Rising Affordability Concerns Among Australian Shoppers
Australian shoppers are showing signs of financial caution as confidence levels have dropped following the escalation of the Middle East conflict. This shift in consumer behavior has been observed by Coles, one of the country’s largest supermarket chains. The company’s chief executive, Leah Weckert, highlighted that customers are cooking more at home and spending less on beer and liquor. Additionally, there has been a noticeable trend towards purchasing cheaper and smaller Easter chocolates.
“We saw a significant drop in customer sentiment when the Middle East conflict began,” Weckert said during a recent briefing. “These observations from our suppliers indicate a broader market impact, and I’ve had similar conversations with peers overseas who are also seeing this trend.”
To adapt to these changing consumer habits, Coles has been streamlining its operations and implementing cost-cutting measures. The company has rolled out more promotions and combined food and liquor discounts in areas where its supermarkets and Liquorland stores are located.
In its third quarter, Coles reported a 3.1 per cent increase in sales, reaching $10.7 billion. This growth was primarily driven by its 860 supermarkets, which contributed $9.8 billion in revenue.
Supermarket price inflation, excluding tobacco, decreased to 0.8 per cent in the three months ending March 29. This is a significant drop from the 1.7 per cent recorded in the second quarter. The reduction in inflation can be attributed to an abundant supply of fresh produce across key fruit and vegetable categories.
Price inflation for packaged groceries also eased due to increased promotions in non-food categories such as cleaning and baby products. However, this positive trend was partially offset by rising prices in red meat.
“Although the full impact of increased beef and lamb livestock costs was partially absorbed through our investment in value for customers, we remain focused on providing a compelling value proposition that supports their everyday needs,” Coles stated. “This includes inspiring customers to cook at home, which helps them manage their household budgets.”
Despite the challenges, Coles expressed satisfaction with its Easter chocolate sales during the quarter. Weckert noted a shift towards lower-priced items, with more consumers opting for smaller bunnies rather than larger ones.
“Customers are making trade-offs based on affordability, but overall, Easter sales were still very strong,” she said.
However, sales at Liquorland fell by 3.9 per cent to $781 million. Convenience sales remained resilient, while warehouse stores experienced a more pronounced impact. Coles believes the weakness in its liquor business is cyclical and related to broader market trends rather than issues specific to Liquorland.
“Liquor is a more discretionary category compared to food,” Weckert explained. “As a result, customers may choose to cut back on liquor to allocate more funds towards essential expenses like mortgages, energy, or groceries.”
Coles also reported strong growth in e-commerce sales, which increased by 24.8 per cent in the quarter to $1.3 billion. Online shopping now accounts for 13.6 per cent of all sales, up from 11.3 per cent a year ago.
Coles shares rose 1.4 per cent to $22.42 in morning trade. Meanwhile, rival Woolworths warned that shopper sentiment has declined significantly since the US and Israel attacked Iran on February 28, leading to increased tensions in the Middle East. This conflict has resulted in higher crude oil and petrol prices.
Woolworths’ data shows that 44 per cent of customers are experiencing real budget pressures and struggling to make ends meet. The company reported total quarterly sales of $18.1 billion, representing a 4.5 per cent increase from the same period last year.
