Coles is expected to pull back the gap between arch rival Woolworths over the next few months as the Amanda Bardwell-led chain rides out the impact of a 17-day strike at its warehouses in late 2024.
That’s according to analysts at Morgan Stanley, who pointed to Woolworths’ 5.8 per cent sales growth at its 1127 Australian supermarkets in the first seven weeks of the third quarter, eclipsing Coles’ 3.7 per cent lift in the same period.
And while they said it was partly due to improved execution from Woolworths, it was also a result of softer comparable sales, given the spillover of industrial action from November and December in the prior corresponding period.
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“As comps [comparable sales] get sequentially easier for Coles in the fourth quarter — and noting its margin profile buffer to increase price investment if required — we see potential for Coles to close the gap to Woolworths through (the second half),” Morgan Stanley analysts said in a note on Monday.
“Coles is facing tougher comps through the trading update and (third quarter), suggesting that it may not close the gap to Woolworths, even after the dissipation of the industrial action cycling, until (the fourth quarter).”
Speaking to The Nightly last month, Coles chief executive Leah Weckert said the supermarket giant was happy with the momentum it had at the moment.
“We were obviously going over the top of a very interesting period of time because it’s the disruption from last year because of the (Woolworths) supply chain industrial action that happened,” Ms Weckert at the time said.
“We’re very pleased with the first seven weeks because that is growing ahead of market and it actually indicates that we’ve retained a portion of the customers that came to shop with us last year.”
In a note to clients on Monday, Morgan Stanley also said Coles continued to play catch-up with Woolworths on online sales penetration but was well placed to see a continuation of accelerated growth.
This was thanks to the ramp up of Coles’ robotic warehouses — a partnership with British e-commerce company Ocado — and its exclusive deal with Uber Eats.
“Sales growth in Ocado of about 25 per cent suggests scaling is strong, and efficiency improvements in the site, including facilitating same day delivery, should further improve utilisation” Morgan Stanley said.
The analysts said Woolworths’ sales recovery in the first few weeks of the second-half had been at the expense of German supermarket chain Aldi and the likes of Metcash, which supplies IGA and other independents.
The latest data from consumer research firm Circana showed a 1.5 per cent sales decline at Aldi through November and December.
“Recent Coles and Woolworths commentary points to continued above-market growth driven by price and execution, with both majors gaining share,” Morgan Stanley said.
“Pressure remains concentrated in the independent grocery and smaller format channels, reinforcing the long-standing structural headwind facing Metcash grocery.”
Shares in Woolworths closed 2.8 per cent lower at $34.99 on Monday, while Coles was down 0.3 per cent to $21.09.
