Coles shows mixed FY23 results, aims to focus on consumer value

Coles Group (ASX: COL) has announced its full-year FY23 results, showing a 5.9 per cent revenue growth to $ 40.5 billion vs $ 38.2 billion in FY22. Profitability saw a 3.8% lift at $ 3.4 billion EBITDA vs $ 3.3 billion last financial year.

Supermarkets saw a 6.1 per cent sales increase to $36.7 billion in FY23, with EBITDA showing a $3.2 billion profit, rising by 4.5 per cent. eCommerce sales revealed a more conservative 1.1 per cent lift over FY22.

Liquor sales contracted by 0.1 per cent in FY23 to $3.6 billion, while EBITDA grew only 0.4 per cent to $279 million. However, eCommerce revenue shot up by 22.6%, with on-demand delivery now available in >660 stores and the introduction of express delivery through DoorDash and Uber Eats.

The Group notes that macroeconomic factors appear to be affecting consumer behaviours, resulting in a shift towards in-home consumption and a more value-conscious customer base in FY23.

Coles Group CEO Leah Weckert says that dealing with cost-of-living is the primary focus for Coles customers right now. She adds that Coles Group is hearing from Australian families that they are actively “reducing spend on things like visits to the hairdresser and beauty services, entertainment and gifts.”

Weckert comments, “Eating out, takeaway, and coffees from a cafe are increasingly being seen as treats for a special occasion. As the shift to in-home consumption occurs, they are looking to the supermarket to help them to do more with their budget. Unsurprisingly, they are looking for more specials, cheaper brands, and cheaper cuts of meat.”

Aimed at addressing cost-of-living pressures, Coles Group says it will reveal its “Great Value Hands Down” next week. Weckert explains, “Customers want consistent availability and quality, great value and innovative products that make healthy meals easier and more convenient”, and says the program will “bring together all of the value that customers can find in our stores.”

As cost-of-living pressures continue to impact customers, “total loss” is a headwind cost growing at around 20 per cent year on year. The Group’s total loss figures consist of two things. The first, Weckert says, is “waste and markdown”, where a product is reduced to sell, thrown out, or sent to a food rescue organisation because it’s no longer suitable for sale. Supply chain disruption is said to have caused substantial waste and markdown losses in FY23, with improvements reported in the last couple of months coming into FY24.

The second form of total loss, “stock loss”, is due to theft, organised crime, and products going missing. Regarding stock loss, Weckert suggests that global inflationary pressures are causing the entire retail industry to be impacted by shoplifting. She states, “The vast majority of our customers are doing the right thing. But we are seeing stock loss emerge as an industry-wide issue that’s not unique to Coles.”

Weckert points out that in FY23, headline inflation has pleasingly continued to moderate. She says, “At this stage, we are seeing that there are a number of categories which are still at elevated levels of inflation, like dairy and bakery… which are driven by global wheat prices and the increases that we’ve seen in the farmgate price of milk.”

Coles also expects food price deflation in some categories going forward. Weckert elaborates, “We actually do have a number of areas that are now in deflation. So fresh produce is now in deflation, and that’s driven by the vegetables category. And then red meat within the meat category is also now in deflation, and that’s driven by beef and lamb.”

Weckert says that supply cost reductions will be passed onto customers, noting,  “We are very focused on delivering value for the consumer, and so where there are opportunities to bring prices down because we are seeing changes in terms of their cost maker, then we are looking to pass that on to customers.”

Additionally, the Group’s forward-looking strategy calls out a digital focus with the expansion of eCommerce, delivery of more personalised, seamless digital and omnichannel experiences, and the growth of its media retail business, Coles 360.

Weckert adds, “Our evolved strategy will focus on creating a destination for food and drinks, accelerating through digital and delivering consistently now and for the future. This will help us continue to keep pace with an ever-changing environment and evolving customer preferences.”