SHOPPERS in supermarkets have never had it better as the two giants Woolworths and Coles lock horns in a way we haven't seen for decades, if indeed ever.

Milk, not bananas, best represented what was happening to prices, as they continued to fall down every aisle and across the stores of the big two in the opening three months of the year.

Even accounting the surge in the price of bananas and to a lesser extent other fruit and veg, the average price in the Coles and Woolies shopping trolley went down. And shoppers almost literally pigged out on the bargains.

Coles has joined Woolies in revealing an extraordinary near 9 per cent increase in the actual volume of goods that it sold in the fiscal third quarter.

Woolies earlier this week reported that its third-quarter food and liquor sales had risen 5.1 per cent in dollar terms in the quarter. But that was after prices had fallen on average by 3.6 per cent. That suggested a volume increase of about 8.7 per cent.

Coles got to a similar end point but by an interestingly different route. It reported sales up by a higher 7.1 per cent in dollar terms. But with its prices falling by only 1.4 per cent.

So nevertheless, its volumes would therefore have been up by about 8.5 per cent, very similar to Woolies.

All this suggests some fascinating developments in the great battle between the big two. It also poses some questions.

In particular, if people are buying so much more of actual product from Coles and Woolies, are they buying less from everyone else? How many extra cans of baked beans can you consume in a week? And still have a social life.

In terms of the great battle, it suggests two things about Coles. Its $1-a-litre milk has obviously worked brilliantly. To draw people into the store to then buy other things as well.

And secondly, it is a key component of the exit strategy from Coles's aggressive discounting. It now appears embarked on a shift to building margin, hopefully on maintained sales growth.

To some extent it's the opposite with Woolies. Is the fact that it cut its prices by more than Coles in the quarter an exercise in 'catch up'?

Previously Woolies had resisted following Coles down, being prepared to concede sales growth in order to preserve its much higher margin.

Or does it signal an additional level of aggressive, indeed ruthless, impost on suppliers by Woolies? And is it now embarked on striking at Coles on prices, when Coles has moved to emphasise on margin?

It's very important to note that Woolies expects to not simply maintain its -- much greater than Coles -- margin over the year, but actually very slightly increase it.

That means that broadly its buy-prices are falling at the same rate as its shelf prices. While on the assumption that Coles buys at the same price, it would now appear to be (still) cutting shelf prices at a slightly lower rate.

Right now Coles is still winning the sales race. It lifted comparable store sales by 7.2 per cent in the quarter. Woolies lifted comp store sales by only 3.3 per cent. And had to pump out just as much extra product as Coles to get few dollars back.

Indeed adjusting for the shorter Coles quarter, Coles still managed to increase sales by more actual dollars in the quarter than Woolies which is much bigger.

But the sales gap is less than it's been over the past half-dozen or so quarters. So Woolies is fighting back. At what cost to its margin. And at what cost to the Coles margin. To say nothing of all the other retailers who are suffering collateral damage.

We are right now at a seminal pivot point. Woolies supermarkets sales are still nearly 50 per cent greater than Coles and on the latest quarter had almost halted the erosion.

Woolies's supermarket division profit is more than double that of the Coles profit, as it generates a much bigger margin. Woolies 6.8c in the dollar; Coles just 3.6c.

About The Author

Founder of BeMozza

Related Posts