On a Friday morning, Coles told the market what many households already feel in their weekly shop: money is tight, and the cheapest basket wins. Its shares fell as much as ten per cent after the company warned that first-half supermarket profit would be flat, even as sales rose 3.6 per cent. The retailer is caught between rising fuel and supplier costs, a crowded field of pharmacies and online players, and a rival in Woolworths that has been setting the pace on price. Whether this is a passing squeeze or a longer shift in how Australians buy their food will become clearer as the Reserve Bank w
Billions Wiped From Coles as Profit Warning Exposes Slowing Ground Against Woolworths
Customers are really feeling the pressure on their household budgets
Mark
Sales grew 3.6 per cent to $10.3 billion. Why did the shares fall so hard?
Mimi
Because the market was looking ahead. Coles said first-half supermarket profit will be flat, with fuel costs and supplier price rises on the way.
Luke
And Citi had expected 8 per cent profit growth. That's one analyst's forecast, not a universal benchmark, though it shows how far the guidance undershot.
Mark
What is eating into the margin?
Mimi
Promotions and price investment, according to Coles and Citi. Shoppers are chasing specials, using loyalty points and comparing prices on apps and AI tools.
Luke
Careful with the Woolworths angle. Citi's Adrian Lemme says sales were clearly affected by Woolworths' pricing. That's his analysis. Coles itself talked about competition generally.
Mark
Who else is competing?
Mimi
Weckert named pharmacies and specialist online players, which is a different kind of pressure from a rival supermarket.
Luke
She didn't say how much share they've taken, so we can't size that.
Mark
And the wider economy?
Mimi
Overall prices rose 4.3 per cent over 12 months, while supermarket inflation was 1.1 per cent. A rate rise next week is considered more likely.
Luke
Likelier, not decided. And the 6.8 per cent fall at midday shows the market's verdict was still moving.
El Pulso
- Coles shares dropped as much as 10 per cent within minutes of its results, wiping about $3.5 billion from market value.
- Profit guidance came in flat for the first half, even though supermarket revenue climbed to $10.3 billion.
- Shoppers are hunting specials, using loyalty points and cross-shopping, squeezing margins from every side.
- Woolworths' pricing moves and new rivals in pharmacy and online are eroding Coles' hold on the weekly grocery spend.
- Suppliers are pressing for price rises while fuel costs climb, and a possible Reserve Bank rate hike looms next week.
On a Friday morning, Coles told the market what many households already feel in their weekly shop: money is tight, and the cheapest basket wins. Its shares fell as much as ten per cent after the company warned that first-half supermarket profit would be flat, even as sales rose 3.6 per cent. The retailer is caught between rising fuel and supplier costs, a crowded field of pharmacies and online players, and a rival in Woolworths that has been setting the pace on price. Whether this is a passing squeeze or a longer shift in how Australians buy their food will become clearer as the Reserve Bank weighs its next move.
Coles had barely released its quarterly numbers on Friday when its share price began to slide, falling as much as ten per cent and taking roughly $3.5 billion off the company's value. The shares clawed back some ground through the morning but were still well down by midday. The cause was a warning: extra fuel costs are coming, suppliers want higher prices as their own bills rise, and supermarket profit for the first half of the financial year is expected to be flat.
The sales themselves told a more mixed story. Supermarket revenue rose 3.6 per cent to $10.3 billion, helped by strong online growth, but tougher competition and a heavy focus on promotions blunted that gain. Chief executive Leah Weckert described households under real pressure, buying more specials, redeeming loyalty points and shopping across several retailers. She expects more meals eaten at home as Christmas approaches, and she pointed to a crowded field, with pharmacies and specialist online players now chasing the grocery budget, and younger shoppers using apps and AI tools to hunt for the lowest price.
Analysts were less forgiving. Citi had expected supermarket profit to grow 8 per cent, and read the flat outlook as lost ground to Woolworths, whose pricing has been drawing customers away. Prices at the shelf are mixed: supermarket inflation sat at 1.1 per cent, pushed up by dairy and meat, while many fresh lines fell. Across the wider economy, though, prices rose 4.3 per cent over the year to September, raising the chance of another interest rate rise at the Reserve Bank's meeting next week.
Some shoppers are chasing health and convenience. High-protein foods such as meat, canned fish and yoghurt are selling strongly, and Weckert said demand for canned sardines is outpacing supply. Quick air-fryer meals are also gaining ground. For Coles, the coming weeks will test whether it can hold its position against Woolworths while fuel and supplier costs play out through the half.
Within minutes of Coles releasing its latest quarterly results on Friday, its share price dropped 10 per cent, taking about $3.5 billion off the supermarket group's market value in early trading. The shares recovered some of that ground through the morning. By shortly after midday they were still 6.8 per cent lower.
The trigger was a warning. Coles said it expects extra fuel-related costs in the coming months, and that supermarket profits in the first half of the financial year will be flat on the previous period. Suppliers are also asking for price rises, the company said, as their own wage, utility, rent and insurance bills climb.
The sales figures themselves were not weak. Supermarket revenue grew 3.6 per cent to $10.3 billion in the three months to September, helped by strong e-commerce growth. But Coles said that growth was partly offset by tougher competition across the grocery sector and by its own focus on promotions.
Chief executive Leah Weckert described shoppers under strain. "Customers are really feeling the pressure on their household budgets," she told a media call after the results. She said they are buying more specials, using loyalty points and cross-shopping between retailers and channels. With Christmas approaching, she expects more meals eaten at home and fewer out.
Weckert also pointed to a more crowded field. Pharmacies and specialist online players are now competing for the weekly grocery spend, she said, alongside the traditional rivals. Younger families and younger shoppers in particular are using AI tools, price-comparison apps and social media to find the cheapest place to buy.
Citi analyst Adrian Lemme put the guidance in sharper terms. Citi had been forecasting 8 per cent growth in Coles' supermarket profit, and flat guidance pointed to lost momentum against Woolworths. In his reading, the downgrade appears driven by price investment, and Coles' supermarket sales have clearly been affected by Woolworths' pricing strategies.
On prices, Weckert said supermarket inflation, excluding tobacco, held at 1.1 per cent in the three months to September, pushed up by dairy and meat. She noted that grapes and berries, tomatoes, corn, baby broccoli, eggs and vitamins are in deflation. The wider picture is harsher: Australian Bureau of Statistics figures released earlier this week showed prices overall rose 4.3 per cent in the 12 months to September, raising the odds of another interest rate rise at the Reserve Bank's meeting next week.
Weckert said tastes are shifting toward health. High-protein items, including meat, canned fish and yoghurt, are selling strongly. "We can't even keep up with canned sardines demand at the moment," she said, and products that can be made in 10 to 15 minutes in an air fryer are growing quickly.
The next tests are the Reserve Bank's meeting next week and how fuel and supplier costs play out through the half, as Coles tries to hold its ground against Woolworths.
Citas Notables
Customers are really feeling the pressure on their household budgets.— Leah Weckert, Coles chief executive
The downgrade appears to be driven by price investment as supermarket sales have clearly been impacted by Woolworths' pricing strategies.— Adrian Lemme, Citi analyst
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