Coles cuts ‘ too little’
CUTS to the price of bread at Coles are not deep enough to convince shoppers that the supermarket chain is cheaper than Woolworths, Deutsche Bank analysts say.
Having already fought battles over milk and meat, Wesfarmers- owned Coles has cut the price of more than 30 varieties of loaves and rolls.
The price cuts range from 5 per cent to 35 per cent, but Deutsche Bank analysts Michael Simotas and Daniel Wan say the prices have not dropped far Woolworths.
In some cases, Coles’ new prices are slightly lower than their rivals’, and slightly higher in others, they said.
“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 will likely not be enough to regain the value perception advantage Coles has lost to Woolworths,” the analysts said in research notes released yesterday. “Overall, we believe Wool- below those of worths has continued to gain momentum relative to Coles.”
They said Woolworths was enjoying the benefits of stronger supplier support and improving customer perception, which has seen it win over customers and regain some lost market share.
“Conversely, we believe Coles’ customer perception has deteriorated, is not executing as well as it used to and no longer has the benefit of operating leverage to reinvest in price reductions,” they added.
Woolworths has invested more than $ 1 billion in more than 12 months in lowering food prices, which has led to a recovery in quarterly like- forlike sales, while Coles’ comparable sales’ growth has slowed.
Coles managing director John Durkan told investors in June that he wanted “Coles to be famous for its fresh bread”.
There are plans to convert an additional 180 stores to include full bakeries as Coles works towards offering freshbaked bread in every store.
Woolworths bakes bread on- site at more than 630 of its supermarkets. A Woolworths spokesman said it was also fo- cused on lowering prices on bakery goods and, as of yesterday, its most popular products would be markedly reduced.
Brumby’s Bakery owner Retail Food Group said it was not worried by the moves.
“Brumby’s Bakery is confident they will be able to sustain their customer base should there be a price war between major supermarket brands,” a company statement said.
It said Brumby’s, as a specialty bread retailer, offered artisan and quality goods, while major supermarkets based their business on scale and quantity.