Coles and Woolworths first quarter results

Super duo

Coles and Woolworths have recently published their first-quarter 2017 results. They’ve had a tough time in recent years, with Aldi and Costco taking market share and price deflation shaking the big two.

An article in The Sydney Morning Herald by Madeleine Heffernan on November 6 included the following, which shows why consumers are deserting the duo in favour of Aldi:

“A Fairfax Media study of Aldi, Woolworths and Coles supermarkets in one suburb on Friday found that Aldi sold 125 branded products.

“Of these, just 36 were sold in the same size at Woolworths and Coles supermarkets nearby. The list includes big brands such as chocolate makers Nestle and Mars, lolly brand Allens, Heinz and Johnson & Johnson.

“If a shopper bought all 36 items from Aldi, they would pay $113.25.

“If they bought all 36 items from Woolworths, they would pay $126.67 – a hike of $13.24, or 11.85 per cent more than Aldi.

“If they bought all 36 items from Coles, they would pay $129.50 – another hike of $16.25, or 14.3 per cent more than Aldi.”  Full article

For the first quarter Woolworths reported food sales of $9.32 billion (up 1.7 per cent) and Endeavour Drinks Group sales of $1.97 billion (up 3.8 per cent), totalling $11.29 billion.

Coles’ food and liquor combined, plus convenience stores, amounted to $9.4 billion (up 0.3 per cent).

Both companies have other sectors but the above include wine. One should also consider Woolworths’ involvement in the ALH Group (330-plus venues), which contributed $424 million to the coffers. How much of this was liquor in not clear. Woolworths has:

  • 991 supermarkets
  • 1283 BWS stores
  • 2010 Dan Murphy’s stores

Coles has:

  • 787 supermarkets
  • 97 1st Choice stores
  • 81 Vintage Cellars stores
  • 687 Liquorland stores
  • 89 hotels

Woolworths price chart November 4, 2015, to November 4, 2016

1-wow-nov-15-to-nov-16

Wesfarmers price chart November 4, 2015, to November 4, 2016

4-wesfarmers-4-nov-to-4-nov

Share prices for both companies have been up and down over the past year. Woolworths closed at $24 on November 4, 2015, and ended the 2015 year at $25.02. Halfway through the 12 months (May 4) it was down to $20.71, on November 4 it stood at $22.96.

Coles (Wesfarmers) started at $39.04 in November 2015, ended the calendar year at $41.97, increased to $42.75 in May this year and by November 4 was $40.40.

The Christmas period will telling for both companies, and Aldi will be the rival on which both will be keeping a close eye.  What are they fighting over? Alcohol wise, the domestic market off-sales is worth about $16.8 billion, split (roughly):

  • Beer: $6.3 billion
  • Wine: $4.3 billion
  • Spirits: $3.4 billion
  • RTD $2.3 billion
  • Cider $544 million

How much of the wine market Woolworths and Coles control is down to best guess. According to the Wine Federation of Australia’s Expert Report on the Profitability & Dynamics of the Australian Wine Industry, released August 2013, the duo sold up to 77 per cent of all wine sold off-premise, up from about 60 per cent in 2007.  This translates to about 70 per cent of all domestic sales, on and off-premise.

It’s vague, and “up to” could be any figure from 1 per cent. The fact being: it is a lot of wine. In its response to the WFA statement Woolworths pointed out that it didn’t have rubber walls and could not keep expanding the range to accommodate more wineries.

The WFA report also pointed out: “In the 14 years prior to the tax reform that accompanied A New Tax System (ANTS) an additional 500 producers entered the industry. In just four years post ANTS there were an additional 600 wine producers pouring into an already crowded market at precisely the same time that the two decades of growth in our wine exports was tapering off and eventually declining.”  

Few in the wine industry think of Coles or Woolworths doing it tough, but both are under attack on many fronts. As well as the threat of Aldi and Costco (when it gets going), there are more wineries selling direct to consumers. Bars and restaurants don’t want to stock wine stocked by the big two. But the duo is still powerful and will fight to remain that way.

Women’s business

I find it interesting that Treasury Wine Estates (TWE) is to relaunch and promote heavily a range of wines that it says is aimed at women in their 30s.

The brand is Truvée. The Truvée website says:

“Our vision for Truvée is to create elegant, finely balanced wines that are not heavy handed and express distinct individuality. Stylistically, Truvée bridges wines that sit between old world and new world: no polarising flavours or characteristics, just unique blends, showcasing finesse from some of our best vineyard locations on the Central Coast.”

I do not dispute TWE marketing. However, maybe it’s the women I know, but those over 30 know what wine they want. Why would a brand such as this appeal to them?

Truvée was acquired from Diageo and under threat of mothball until it was decided to relaunch it as a global brand.

Maybe TWE has a view that women need cosseting. Some comments from TWE CEO, Michael Clarke, taken from an article by Trevor Chappell, Australian Associated Press, November 4:

  • “We’ve never approached building a brand built by women, for women.”
  • “We’ve got some blockbuster brands in America and Australia and we’re about to, I hope, build another blockbuster proposition that really connects with female consumers.”

Apparently TWE has put together a team of women, including Barossa-based winemaker Kate Hongell, to get the wines in the brand right for global female acceptance.

I asked Carolyn Coon TWE director, corporate communications, why TWE thinks a brand is needed for women.

“To answer your question – we know that pinot gris and rosé are two varietals in strong growth at the moment (18 per cent and 25.6 per cent respectively – Aztec). With summer approaching, this is the right time of year to release Truvée in these varietals in Australia. So the market data shows that these varietals are certainly appealing to women (as well as men).

“As with any brand, marketing and positioning both play a role in how it would relate to a consumer. A group of seven women from different parts of the business, some who don’t usually work on brand development, steered all decisions on Truvée including wine style and varietals, label design, packaging and marketing activity – an approach TWE hasn’t taken before. The marketing will position Truvée as a wine brand created by women, for women and some of the partnerships between Truvée and other organisations that will be announced soon will reinforce this.

“That’s not to say men won’t also drink this wine, but it will more likely be women who purchase it. It’s less about proposing that women don’t know what wine they want to drink, but offering a brand with a story that many can relate to.”

It’s an interesting concept and we hope it works. Perhaps I have always known or been involved with intelligent, articulate and talented women: strong women who know their own minds, likes and dislikes. Or maybe it’s because I’m a cynical curmudgeon. Maybe it’s just because I’m in my 60s.

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