Coles expects elevated liquor sales to continue

30 April, 2020 by Andy Young

Coles has reported its results for its third quarter, which has included impacts of the bushfire season and the start of the coronavirus crisis.

The group saw overall sales revenue of $9.2bn, an increase of 12.9 per cent on the prior corresponding period, with the liquor division reporting sales revenue of $740m up 6.1 per cent.

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While Coles said the quarter had been impacted by bushfires and COVID-19, in looking ahead the group said while it expects high sales to continue changes to consumer spending behaviour has impacted its margins.

The group said: “Liquor is expected to continue to experience elevated sales as long as restrictions on hotels, pubs, clubs and licensed venue operators continues. Margin deterioration associated with change in mix is expected to persist for the period that these measures remain in place, as will the incremental COVID-19 costs.

“Further, range review activity continues in Liquor with the associated clearance activity expected to continue to impact EBIT, consistent with the trends seen earlier in the year.”

Speaking about the liquor group’s third quarter results, Coles said: “Prior to the onset of COVID-19, the liquor market remained subdued as customer drinking habits were impacted by the bushfire smog and subsequent floods. Over the quarter there was strong growth in the spirits category, offset in part by lower volumes and beer and ready-to-drink categories during the period when bushfire smog impacted air quality in January.

“Liquor sales growth was also impacted as result of COVID-19. However, the impact on sales in liquor only began to materially elevate in the latter part of March, following the Federal Government’s decision to close hotels, pubs, clubs and licensed venue operators, which in turn led to liquor placing limits of product per customers, soon thereafter.

“Incremental costs incurred in Liquor to support the strong demand were largely consistent with Supermarkets, including in-store service, cleaning and security. Additionally, liquor experienced margin deterioration during the period as customers moved towards more bulk and value-oriented products.”

The Coles focus on its own private label brands continued with sales growth in this area increasing by 10 per cent.

Additionally in the quarter Coles continued its renewal program across the First Choice Liquor Market with four renewals completed. The group also has a Vintage Cellars trial concept operating, which it said has “encouraging early results, particularly in the spirits and wine categories”.

During the quarter, refreshed websites were launched across all three banners which delivered online growth of 34 per cent. Investments were also made in online capacity to support the growing demand for online delivery.

Coles opened two new stores during the quarter and closed six, bringing the total network to 913 retail liquor sites.