Coles results show impact of the onslaught from a resurgent Woolworths

The battle with Woolworths for Australian supermarket dominance along with the growth of discount chain Aldi is starting to take a toll on Wesfarmers-owned Coles.

The retailer’s first half earnings summary reveals the struggles, with everything from revenue to operating profit slipping.

And one of the closely watched metrics in retailing – growth in comparable same store – has slipped by a good measure.

Coles expects the decline in margins to persist through the year. This chart tells the story.

Coles has been forced to drop prices to match Woolworths, which has embarked on a turnaround strategy to stem market share losses. That plan seems to be working with suppliers surveyed by UBS calling the Christmas battle in favour of Woolworths. A price war to arrest the slowdown Coles is witnessing may eat into its second half earning, UBS said.

The Wesfarmers-owned Coles said shelf margins were lower than the previous year as competition forced it to absorb cost increases in products such as meat, which accounted for a fifth of the total impact, it said. Coles earnings fell 2.6% to 920 million in the six months ended December 31.

This next chart shows the cost increases.

Headline sales growth in the food and liquor business slowed to 2.2% from 5.4% and comparable sales growth fares even poorer climbing just 1.3% from 4.3% a year earlier, Coles said.

“Relative to the prior comparable period, market growth has slowed & competition has increased,” the company said. “Decline in Food shelf margin due to significant investment in value is expected to persist through the second half.”

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