Money Woolworths to wallop Coles for years to come, analysts say

13:00  03 february  2018
13:00  03 february  2018 Source:   The Age

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Coles will be outperformed by Woolworths for at least another two years , as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say . This would likely come at the cost of business, they said .

Coles will be outperformed by Woolworths for at least another two years , as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say . This would likely come at the cost of business, they said .

Woolworths has outperformed Coles for the past five quarters.© Louie Douvis Woolworths has outperformed Coles for the past five quarters.

Coles will be outperformed by Woolworths for at least another two years, as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say.

After being trounced by Coles for almost seven years, from late 2009 to September 2016, Woolworths invested $1 billion in improving customer service and cutting prices which has turned the tables on its Wesfarmers-owned rival.

Woolworths improved its sales compared to Coles for the past five quarters, growing at around 5 to 6 per cent compared to less the 1 per cent.

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Coles will be outperformed by Woolworths for at least another two years , as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say . This would likely come at the cost of business, they said .

Coles will be outperformed by Woolworths for at least another two years , as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say . This would likely come at the cost of business, they said .

Citi analysts told clients they expected this trend to continue for the next two years, because Woolworths was doing a better job running its supermarkets and managing its store footprint while successfully building an online groceries business.

"Woolworths has clearly moved ahead of Coles in terms of in-store execution," the analysts led by Bryan Raymond said.

Woolworths was managing promotional discounts better and improved stock availability, while gaps where becoming more common on Coles' shelves because it had cut staff hours, Citi said.

Coles was also hurting itself by cutting back on the number of products on its shelves, which would happen at a rate of about 3 to 4 per cent this year, Citi said.

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Coles will be outperformed by Woolworths for at least another two years , as it lags behind its larger rival on store execution and loses shoppers by cutting its product range, analysts say . This would likely come at the cost of business, they said .

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While reducing range probably helped Coles at an earnings and cash-flow level, it caused a fall in net sales.

Woolworths has outperformed Coles for the past five quarters.© Michael Clayton-Jones MCJ Woolworths has outperformed Coles for the past five quarters.

Online sales were also growing much faster for Woolworths, and would contribute about 2.7 per cent of its sales this year compared to 2 per cent at Coles.

"Woolworths has prioritised online as a long-term growth strategy while Coles has attempted to grow the channel profitably," Mr Raymond said.

Citi said Coles was opening more stores, which hit sales through cannibalisation, and had reduced store refurbishments but Woolworths had closed underperforming stores and was refurbishing existing supermarkets.

Citi does expect the growth gap between the two supermarkets to narrow, forecasting Woolworths' sales to grow to slow to 3.5 per cent and Coles' to accelerate to 2.7 per cent by the final quarter of 2019, as the affect of the improvement in Woolworths' executions will not repeat.

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Investment bank UBS has, meanwhile, released its supermarket supplier survey, concluding that Coles had "lost its way" and needed to change strategy.

The survey of 45 of Coles' 2000-plus suppliers showed Woolworths beating Coles on all 26 issues they quizzed about, including execution, value, promotional strategy, and morale.

Coles recorded declines in 25 categories, UBS said. Its problems were "stemming from too much focus on price and not enough on differentiation", such as events and in-store theatre.

"Staff calibre and morale are near all-time survey lows; customer-facing metrics are deteriorating and, its marketing strategy is not as effective," Mr Gilbert said.

"Coles’ strategy has ...an over-reliance on price-based promotions and notenough focus on other value measures."

He said Coles needed to shift its strategy, and look at new investment in its business.

Citi's analysts said that investors and management would have their patience in Coles "tested" over the next six to 12 months, which could result in it making a "circuit breaker" re-set of its business.

This would likely come at the cost of business, they said.

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Source: http://au.pressfrom.com/news/money/-54200-woolworths-to-wallop-coles-for-years-to-come-analysts-say/

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