Here's the Coles plan to win back unhappy supermarket customers

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Coles, the Wesfarmers-owned supermarket chain, is on a program to win back customers, including slashing prices and cutting down the number of brands on shelves.

In a presentation, to be delivered at a strategy briefing today, Wesfarmers says Australia is still an attractive market despite household budgets being under pressure.

Among the opportunities for improvement, the company says 1 in 3 customers are dissatisfied with prices, 1 in 6 aren’t happy with freshness and 1 in 5 don’t like the service.

“Proactive investment in the customer offer is necessary in the current environment and strengthens the customer offer ahead of the potential entry of new market participants,” says John Durkan, the managing director of Coles.

The latest quarterly results show sales growth at Coles has slowed to a trickle. Headline food and liquor sales up 1.2% to $7.6 billion from the same quarter last year. Food and liquor sales for the financial year to date increased 1.9% to $24.6 billion.

Both Coles and its main competitor Woolworths are under pressure from new players, including discount chain Aldi. Impending new entrants include Amazon which is widely expected to offer non-perishables when it launches in Australia shortly.

In response, Coles has been investing in keeping prices on shelves down, as this chart shows:

Source: Wesfarmers

Coles is also simplifying its range, cutting the number of brands in each category.

For example, a 5% cut in the brands of garbage bags would still mean 33 types are still on sale.

A 6% cut in pasta sauces would still mean choosing from 104.

Here are the four focus areas for Coles:

Source: Wesfarmers

Coles believes its own brand will be an important differentiator in a more competitive market.

“Coles Brand is reliant on building trust with customers,” says Durkan.

And he says there are substantial opportunities for fresh food market share growth.

“This will continue to be a highly competitive market, meaning continued investment in value, fresh food quality, innovation & market leading service is imperative,” says Durkan.

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