Coles prices really are down as deflation hit the shelves in the March quarter

Getty/ Ian Waldi

Prices of goods on the shelves at Coles supermarkets fell sharply in the March quarter.

The big retailer says food and liquor price deflation was 1% in just three months which turned a small price increase for the year into a slide. This brings to 0.8% the deflation for the full nine months of the financial year so far.

Market analysts believe a price war is coming between Coles and its rival Woolworths, which is good news for consumers but will squeeze margins at both supermarkets.

In its quarterly sales report today, Coles says its headline sales rose 5.4% in the third quarter to $7.1 billion on a campaign to offer lower prices to its customers.

Food and liquor sales for the nine months of the financial year to the end of March increased 5.4% to $22.9 billion.

Wesfarmers managing Director Richard Goyder said Coles’ headline food and liquor sales growth reflected further investment in price and continued improvements in the quality of fresh food.

Overall, the sales performance of the group’s retail businesses during the quarter was pleasing.

“The focus of our retail businesses to provide increased value to customers through ongoing reinvestment of productivity improvements into lower prices and better service continued during the quarter,” Goyder said.

Officeworks’ 9% growth in sales for the quarter was driven by its “every channel strategy”.

Kmart’s sales accelerated to 10.9%, supported by good performances in core ranges and increased contributions from new space and refurbishment activity.

Target’s total sales declined 1.6%.

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