Coles closing the gap on Woolies
COLES is narrowing the gap in sales growth between itself and arch rival Woolworths, according to research by a leading analyst.
And the grocer could accelerate that catch-up with the introduction of “collectables” later this month in a marketing campaigned that has proved highly effective in the Netherlands, New Zealand and South Africa, the analyst says.
Citi analyst Bryan Raymond said supplier feedback pointed to a slowdown in sales at Woolworths into the fourth quarter.
Although the bigger grocer is still beating Coles, that win- ning gap is likely to halve later this year, research indicates.
If true, it would come at a perfect time for Coles owner Wesfarmers, which is planning to spin off the supermarket chain later this year. The stand-alone grocer is expected to have a value as high as $20 billion.
For almost a decade, starting in 2008, Coles easily beat Woolworths in terms of likefor-like sales growth. But Woolworths, led by chief executive Brad Banducci, turned the tables early last year, overtaking Coles and reigning supreme since then.
The gap blew out to three percentage points, helped by Woolworths’ strategy last year to pour more than $1 billion of shareholders’ funds into lowering prices and improving the in-store experience.
It comes as Coles managing director John Durkan prepares to step aside and pass the baton to Steven Cain.
In a report yesterday, Citi said Woolworths’ sales acceleration was slowing and Coles’ deterioration had halted.
A new marketing campaign based on “Little Shop” collectables could now give Coles the boost it needed to grab back the momentum from Woolworths, the investment bank said.
Little Shop was a collectable campaign that proved successful in the Netherlands in 2012, New Zealand in 2013 and 2014, and South Africa in 2016 and 2017, Mr Raymond said.
“From mid-July until the end of August, Coles will give away a miniature branded product for every $30 spent,” he said, in a report for investors.
Woolworths was coming off a high base, having chalked up 6.4 per cent growth in the fourth quarter last year, he said.
Citi expects that in the fourth quarter, Woolworths will deliver like-for-like sales growth ahead of Coles, which is projected at 1.7 per cent.
The gap between Woolworths’ and Coles’ sales growth was likely to halve, from 3.2 per cent this quarter to 1.6 per cent next, Mr Raymond said.