By James Atkinson

Coles Liquor is slowly benefiting from an increased managerial focus on the problem division, assures Wesfarmers CEO Richard Goyder.

Wesfarmers yesterday reported that Coles’ comparable food and liquor store sales increased 3.5 per cent in the third quarter, after adjusting for the inclusion of New Year’s Eve in the previous corresponding period and the earlier timing of Easter in the 2013 financial year. 

With liquor stripped out, Coles’ food store sales increased a more impressive 3.9 per cent for the quarter, but Goyder told analysts he was not concerned by this discrepancy.

“I’m not too worried about the drag on sales growth, because some of the sales we’ve been having in liquor haven’t been particularly profitable sales,” he said.

“I’m not as concerned about that as I am improving fundamentally the profit of the business.”

Headline food and liquor sales for the third quarter were $6.7 billion, up 3.9 per cent on the previous corresponding period. Food and liquor sales were up 4.7 per cent to $21.7 billion for the financial year to date.

“[Liquor is] about 10 per cent of Coles’ sales and half of that in terms of profit,” Goyder said. 

“Ultimately we’d want it to be carrying its weight so the profitability’s got to be improved, that’s through better stores, better mix, better pricing architecture.”

“It’s getting more attention at the moment… we’re making some good progress, I think Andrew Charlton and the team are doing some really good work on it.”

1st Choice is the problem: Citi

Goyder’s assurances come just a few weeks after Citi analyst Craig Woolford declared the liquor division had “made no progress in five years”.

“The biggest hurdle is 1st Choice… It lacks scale and significantly under-trades relative to Woolworths’ Dan Murphy's,” he said in a note to investors on March 7.

“In our view, Coles needs to shut stores and develop a better big box format. We expect Coles will need to shut 80-100 liquor stores, which includes some 1st Choice and some high street, small format Liquorland stores. These high street stores are losing market share to big box outlets.”

Woolford said sales productivity in Coles supermarkets was close to matching that of Woolworths.

“However in liquor, Coles is 22 per cent behind Woolworths in sales per square metre,” he said.

Wesfarmers said that during the quarter, Coles delivered more targeted and personalised offers in its liquor business and continued to reshape the store network, opening five new liquor stores and closing nine.  

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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