The slump in Australian supermarket sales may have hit bottom

Ole Jensen – Corbis/Corbis via Getty Images

Sluggish growth at Australian supermarkets appears to have hit bottom and a recovery is starting, according to their suppliers.

At 2.8%, the grocery sector recorded its lowest level of growth in 30 years in 2016, according to analysis by UBS.

Profits were down about 20%, driven mainly by a $1 billion drop at Woolworths.

UBS’s third annual survey of supermarket suppliers got responses from 49 in April/May representing $25 billion of annual wholesale revenue, or about 35% of the Australian grocery market.

The survey found that industry growth is recovering with suppliers on average growing top line sales by 1.5%.

UBS says this growth rate is expected to accelerate to 2.5% to 2.8% over 2017-18, suggesting the market has bottomed, as the chart shows:

Source: UBS

“We retain our more positive view on the grocery sector as industry growth improves, profitability bottoms and price investment stabilises,” write analysts Ben Gilbert, Aryan Norozi and Apoorv Sehgal.

UBS sees Woolworths gaining most from the rise.

And the suppliers see Woolworths and Aldi with the best strategy of the retailers to win market share, as this chart shows:

Source: UBS

Woolworths earlier this month posted its latest quarterly numbers, showing it has broken out of its flat sales growth loop, overtaking Coles.

In its latest quarterly report to April 2, food sales rose 5.1% to $9.27 billion. Comparable sales increased by 3.9%. On an Easter-adjusted basis, total sales increased by 5.6% and comparable sales grew by 4.5%.

The result is a contrast to Coles, owned by Wesfarmers, whose latest quarterly numbers showed a further slowing in sales growth, due in part to more competition for Australia’s grocery dollar.

Coles announced headline food and liquor sales were up 1.2% to $7.6 billion. Comparable food and liquor sales for the three months increased just 0.3% and comparable food sales were 0.4% for the quarter.

Both Coles and Woolworths are under attack from discount players including the German chain Aldi, which had been making inroads into the eastern states markets.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at