Australian families are switching to cheaper cuts of meat and opting for home brand when purchasing grocery staples as the cost-of-living crisis impacts budgets, Coles’ incoming chief executive says.
Speaking to analysts on Tuesday after unveiling a bump in half-year profits, incoming Coles boss Leah Weckert said: “Some customers are definitely moving to value.
“We’re seeing customers move from more expensive cuts like steaks into less expensive cuts like mince or gravy beef,” she said.
“We’re seeing really strong growth … in areas like pasta and rice and oils where we’re seeing home brand perform particularly strongly.”
Ms Weckert will become CEO of Coles in May after the current boss Steven Cain announced his resignation on Tuesday.
‘Complex’ grocery prices
Coles posted a 7.7 per cent increase in prices across its stores over the December quarter, up from 7.1 per cent in the prior period, though there are signs some of this inflation is now easing.
Ms Weckert said price movements are “complex”, with many goods – including dairy, poultry, pork and homecare – having increased in price.
Meanwhile, other fresh produce – namely broccoli, tomatoes and capsicums – are getting cheaper, she said.
“We are expecting cost pressure to remain, but we are expecting them to start to see some moderation,” Ms Weckert said.
Coles posted a $616 million net profit for the half ended January 1, an 11.4 per cent increase on the same period 12 months ago.
Sales rose 3.9 per cent to $20.8 billion, while gross margins increased 0.43 percentage points year on year to 26.5 per cent – driven by a reduction in COVID-19 costs, strategic sourcing and product mix changes.
Changes in grocery prices facing Coles are being driven by a range of factors, with price pressures continuing in some areas while easing in others, Ms Weckert said.
Sharp drop in fresh food prices
The good news is that many popular fruits and vegetables are becoming cheaper as farmers recover from widespread flooding last year and look forward to a strong season in 2023.
Australian Bureau of Statistics (ABS) data found that fresh food prices had fallen sharply in the December quarter.
But higher prices for meats like pork and poultry were squeezing shoppers – driven by higher feed prices, Ms Weckert said.
Packaged groceries – including dairy products and other household essentials like homecare goods – are expected to remain under price pressures amid higher energy and wage costs.
“The [cost] pressures we think we’ll continue to see are in areas like dairy, energy and wages,” she said.
“But we would expect some moderation to come through in areas like freight, wheat, packaging and potentially in that pork space as well.”
Ms Weckert’s comments come after TND reported in early February that a bumper harvest for Australian farmers would drive fresh produce prices lower in 2023.
However, experts have warned that packaged groceries would continue to rise in price because manufacturing inputs like fuel and energy are squeezing businesses.
‘Elevated theft’ at Coles
Coles chief operations officer Matthew Swindells said an increase in theft was a “post-COVID trend” seen across the industry, and globally.
“We are seeing elevated theft at Coles,” he said.
Coles is deploying a range of technology to combat stealing at its stores, including artificial intelligence systems that can detect “whether or not a customer has gone through a normal process”, Mr Swindells said.
Coles results on Tuesday come ahead of a similar data dump by rival Woolworths on Wednesday, which will provide additional insights into how grocery prices are changing in early 2023.
