Coles announces positive results and plans for SKU reductions

Coles’ earnings increased 4.3 per cent to $1,860 million for the full year, with revenue growth of 2.7 per cent.

Wesfarmers Managing Director Richard Goyder says the continued momentum in Coles’ food and liquor business was a good result given a competitive market and accelerating deflation during the year.

“Food and liquor revenue grew $1,780 million, driven by improvements in value, quality and service,” he said. “The ongoing simplification of end-to-end processes across the business has supported continued investment in these areas, while further improvements in Coles’ fresh offer resulted in increased transaction volumes and basket size.”

Speaking to analysts during Wesfarmer’s annual results briefing, Coles Managing Director John Durkan revealed plans to reduce supermarket SKUs by 10 to 15 per cent over the next few years. The rationalising would see underperforming SKUs replaced with both private label and branded products.

“We’ll do it very carefully, category by category, on a store-by-store basis,” he said.

“We don’t want to do what Coles did prior to the acquisition, which is to just unilaterally take products off the shelf – that gets customers offside. That’s why it takes a bit longer but, as a consequence, we’ll be more efficient.”

Mr Goyder said strong performances across a majority of the Wesfarmer’s businesses were offset by challenging trading conditions and restructuring activities in Target, and the impact of low commodity prices in the resources business.

“Excluding Target, the retail portfolio delivered growth in earnings before interest and tax of 7.5 per cent,” he said.

Coles’ liquor transformation achieved an important milestone, with positive comparable sales growth reported for the year, reflecting investments made in price, range and the store network.

The convenience business produced a solid result with revenue of $6.7 billion despite lower fuel volumes, which included stronger growth in-store sales than the prior year.

At June 30, 2016, Coles had a total of 787 supermarkets, 865 liquor stores and 690 Coles Express sites.