of living pressures remain a cautious callout for the quarter ahead,
  • Private label growth was significant as consumer confidence in the brand continued to build, and the value proposition recognised across the tiers with increasing lines listed under pseudo or exclusive brands. A 7.8% rise in Private label being listed with strong categories across long life & pantry in particular.
  • New store openings showed 5 new large formats, with 9 conversions to the smaller Metro format (Convenience format, central locations and reduced ranges) as this strategy continues, bringing the total Metro stores to 102
  • E-commerce growth up 16% to $1.96B

Sustainability continues to be a key focus within Private label with some significant milestones delivered this quarter through reducing plastic or aiding the ability to recycle materials. The overarching messages from a limited update were Value focused, and overall trading broadly in line with expectations, no profit reporting update.

Top Line Performance – Coles

  • Inflation and supply pressure have been driving price increases the previous quarter an average increase of 5.8% had been reported, thankfully this started to slow with this quarter reporting an average of 3.1%. (Within the investor community its recognised that Coles & Woolworths report inflation with a different methodology, therefore not directly comparable as like for like.)
  • Food sales grew strongly with an increase of 4.7% as sales exceed $9.186 billion. There is a similar message regarding an increase in volume of food sales although non-food sales reportedly declined.
  • Value conscious customers also remained a consistent theme, with growth areas across meat, fruit & vegetables as prices ease.
  • Cost of living pressures remain a cautious callout for the quarter ahead,
  • Private label growth and exclusive to Coles brands was significant as consumer continued to seek out the value proposition recognised across the store. A 9.4% rise in this area being reported.
  • New store openings showed 1 large new format.
  • E-commerce growth up 24.6%
  • Customer switching to healthier options such as the Coles Wellness range helped achieve growth of almost 30% (this range links products across the store to one health brand, Woolworths also operate one under their Macro range)

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

Whilst Australian households and businesses have seen 12 interest rate rises since May 2022, and with the warmer weather the pressure on heating costs and energy will be less obvious the underlying pressures remain.

What is the opportunity for UK Food & Drink businesses targeting growth in Australia?

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 that can be easily adapted to the Australian palate or consumer.

The Branded opportunity this 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 giving them an advantage vs 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 increasing 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 really resonate with consumers.

Outside of the reporting we know 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 are resonating well with consumers and retail buyers alike (high protein, added collagen, repurposed vegetables as examples)

In an increasingly competitive market being ready or prepared is essential before approaching one of the major retailers, understand the competitive landscape, regulatory compliance, supply chain requirements, marketing strategy and how to support the new business effectively are some of the key strategic questions to have considered.

Prof Consulting Group
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