Coles cuts fail to impress analysts

THE decision by Coles to slash the prices of bread brands by up to 35 per cent might win over shoppers, but it has done little to appease analysts.

The chain needs to do more to wrestle the perception that Woolworths is now leading on price, says Deutsche Bank retail analyst Michael Simotas.

In a note to investors he said the prices had not fallen “materially” below those offered by Woolworths.

Rat ch e t - ing up the price war in the $90 billion grocery market, Coles this week said it had cut the price of 30 bread products by up to 35 per cent.

It hopes the high-profile discount will help strengthen its reputation as the cheapest supermarket and, importantly, perceptions that it is beating Woolworths on price.

Woolworths has poured more than $1.5 billion into lower prices and better in-store service in the past year, helping it regain some of its market leadership on price.

For the first time in nine years, Woolworths had posted higher like-for-like quarterly sales growth than Coles.

Not retreating, Coles managing director John Durkan revealed at a strategy day hosted by parent group Wesfarmers last month that the chain would triple its investment in lower prices this year.

It has also released a new “Down Down’’ TV advertisement, featuring singer Casey Donovan, to persuade customers it is the cheaper grocer.

The decision this week to slash prices for bakery products including in-house breads, Tip Top breads and banana, blueberry and raisin loaves marks another chapter in the supermarket wars.

Prices of other staples such as milk, eggs, cooking oil and roast chicken have fallen.

Mr Simotas was unconvinced Coles’ latest move was enough to change consumer perceptions, saying it must do more.

“While this is the highest profile price investment activity we have seen from Coles for some time, in our view it does not constitute strong price leadership and [is not likely to be] enough to regain the value perception advantage Coles has lost to Woolworths,’’ he said.

“The prices have not been dropped materially below those of Woolworths [in some cases they are slightly lower and in other cases they remain higher].

“Historically, moves to everyday low prices have driven improved price perception for Coles but products like bread, milk and roast chickens saw very deep price reductions in non-expandable categories.

“Fruit bread, which has seen the biggest price reduction, is a more expandable category where deep promotions can drive volume uplift.”