Coles records $1.1bn in profit amid crisis

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Coles, a prominent supermarket operator, has reported a substantial boost in revenue from its grocery segment, even as households adapt their shopping habits due to high living costs and an increase in store theft incidents.

Australia’s second-largest supermarket chain disclosed a 4.8% upswing in its annual profit to $1.1 billion for the full year, driven by the strength of its food business, which more than compensated for weaker liquor sales.

The financial results indicate that Coles capitalised on both the pandemic and recent periods of inflation, not only boosting sales but also expanding its profit margins per sale within its supermarkets.

Leah Weckert, the CEO of Coles, mentioned that households were engaging in meticulous meal planning, seeking out more budget-friendly brands, and extending the duration between purchases of non-food items like cleaning products.

Weckert, who presented her first annual report as CEO at Coles following her appointment earlier this year, stated, “They know how much they have to spend and they know what they want to achieve out of it.”

She also noted that younger families and individuals under 34 years old were experiencing the most significant financial constraints.

Coles achieved $36.75 billion in revenue from its grocery business during the 2022-23 period, marking a growth of over 6%. Despite only modestly positive sales volume growth, the supermarket chain saw a 6.7% increase in supermarket prices. Coles experienced robust sales of staple items like pasta and rice, which have become popular during times of increased living costs. Although some fresh food and meat prices have started to decline, most products are still witnessing price increases.

“We are saying that there are a number of categories which are still experiencing elevated levels of inflation like dairy and bakery,” Weckert explained.

However, the financial results fell short of shareholder expectations, leading to a more than 5% drop in Coles’ share value early in the day as investors reacted to the outcomes.

Analysts expressed concern over rising costs at Coles, notably including a 20% surge in stock losses due to rising organised retail crime and customer theft linked to financial pressures caused by the high cost of living.

To counteract this, Coles customers should anticipate increased scrutiny at self-checkouts, incorporating the use of uniformed and undercover security personnel, as well as camera and AI technology to ensure accurate scanning of items.

Weckert affirmed, “What we’re really focused on now is putting in place a number of initiatives which will help us to address the issue, including security solutions in the store.”

The company acknowledged that theft levels have risen to the point where they are impacting profitability, which partially explains the drop in share price due to investor reactions.

Coles managed to achieve a modest increase in gross profit margins for its supermarket division, which it communicated to shareholders as a sign of financial resilience.

The profitability of Coles and its primary competitor Woolworths, which together dominate two-thirds of the sector, is under close scrutiny from parliamentary members and labor unions. Both groups are conducting inquiries aimed at examining the pricing decisions within the sector amid the substantial increase in living costs.

Woolworths, Australia’s largest supermarket chain, is set to reveal its financial results on Wednesday.